e10vkza
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
(Amendment No. 1)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 2004
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)
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Wisconsin
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39-0380010
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(State of Incorporation)
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(I.R.S. Employer Identification No.) |
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| 5757 N. Green Bay Avenue |
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| P.O. Box 591 |
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| Milwaukee, Wisconsin |
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53201 |
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(Zip Code) |
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Registrant’s telephone number, including area code: (414) 524-1200
Securities Registered Pursuant to Section 12(b) of the Act:
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Name of Each Exchange on
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Title of Each Class
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Which Registered |
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Common Stock, $.04-1/6 par value
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New York Stock Exchange |
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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 / /
The aggregate market value of the registrant’s stock held by non-affiliates of the registrant on
March 31, 2004 was approximately $11,240,000,000.
190,346,186 shares of the registrant’s Common Stock, par value $0.04 1/6 per share, were
outstanding on October 31, 2004.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference portions of the Proxy Statement dated and filed with the
Securities and Exchange Commission on December 3, 2004.
EXPLANATORY NOTE
This Form 10-K/A is being filed to amend and restate certain disclosure items related to segment
reporting in the Form 10-K for the year ended September 30, 2004 (the “2004 Form 10-K”), which was
originally filed with the Securities and Exchange Commission on November 30, 2004. In response to
comments raised by the Staff of the Securities and Exchange Commission, Johnson Controls, Inc. (the
Company) is hereby amending its segment disclosure included in Note 20 of the Notes to the
Consolidated Financial Statements in Part II Item 8 – Financial Statements and Supplementary Data.
Revising the segment disclosure also requires the Company to update additional information that is
disclosed based on the Company’s reportable segments in the notes to the Consolidated Financial
Statements, primarily Note 4 – Goodwill and Other Intangible Assets. In addition, the Company’s
Summary of Significant Accounting Policies, Note 11 – Financial Instruments and Note 18 –
Contingencies were amended to address additional comments from the Staff of the Securities and
Exchange Commission. Management’s Discussion and Analysis of Financial Condition and Results of
Operations was amended to reflect the revised reportable segments as well as comments from the
Staff requesting additional disclosures or clarification of previously filed disclosures. This
amendment also updates references to the Company’s reportable segments throughout the document.
The Company has also determined that a control deficiency related to the Company’s reportable
segments giving rise to the restatement constituted a material weakness in our internal control
over financial reporting. We have fully remediated that weakness as of the date of this report.
See Item 9A. – Controls and Procedures in Part II of this Form 10-K/A for additional information.
As the restatement only relates to the disclosure of the Company’s segment information and certain
other disclosures, the previously reported amounts in the Consolidated Statement of Income,
including Net Sales, Operating Income, Net Income and Earnings Per Share were unchanged. This
amendment presents the 2004 Form 10-K, as amended, in its entirety, but does not modify or update
the disclosure in the 2004 Form 10-K in any way other than as required to reflect the changes
discussed above and does not reflect events occurring after the original filing of the 2004 Form
10-K on November 30, 2004.
2
JOHNSON CONTROLS, INC.
Index to Annual Report on Form 10-K/A
Year Ended September 30, 2004
3
JOHNSON
CONTROLS, INC.
Index to Annual Report on Form 10-K/A
Year Ended September 30, 2004
4
CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION
Johnson Controls, Inc. (“the Company”) has made forward-looking statements in this document
pertaining to its financial results for fiscal 2005 and future years that are based on preliminary
data and are subject to risks and uncertainties. Forward-looking statements include information
concerning possible or assumed future risks and may include words such as “believes,” “forecasts,”
“expects,” “outlook” or similar expressions. For those statements, the Company cautions that
numerous important factors, such as automotive vehicle production levels and schedules, the
strength of the U.S. or other economies, currency exchange rates, cancellation of commercial
contracts, as well as those factors discussed in the Company’s Form 8-K filing (dated October 26,
2004), 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, P.O. Box 591, Milwaukee, Wisconsin 53201. 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. The
Company operates in three primary businesses, controls (Controls Group), automotive seating &
interiors, and automotive batteries. The automotive seating & interiors and automotive battery
businesses comprise the Automotive Group.
The Controls Group is a global market leader in providing installed building control systems and
technical and facility management services, including comfort, energy and security management for
the non-residential buildings market. The segment’s installed systems integrate the management,
operation and control of building control systems such as temperature, ventilation, humidity, fire
safety and security. The segment’s technical and facility management 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, Inc. 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 into additional interior systems and geographic markets. Today, the
Automotive Group is among the world’s largest automotive suppliers. The Automotive Group provides
seating, instrument panel, overhead, floor console and door systems, including electronics, and
batteries for more than 35 million vehicles annually.
Financial Information About Business Segments
SFAS
No. 131, “Disclosures about Segments of an Enterprise and Related Information,” (SFAS 131)
establishes the standards for reporting information about operating segments in financial
statements. Operating segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and in assessing
performance. The Company’s chief
operating decision maker is its Chief Executive Officer.
Using
these criteria, the Company has determined that it has six operating segments, two
of which within the Battery Group are aggregated under the accounting standard to arrive at the
Company’s five reportable segments for financial reporting purposes. The Battery Groups North
American and European operations are aggregated for reporting purposes due to their similar
economic characteristics, similar customers, and the similar nature of their products, production
processes, and distribution channels.
5
Refer to Note 20, “Segment information,” of the Notes to the Consolidated Financial Statements on
pages 63, 64, and 65 for financial information about business segments.
Products/Systems and Services
Automotive Group
The Automotive Group designs and manufactures products and systems for passenger cars and light
trucks, including vans, pick-up trucks and sport/crossover utility vehicles. The Group produces
automotive interior systems for original equipment manufacturers and automotive batteries for the
replacement and original equipment markets. It operates approximately 210 wholly- and
majority-owned manufacturing or assembly plants in 31 countries worldwide (see Item 2
“Properties”). Additionally, the Group has partially-owned affiliates in Asia, Europe, North
America and South America.
Automotive seating & 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. Seating & interior systems sales accounted for approximately 89 percent of
total fiscal 2004 Group sales.
The business operates 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 business’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 business’s production facilities or outside suppliers.
In the last eight years, the business has substantially grown its interior systems capabilities,
principally through internal growth aided by acquisitions. In fiscal 2002, the business expanded
its capabilities in vehicle electronics with its acquisition of the automotive electronics business
of France-based Sagem SA. In fiscal 2003, the Company acquired Borg Instruments AG, an automotive
electronics company with headquarters in Germany.
Sales of automotive batteries generated 11 percent of the Group’s fiscal 2004 sales. Johnson
Controls is the world’s leading manufacturer of lead-acid automotive batteries. In fiscal 2002,
the Group expanded its battery operations into the European market through the acquisition of the
German automotive battery manufacturer Hoppecke Automotive GmbH and Co. KG. In fiscal 2003, the
Company continued its expansion into the European market with its acquisition of VARTA Automotive
GmbH and the 80 percent majority ownership in VB Autobatterie GmbH (collectively “VARTA”), a major
European automotive battery manufacturer headquartered in Germany. Most recently, in fiscal 2004,
the Company acquired the remaining 51 percent interest in its Latin American joint venture with
Grupo IMSA, S.A. de C. V. The acquisition supports the Company’s growth strategies and provides
new opportunities to strengthen the Company’s global leadership position in the automotive battery
industry. Batteries and plastic battery containers are manufactured at wholly owned plants in
North America, South America and Europe and via a partially-owned affiliate at a plant in India
(see Item 2 “Properties”).
Controls Group
The Controls Group is a major worldwide supplier of installed control systems and technical and
facility management services which improve the comfort, fire-safety, security, productivity, energy
efficiency, and cost-effectiveness of non-residential buildings. The Company provides control
systems that monitor, automate and integrate critical building operating equipment and conditions.
These systems are customized to address each building’s unique design and use. The Controls
Group provides a broad range of technical and facility management services that supplement or
function as in-house building staff. Technical services includes the operation, scheduled
maintenance and repair of building equipment such as control systems, chillers and boilers.
Facility management services provides on-site staff for complete facility operations and
management.
6
The segment sells directly to building owners as well as contractors. It employs sales,
engineering and service personnel working out of approximately 290 branch offices located in
approximately 45 countries throughout the world. Controls Group employees also work full-time at
numerous customer sites.
The Controls Group also sells its control systems and products to original equipment manufacturers,
wholesalers and distributors of air-conditioning and refrigeration systems, commercial and
residential heating systems, and water-pumping equipment. Controls Group installed systems are
manufactured throughout the world (see Item 2 “Properties”). The segment also has partially-owned
affiliates in Asia, Europe, North America and South America.
Worldwide, approximately 40 percent of the Controls Group’s sales are derived from installed
control systems and approximately 60 percent originate from its service offerings. Also,
approximately 35 percent of segment revenues are derived from the new construction market while 65
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:
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2004 |
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2003 |
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2002 |
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DaimlerChrysler AG |
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10% |
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11% |
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14% |
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Ford Motor Company |
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13% |
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11% |
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10% |
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General Motors Corporation |
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14% |
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15% |
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15% |
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Approximately 49 percent of Automotive Group sales over the last three years were to the three
automobile manufacturers listed above. In fiscal 2004, approximately 49 percent of the Company’s
total sales to these manufacturers originated in the United States, 36 percent were based in Europe
and 15 percent were attributable to other foreign markets. Because of the importance of new
vehicle sales of major automotive manufacturers to its operations, the Company is affected by
general business conditions in this industry. Sales to additional automakers that accounted for
more than five percent of Company sales included Nissan Motor Co., Ltd., Toyota Motor Corporation
and Volkswagen AG.
Automotive Group
The Automotive 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 the Group 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 principal seating & interior systems competitors include
Lear Corporation, Faurecia, Intier Automotive, Delphi Corporation and Visteon Corporation. The
Group primarily competes in the battery market with Exide Technologies, Delphi Corporation, Fiamm
and East Penn Manufacturing Company.
Approximately 81 percent of automotive battery sales worldwide in fiscal 2004 were to the
automotive replacement market, with the remaining sales to the original equipment market. The
Automotive Group is the principal supplier of batteries to many of the largest merchants in the
battery aftermarket, including Advance Auto Parts, AutoZone, Bosch Group, 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. Automotive batteries are sold throughout the world under
private label and under the Company’s brand names Optima®, Varta®, LTH® and Heliar® to automotive
replacement battery retailers and distributors and to automobile manufacturers as original
equipment. Approximately 62 percent of total automotive battery sales in fiscal 2004 were based in
the United States while 38 percent were attributable to the European market.
7
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 installation
contracts include system 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, 2004, the Company’s Automotive Group had an incremental backlog of new orders for
its seating & interior systems, net of discontinued programs, to be executed within the next fiscal
year of approximately $2.3 billion, which includes orders of approximately $0.1 billion associated
with unconsolidated joint ventures. The backlog one year ago was approximately $1.9 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.
The Company’s backlog relating to the Controls Group is applicable to its sales of installed
systems and technical service activity, accounted for using the percentage-of-completion method.
In accordance with customary industry practice, customers are progress billed on an estimated basis
as work proceeds. At September 30, 2004, the unearned backlog of installed systems contracts to be
executed within the next fiscal year was $1.84 billion, compared with the prior year’s $1.75
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 Group in connection with its automotive seating & interior
systems 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. Although the raw materials are expected to continue to be readily available, costs of
certain commodities, such as steel and lead, are expected to rise significantly in the upcoming
fiscal year. 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 strategic or financially important
intellectual property developed in connection with its business. Certain intellectual property,
where appropriate, is protected by contracts, licenses, confidentiality or other agreements.
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.
8
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,” “RAILPORT,” “OPTIMA,” “VARTA,” “LTH,” “HELIAR,”
“INSPIRA” and others 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 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 workplace 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 2004 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, 2004, the Company employed approximately 123,000 employees, of whom
approximately 79,000 were hourly and 44,000 were salaried.
Seasonal Factors
Sales of automotive seating & 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.
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Therefore, either
mild winter or moderate summer temperatures may adversely affect automotive replacement battery
sales.
The Controls Group’s activities are executed on a relatively continuous basis, with no significant
fluctuation in revenues during the year.
Financial Information About Geographic Areas
Refer to Note 20, “Segment information,” of the Notes to the Consolidated Financial Statements on
pages 63, 64, and 65 for financial information about geographic areas..
Research and Development Expenditures
Refer to Note 15, “Research and development,” of the Notes to the Consolidated Financial Statements
on page 60 for research and development expenditures.
Available Information
The Company’s filings with the Securities and Exchange Commission (SEC), including 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 or 15(d) of
the Exchange Act, are made available free of charge through the Investor Relations section of the
Company’s Internet website at http://www.johnsoncontrols.com as soon as reasonably practicable
after the Company electronically files such material with, or furnishes it to, the SEC. Copies of
any materials the Company files with the SEC can also be obtained free of charge through the SEC’s
website at http://www.sec.gov, at the SEC’s Public Reference Room at 450 Fifth St., N.W.,
Washington, D.C. 20549, or by calling the SEC’s Public Reference Room at 1-800-732-0330. The
Company also makes available, free of charge, its Ethics Policy, Corporate Governance Guidelines,
committee charters and other information related to the Company on the Company’s Internet website
or in printed form upon request.
ITEM
2 PROPERTIES
At September 30, 2004, the Company conducted its operations in 34 countries throughout the world,
with its world headquarters located in Milwaukee, Wisconsin. The Company’s wholly- and
majority-owned facilities, which are listed in the table on the following pages by segment and
location, totaled approximately 78 million square feet of floor space and are owned by the Company
except as noted. The facilities primarily consisted of manufacturing, assembly and/or warehouse
space, except where noted that the facility has administrative space. The Company considers its
facilities to be suitable and adequate. The majority of the facilities are operating at normal
levels based on capacity.
In addition, approximately 290 Controls Group branch offices, located 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.
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Johnson Controls, Inc.
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Properties at September 30, 2004
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Automotive Group
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Alabama |
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Cottondale (1),(3) |
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South Carolina |
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Oconee (2),(3) |
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Eastaboga |
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Tennessee |
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Athens (2) |
Arkansas |
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Bentonville (1),(4) |
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Lexington (2),(3) |
California |
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Fullerton (3) |
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Murfreesboro (2) |
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Livermore |
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Pulaski (2),(3) |
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Modesto (3) |
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Texas |
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El Paso (1),(3) |
Colorado |
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Aurora (2),(3) |
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Ft. Worth (1),(4) |
Delaware |
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Middletown (2),(3) |
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San Antonio (1) |
Florida |
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Tampa (2),(3) |
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Virginia |
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Chesapeake (1) |
Georgia |
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Norcross (1) |
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Wisconsin |
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Hudson (1),(3) |
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Suwanee (1) |
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Milwaukee |
Illinois |
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Geneva (3) |
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Lawrenceville (1) |
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Argentina |
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Buenos Aires (1) |
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Sycamore (2) |
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Rosario |
Indiana |
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Ft. Wayne (3) |
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Australia |
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Adelaide (2) |
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Muncie (1) |
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Melboune |
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Ossian |
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Austria |
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Graz (1),(3) |
Iowa |
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Red Oak (3) |
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Innsbruck (1),(4) |
Kentucky |
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Bardstown (3) |
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Klagenfurt (1),(4) |
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Cadiz (3) |
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Linz (1),(4) |
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Florence (1),(3) |
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Mandling (3) |
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Georgetown (3) |
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Salzburg (1),(4) |
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Glasgow (3) |
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Vienna (3) |
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Harrodsburg (2),(3) |
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Belgium |
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Brussels (1),(3) |
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Leitchfield |
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Geel (3) |
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Nicholasville |
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Gent (1) |
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Shelbyville (1) |
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Brazil |
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Gravatai |
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Winchester (1) |
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Juiz De Fora (1) |
Louisiana |
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Shreveport |
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Pouso Alegre |
Maryland |
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Belcamp (3) |
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Santo Andre |
Michigan |
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Ann Arbor (4) |
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Sao Bernardo do Campo (1) |
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Battle Creek (3) |
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Sao Jose dos Campos |
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Canton (1) |
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Sao Jose dos Pinhais (1) |
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Dearborn (1),(4) |
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Sorocaba (3) |
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Detroit (3) |
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Canada |
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Milton (1) |
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Holland (2),(3) |
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Orangeville |
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Mt. Clemens (1),(3) |
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Saint Mary's |
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Plymouth (2),(3) |
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Tecumseh |
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Rockwood (3) |
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Tilsonburg (3) |
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Taylor (1) |
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Whitby |
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Warren (1) |
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China |
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Beijing |
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Zeeland (1),(3) |
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Shanghai (1),(4) |
Mississippi |
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Madison |
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Czech Republic |
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Benatky nad Jizerou (1),(3) |
Missouri |
|
Earth City (1) |
|
|
|
|
Ceska Lipa (2),(3) |
|
|
Jefferson City (3) |
|
|
|
|
Mlada Boleslav (1),(3) |
|
|
St. Joseph (2) |
|
|
|
|
Roudnice (2),(3) |
New Jersey |
|
Dayton (1),(3) |
|
|
|
|
Rychnov nad Kneznou (1),(3) |
North Carolina |
|
Winston-Salem (2),(3) |
|
|
|
|
Straz pod Ralskem |
Ohio |
|
Greenfield |
|
|
France |
|
Brioude (1),(3) |
|
|
Northwood |
|
|
|
|
Cergy-Pontoise (4) |
|
|
Oberlin (1),(3) |
|
|
|
|
Conflans |
|
|
Toledo (3) |
|
|
|
|
Courbevoie (1),(4) |
|
|
West Carrollton (1) |
|
|
|
|
Creutzwald (2),(3) |
Oklahoma |
|
Oklahoma City (3) |
|
|
|
|
Harnes (3) |
Oregon |
|
Portland (3) |
|
|
|
|
La Ferte Bernard (1),(3) |
11
| |
|
|
|
|
|
|
|
France (cont.) |
|
Les Ulis (1),(4) |
|
|
Malaysia (cont.) |
|
Shah Alam (3) |
|
|
Paris (1),(4) |
|
|
Mexico |
|
Celaya (3) |
|
|
Rosny-sur-Seine (1) |
|
|
|
|
Cienega de Flores |
|
|
Rouen |
|
|
|
|
Cuidad Juarez (3) |
|
|
Sable-sur-Sarthe (2),(3) |
|
|
|
|
Escobedo |
|
|
Sainte-Florine (2),(3) |
|
|
|
|
Monclova |
|
|
Schweighouse-sur-Moder (3) |
|
|
|
|
Monterrey (2),(3) |
|
|
Strasbourg (3) |
|
|
|
|
Naucalpan de Juarez (1) |
Germany |
|
Boblingen (1) |
|
|
|
|
Puebla (2),(3) |
|
|
Bochum (1),(3) |
|
|
|
|
Ramos Arizpe (2),(3) |
|
|
Bremen (1),(3) |
|
|
|
|
Saltillo |
|
|
Burscheid (2),(3) |
|
|
|
|
Tlaxcala |
|
|
Espelkamp (3) |
|
|
|
|
Tlazala (1) |
|
|
Grefrath (1),(3) |
|
|
|
|
Torreon |
|
|
Hannover (2),(3) |
|
|
Netherlands |
|
Rotterdam (1),(4) |
|
|
Karlsruhe (3) |
|
|
|
|
Sittard (1),(3) |
|
|
Krautscheid (3) |
|
|
Poland |
|
Bierun (3) |
|
|
Lahnwerk (2),(3) |
|
|
|
|
Katowice (1),(4) |
|
|
Luneburg |
|
|
Portugal |
|
Nelas (3) |
|
|
Munich (1),(4) |
|
|
|
|
Portalegre (3) |
|
|
Neustadt |
|
|
Romania |
|
Mioveni (1),(3) |
|
|
Otzenhausen |
|
|
|
|
Ploiesti (3) |
|
|
Rastatt (1),(3) |
|
|
Singapore |
|
Singapore (1),(4) |
|
|
Remchingen (3) |
|
|
Slovak Republic |
|
Bratislava (1),(3) |
|
|
Ruesselsheim (1),(3) |
|
|
|
|
Kostany nad Turcom (3) |
|
|
Schwalbach (1) |
|
|
|
|
Trnava (1),(4) |
|
|
Sindelfingen (1),(4) |
|
|
South Africa |
|
East London (1),(3) |
|
|
Uberherrn (1),(3) |
|
|
|
|
Port Elizabeth (1) |
|
|
Unterriexingen (2),(3) |
|
|
|
|
Pretoria (1),(3) |
|
|
Waghausel (3) |
|
|
|
|
Uitenhage (1),(3) |
|
|
Weyhausen (1),(4) |
|
|
Spain |
|
Alagon (3) |
|
|
Wuppertal (2),(3) |
|
|
|
|
Barcelona (3) |
|
|
Zwickau (3) |
|
|
|
|
Burgos (2),(3) |
Hungary |
|
Budapest (1),(4) |
|
|
|
|
Guadalajara (1),(4) |
|
|
Pilis |
|
|
|
|
Guadamar del Segura |
|
|
Solymar (2),(3) |
|
|
|
|
Madrid (1),(3) |
India |
|
Chengalpattu (1),(3) |
|
|
|
|
Valencia (2),(3) |
|
|
Lucknow (1),(3) |
|
|
|
|
Valladolid (3) |
|
|
Pune (2),(3) |
|
|
|
|
Zaragoza (3) |
Italy |
|
Melfi (1),(3) |
|
|
Sweden |
|
Goteborg (1),(4) |
|
|
Milan (1),(3) |
|
|
|
|
Hultsfred (2),(4) |
|
|
Potenza (1),(4) |
|
|
|
|
Stockholm (1),(4) |
|
|
Rocca D'Evandro (1) |
|
|
Switzerland |
|
Regensdorf (1),(4) |
|
|
Salerno (2),(3) |
|
|
Thailand |
|
Rayong |
|
|
Turin (1),(3) |
|
|
Tunisia |
|
Bir el Bay |
Japan |
|
Ayase (3) |
|
|
United Kingdom |
|
Burton-Upon-Trent (2) |
|
|
Fukuoka (3) |
|
|
|
|
Chelmsford (1),(3) |
|
|
Hamakita (3) |
|
|
|
|
Denham (1),(4) |
|
|
Mouka |
|
|
|
|
Leamington Spa (1) |
|
|
Nagoya (1),(4) |
|
|
|
|
Liverpool (2),(3) |
|
|
Yokosuka (2) |
|
|
|
|
Redditch (1) |
Korea |
|
Ansan (1),(4) |
|
|
|
|
Sunderland |
|
|
Asan (3) |
|
|
|
|
Telford (2),(3) |
|
|
Dangjin |
|
|
|
|
Wednesbury |
|
|
Hwaseong (3) |
|
|
|
|
|
|
|
Jungeup (1) |
|
|
|
|
|
|
|
Yongin (2) |
|
|
|
|
|
Malaysia |
|
Johor Bahru |
|
|
|
|
|
|
|
Pekan (1) |
|
|
|
|
|
12
| |
|
|
|
|
|
|
|
Controls Group
|
|
|
Norway |
|
Oslo (1),(4) |
|
|
|
|
|
Philippines |
|
Mandaluyong (1),(4) |
Alabama |
|
Huntsville (1),(4) |
|
|
Poland |
|
Poznan (1),(4) |
California |
|
Ft. Irwin (4) |
|
|
|
|
Warsaw (1),(4) |
|
|
Los Angeles (1),(4) |
|
|
Russia |
|
Moscow (1),(4) |
Florida |
|
Cape Canaveral (4) |
|
|
|
|
St. Petersburg (1),(4) |
|
|
Panama City (1),(4) |
|
|
Singapore |
|
Singapore (1),(4) |
Indiana |
|
Goshen (1),(3) |
|
|
Slovak Republic |
|
Bratislava (1),(4) |
Kentucky |
|
Erlanger (1),(4) |
|
|
South Africa |
|
Randburg (1),(4) |
Maryland |
|
Bowie (1),(4) |
|
|
Spain |
|
Madrid (1),(4) |
|
|
Gaithersburg (1),(4) |
|
|
Sweden |
|
Danderyd (1),(4) |
|
|
Loveville (1) |
|
|
Switzerland |
|
Basel (1),(3) |
New Mexico |
|
Espanola (4) |
|
|
|
|
Eschenbach (1),(3) |
Pennsylvania |
|
Philadelphia (1),(4) |
|
|
|
|
Zurich (1),(4) |
Texas |
|
Pharr (1),(4) |
|
|
Thailand |
|
Bangkok (1),(4) |
|
|
Wichita Falls (3) |
|
|
United Kingdom |
|
Birmingham (1),(4) |
| Washington
D.C. (1),(4) |
|
|
|
|
Cumbernauld (1),(4) |
Washington |
|
Silverdale (4) |
|
|
|
|
Leatherhead (1),(4) |
Wisconsin |
|
Milwaukee (2),(4) |
|
|
|
|
London (1),(4) |
|
|
Watertown (1),(3) |
|
|
|
|
Reading (1),(4) |
|
|
|
|
|
|
|
Stockport (1),(4) |
Australia |
|
Sydney (1),(4) |
|
|
|
|
Swindon (1),(4) |
Austria |
|
Vienna (1),(4) |
|
|
|
|
Waterlooville (1),(4) |
| Belgium |
|
Brussels (1),(4) |
|
|
Corporate
|
| |
|
|
|
|
|
|
|
Diegem (1),(4) |
|
|
|
|
|
Brazil |
|
Brasilia (1),(4) |
|
|
Wisconsin |
|
Milwaukee (4) |
Canada |
|
Kamloops (1),(4) |
|
|
|
|
|
|
|
Markham (1),(4) |
|
|
|
|
|
|
|
Victoria (1),(4) |
|
|
|
|
|
China |
|
Beijing (1),(4) |
|
|
|
|
|
|
|
Hong Kong (1),(4) |
|
|
|
|
|
|
|
Shanghai (1),(3) |
|
|
|
|
|
|
|
Shenzhen (1),(4) |
|
|
|
|
|
|
|
Tianjin (1),(4) |
|
|
|
|
|
Czech Republic |
|
Prague (1),(4) |
|
|
|
|
|
France |
|
Colombes (1),(4) |
|
|
|
|
|
Germany |
|
Essen (2),(3) |
|
|
|
|
|
|
|
Hannover (1),(4) |
|
|
|
|
|
Hungary |
|
Budapest (1),(4) |
|
|
|
|
|
India |
|
Mumbai (1),(4) |
|
|
|
|
|
Italy |
|
Lomagna (3) |
|
|
|
|
|
|
|
Milan (1),(4) |
|
|
|
|
|
Japan |
|
Chiba (1),(4) |
|
|
|
|
|
|
|
Hiroshima (1),(4) |
|
|
|
|
|
|
|
Hokkaido (1),(4) |
|
|
|
|
|
|
|
Koga (3) |
|
|
|
|
|
|
|
Kyushu (1),(4) |
|
|
|
|
|
|
|
Nagoya (1),(4) |
|
|
|
|
|
|
|
Osaka (1),(4) |
|
|
|
|
|
|
|
Saitama (1),(4) |
|
|
|
|
|
|
|
Tokyo (1),(4) |
|
|
|
|
|
|
|
Yokohama (1),(4) |
|
|
|
|
|
Korea |
|
Seoul (1),(4) |
|
|
|
|
|
Malaysia |
|
Kuala Lumpur (1),(4) |
|
|
|
|
|
Mexico |
|
Cuidad Juarez (1),(3) |
|
|
|
|
|
| |
|
Irapuato (1),(4) |
|
|
(1) Leased facilities |
| |
|
Reynosa (3) |
|
|
(2) Includes both leased and owned facilities |
| Netherlands |
|
Gorinchem (1),(4) |
|
|
(3) Includes both administrative and manufacturing facilities |
| |
|
Leeuwarden (3) |
|
|
(4) Administrative facilities only |
13
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 in the United States. 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 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 $61 million and $62
million at September 30, 2004 and 2003, 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 the following:
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 executed a consent decree in 1999 settling the matter, which the court entered in 2003.
Most of the work and payments required by the consent decree have been completed or made, and
accrued liabilities relating to environmental matters include an amount attributable to the
remaining costs.
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. Costs related to such matters were not material to the periods
presented.
In 1989, Johnson Controls initiated an action in the Milwaukee County, Wisconsin Circuit Court,
Johnson Controls, Inc. v. Employers Insurance of Wausau, which sought reimbursement under
comprehensive general liability insurance policies dating from 1954 through 1985 for costs relating
to certain environmental matters. In 1995, the Circuit Court dismissed the action based on the
Wisconsin Supreme Court’s decision in City of
14
Edgerton v. General Casualty Co. of Wisconsin. The
Company twice appealed the case to the Court of Appeals and then petitioned the Wisconsin Supreme
Court to review the lower courts’ judgments. The Supreme Court granted the petition and on July
11, 2003 overruled its decision in the Edgerton case and found that the comprehensive general
liability insurance policies may provide coverage for environmental damages, subject to other
available defenses. The Supreme Court’s decision remands the case to the Circuit Court for further
consideration, where the merits of Johnson Controls’ various environmental claims will be
determined.
ITEM
4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal
year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction 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 fiscal year 2004 Proxy
Statement.
John M. Barth, 58, became Chairman on January 1, 2004. He 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 Group. Mr. Barth joined the Company in 1969.
James H. Keyes, 64, retired as Chairman on December 31, 2003 and retired as a member of the Board
of Directors at the close of business on November 17, 2004. Mr. Keyes served as Johnson Controls
Chairman between 1993 and 2002 and as its Chief Executive Officer from 1988 to 2002.
Stephen A. Roell, 54, was elected a member of the Board of Directors and Executive Vice President
in 2004 and has served as Chief Financial Officer since 1991. Previously, he served as Senior
Vice President. He was a Vice President from 1991 to 1998 and earlier served as Corporate
Controller and Treasurer. Mr. Roell joined the Company in 1982.
Giovanni “John” Fiori, 61, was elected an Executive Vice President in 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, 61, was appointed President of the Controls Group in 2004 and has been Senior
Vice President since 2002. He served as Secretary from 1987 to 2004 and as General Counsel from
1984 to 2004. He previously served as a Vice President. Mr. Kennedy joined the Company in 1984.
Keith E. Wandell, 55, was appointed a member of the Office of the CEO in 2004 and has served as
President of the Automotive Group since October 1, 2003. He was elected a Corporate Vice
President in 1997. Previously, he served in a number of management positions, most recently as
President of battery operations for the Automotive Group and Vice President and General Manager of
the Automotive Group’s Starting, Lighting and Ignition Battery Division. Mr. Wandell joined the
Company in 1988.
Jeffrey S. Edwards, 41, was elected a Corporate Vice President in 2004 and serves as Group Vice
President and General Manager for Japan and Asia Pacific for the Automotive Group’s interiors
business. Mr. Edwards has served Johnson Controls for 20 years in a variety of automotive sales,
manufacturing and engineering positions. Mr. Edwards joined the Company 1984.
Sean Major, 40, was elected Assistant Secretary and appointed Assistant General Counsel in 2004.
He formerly served as group Vice President and General Counsel International. Mr. Major joined
the Company in 1998.
15
Susan F. Davis, 51, was elected Corporate Vice President, Human Resources in 1994. Previously,
she served as Vice President of Organizational Development for the Automotive Group and the former
Plastics Technology Group. Ms. Davis joined the Company in 1983.
R. Bruce McDonald, 44, was elected Assistant Chief Financial Officer in 2004 and has served as a
Corporate Vice President since 2002. He previously 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.
Alex A. Molinaroli, 44, was elected a Corporate Vice President in 2004 and serves as Vice
President and General Manager for the Americas for the Controls Group. Mr. Molinaroli has worked
for Johnson Controls for 21 years and has held increasing levels of responsibility for controls
systems and services sales and operations. Mr. Molinaroli joined the Company 1983.
Jerome D. Okarma, 52, was named Vice President, Secretary and General Counsel in November 2004.
He was elected a Corporate Vice President in September 2003 and served as Assistant Secretary from
1990 to 2004. He served as Deputy General Counsel from 2000 to 2004. 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. Mr. Okarma joined the Company in 1989.
Darlene Rose, 59, was elected Senior Vice President in 2004 and will support the Company’s
diversity initiatives. She served as Vice President Corporate Development and Strategy from 1999
to 2004. She previously served as Director of Corporate Benefits and Payroll, and earlier held
management positions in audit, financial planning and information technology. Ms. Rose was
elected a corporate officer in 1999 and joined the Company in 1969.
Gregg M. Sherrill, 51, was elected a Corporate Vice President in 2004 and serves as Group Vice
President and General Manager for the Automotive Group’s battery business. Since joining Johnson
Controls five years ago, he has also served in key interiors management positions in North America
and Europe. Mr. Sherrill joined the Company 1998.
Michael D. Su, 45, was elected a Corporate Vice President in 2004 and serves as Vice President and
Managing Director of the Asia Pacific region for the Controls Group. Mr. Su has been with Johnson
Controls for 20 years, serving in various controls management positions in Asia and North America.
Mr. Su joined the Company 1984.
Brian J. Stark, 55, will retire December 31, 2004; he most recently served as Controls Group
President. He served as a Corporate Vice President since 1995 and as President of the Controls
Group since 1998. Mr. Stark held a number of senior management positions within the Controls
Group from the time he joined the Company in 1972.
Subhash “Sam” Valanju, 61, was elected a Corporate Vice President in 1999 and has served as Chief
Information Officer since joining the Company in 1996.
Bogoljub “Bob” Velanovich, 67 was elected a Corporate Vice President in 2000. He also serves as
Group Vice President — Six Sigma for the Automotive Group. He previously served as Group Vice
President — Manufacturing and Engineering Quality and Product Launch Assurance for the Automotive
Group. Mr. Velanovich served in several senior management positions within the Automotive Group
since joining the Company in 1991.
Frank A. Voltolina, 44, was elected a Corporate Vice President and Corporate Treasurer in July
2003 when he joined the Company. Prior to that time, Mr. Voltolina was Vice President and
Treasurer at ArvinMeritor, Inc.
16
Denise M. Zutz, 53, was appointed Vice President of Strategy, Investor Relations and Communication
in 2004. She had formerly served as Vice President, Corporate Communication from 1991 to 2004.
Ms. Zutz was elected a corporate officer in 1991. She has served as Director of Corporate
Communication and in other communication positions since joining the Company in 1973.
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
|
|
|
| ITEM 5 |
|
MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS - The shares are traded on the New York Stock Exchange. |
| |
|
|
| |
|
Number of Record Holders |
| Title of Class |
|
as of October 31, 2004 |
Common Stock, $.04-1/6 par value |
|
54,991 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Common Stock Price Range |
|
|
Dividends |
|
| |
|
2004 |
|
|
2003 |
|
|
2004 |
|
|
2003 |
|
First Quarter |
|
$ |
47.60-58.12 |
|
|
$ |
34.55-42.45 |
|
|
$ |
0.225 |
|
|
$ |
0.18 |
|
Second Quarter |
|
|
56.25-62.32 |
|
|
|
35.88-42.00 |
|
|
|
0.225 |
|
|
|
0.18 |
|
Third Quarter |
|
|
49.57-60.20 |
|
|
|
35.90-44.66 |
|
|
|
0.225 |
|
|
|
0.18 |
|
Fourth Quarter |
|
|
50.97-58.01 |
|
|
|
42.25-50.44 |
|
|
|
0.225 |
|
|
|
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
$ |
47.60-62.32 |
|
|
$ |
34.55-50.44 |
|
|
$ |
0.90 |
|
|
$ |
0.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On November 19, 2003, the Company’s Board of Directors declared a two-for-one stock split of the
common stock payable January 2, 2004 to shareholders of record on December 12, 2003. This stock
split resulted in the issuance of approximately 90.5 million additional shares of common stock and
was accounted for by the transfer of approximately $7.5 million from common stock to capital in
excess of par value. All share or per share data in this Form 10-K/A have been restated to reflect
the two-for-one stock split.
The Company has entered into an Equity Swap Agreement, dated as of March 18, 2004 (the “Swap
Agreement”), with Citibank, N.A. (“Citibank”). The Company selectively uses equity swaps to reduce
market risk associated with its Company stock-based compensation plans, such as its deferred
compensation plans and stock appreciation rights. These equity compensation liabilities increase as
the Company’s stock price increases and decrease as the Company’s stock price decreases. In
contrast, the value of the Swap Agreement moves in the opposite direction of these liabilities,
allowing the Company to fix a portion of the liabilities at a stated amount.
Citibank has advised the Company that, in connection with the Swap Agreement, Citibank may purchase
shares of the Company’s stock in the market or in privately negotiated transactions up to an amount
equal to $135 million in aggregate market value at any given time. The Company disclaims that
Citibank is an “affiliated purchaser” of the Company as such term is defined in Rule 10b-18(a)(3)
under the Securities Exchange Act or that Citibank is purchasing any shares for the Company.
Although the Swap Agreement has a stated expiration date, the Company’s intention is to continually
renew the Swap Agreement with Citibank’s consent. There were no purchases by the Company or by
Citibank in the quarter ended September 30, 2004. The Swap Agreement’s impact on the Company’s
earnings for the three months ended September 30, 2004 was not material.
17
ITEM
6 SELECTED FINANCIAL DATA
Five Year Summary
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended September 30, |
|
| (In millions, except per share data) |
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
2000 (1) |
|
| |
OPERATING RESULTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
26,553.4 |
|
|
$ |
22,646.0 |
|
|
$ |
20,103.4 |
|
|
$ |
18,427.2 |
|
|
$ |
17,154.6 |
|
Operating income (As Reported) |
|
$ |
1,301.1 |
|
|
$ |
1,161.6 |
|
|
$ |
1,122.0 |
|
|
$ |
961.1 |
|
|
$ |
965.0 |
|
Operating income (Adjusted)* |
|
$ |
1,301.1 |
|
|
$ |
1,161.6 |
|
|
$ |
1,122.0 |
|
|
$ |
1,031.9 |
|
|
$ |
1,031.5 |
|
Net income (As Reported) |
|
$ |
817.5 |
|
|
$ |
682.9 |
|
|
$ |
600.5 |
|
|
$ |
478.3 |
|
|
$ |
472.4 |
|
Net income (Adjusted)* |
|
$ |
817.5 |
|
|
$ |
682.9 |
|
|
$ |
600.5 |
|
|
$ |
541.7 |
|
|
$ |
531.3 |
|
Earnings per share (As Reported) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
4.35 |
|
|
$ |
3.78 |
|
|
$ |
3.35 |
|
|
$ |
2.71 |
|
|
$ |
2.70 |
|
Diluted |
|
$ |
4.24 |
|
|
$ |
3.60 |
|
|
$ |
3.18 |
|
|
$ |
2.55 |
|
|
$ |
2.55 |
|
Earnings per
share (Adjusted)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
4.35 |
|
|
$ |
3.78 |
|
|
$ |
3.35 |
|
|
$ |
3.07 |
|
|
$ |
3.04 |
|
Diluted |
|
$ |
4.24 |
|
|
$ |
3.60 |
|
|
$ |
3.18 |
|
|
$ |
2.89 |
|
|
$ |
2.87 |
|
Return on average shareholders’ equity |
|
|
17 |
% |
|
|
18 |
% |
|
|
19 |
% |
|
|
17 |
% |
|
|
20 |
% |
Capital expenditures |
|
$ |
862.2 |
|
|
$ |
664.4 |
|
|
$ |
496.2 |
|
|
$ |
621.5 |
|
|
$ |
546.7 |
|
Depreciation |
|
$ |
594.4 |
|
|
$ |
537.8 |
|
|
$ |
499.4 |
|
|
$ |
433.7 |
|
|
$ |
385.3 |
|
Number of employees |
|
|
123,000 |
|
|
|
118,000 |
|
|
|
111,000 |
|
|
|
112,000 |
|
|
|
105,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL POSITION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
|
$ |
(224.8 |
) |
|
$ |
36.2 |
|
|
$ |
140.0 |
|
|
$ |
(35.7 |
) |
|
$ |
(232.8 |
) |
Total assets |
|
$ |
15,090.8 |
|
|
$ |
13,127.3 |
|
|
$ |
11,165.3 |
|
|
$ |
9,911.5 |
|
|
$ |
9,428.0 |
|
Long-term debt |
|
$ |
1,630.6 |
|
|
$ |
1,776.6 |
|
|
$ |
1,826.6 |
|
|
$ |
1,394.8 |
|
|
$ |
1,315.3 |
|
Total debt |
|
$ |
2,670.7 |
|
|
$ |
2,354.9 |
|
|
$ |
1,971.8 |
|
|
$ |
1,820.0 |
|
|
$ |
1,822.8 |
|
Shareholders’ equity |
|
$ |
5,206.3 |
|
|
$ |
4,261.3 |
|
|
$ |
3,499.7 |
|
|
$ |
2,985.4 |
|
|
$ |
2,576.1 |
|
Total debt to total capitalization |
|
|
34 |
% |
|
|
36 |
% |
|
|
36 |
% |
|
|
38 |
% |
|
|
41 |
% |
Book value per share |
|
$ |
27.41 |
|
|
$ |
23.23 |
|
|
$ |
19.35 |
|
|
$ |
16.72 |
|
|
$ |
14.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON SHARE INFORMATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share |
|
$ |
0.90 |
|
|
$ |
0.72 |
|
|
$ |
0.66 |
|
|
$ |
0.62 |
|
|
$ |
0.56 |
|
Market prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
62.32 |
|
|
$ |
50.44 |
|
|
$ |
46.60 |
|
|
$ |
40.85 |
|
|
$ |
35.41 |
|
Low |
|
$ |
47.60 |
|
|
$ |
34.55 |
|
|
$ |
32.03 |
|
|
$ |
23.22 |
|
|
$ |
22.91 |
|
Weighted
average shares (in millions) |
Basic |
|
|
187.7 |
|
|
|
178.7 |
|
|
|
176.7 |
|
|
|
173.6 |
|
|
|
171.4 |
|
Diluted |
|
|
192.6 |
|
|
|
189.1 |
|
|
|
188.2 |
|
|
|
186.0 |
|
|
|
183.9 |
|
Number of shareholders |
|
|
55,460 |
|
|
|
55,823 |
|
|
|
57,551 |
|
|
|
59,701 |
|
|
|
63,863 |
|
| |
| |
|
|
*
|
|
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 of $70.8 million and $66.5
million in fiscal years 2001 and 2000, 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 amounts presented in the “Operating results” section. |
18
ITEM
7 MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
In response to comments raised by the Staff of the Securities and Exchange Commission, Johnson
Controls, Inc. (the Company) has revised its segment disclosure included in Note 20 to the
Consolidated Financial Statements. Revising the segment disclosure also requires the Company to
update additional information that is disclosed based on the Company’s reportable segments and
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A). In
addition, MD&A was revised as the result of comments from the Staff requesting additional
disclosures or clarification of previously filed disclosures.
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,
2004. This discussion should be read in conjunction with the Letter to Shareholders, Consolidated
Financial Statements and Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
FISCAL 2004 COMPARED TO FISCAL 2003
Sales
The Company’s net sales for the fiscal years ended September 30, 2004 and 2003 were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
% |
|
| (in millions) |
|
2004 |
|
|
2003 |
|
|
change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controls Group |
|
$ |
6,077.8 |
|
|
$ |
5,576.0 |
|
|
|
9% |
|
Seating
& Interiors – North America |
|
|
8,997.8 |
|
|
|
8,025.1 |
|
|
|
12% |
|
Seating
& Interiors – Europe |
|
|
8,113.5 |
|
|
|
6,150.3 |
|
|
|
32% |
|
Seating
& Interiors – Asia |
|
|
1,092.6 |
|
|
|
1,013.6 |
|
|
|
8% |
|
Battery Group |
|
|
2,271.7 |
|
|
|
1,881.0 |
|
|
|
21% |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
26,553.4 |
|
|
$ |
22,646.0 |
|
|
|
17% |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net sales in the current fiscal year were $26.6 billion, increasing 17% above the
prior year sales of $22.6 billion.
Controls Group
The Controls Group achieved sales of $6.1 billion in fiscal 2004, nine percent above the prior
year. Excluding the effects of currency translation, sales grew four percent year-over-year.
Controls Group sales in North America were six percent greater than one year ago due to growth in
systems installation and services. Systems installation sales were up reflecting higher volumes in
the new construction market. Service sales were higher in comparison to the prior year reflecting
additional commercial facility management service activity and an increase in technical service
revenues.
Sales in Europe increased 14 percent over the prior year, reflecting the positive effects of
currency translation and the growth of installed systems in the new construction market. Controls
Group sales in other geographic markets, which represent less than 10 percent of the segment’s
sales, increased slightly compared to fiscal 2003.
Seating & Interiors – North America
In North America, Seating & Interiors sales were $9.0 billion, up 12 percent versus the prior year.
This strong growth reflects new interior systems business with a variety of automakers and
involvement in platforms with production levels that exceeded the industry average.
19
Seating
& Interiors – Europe
In Europe, Seating & Interiors sales were $8.1 billion, up 32 percent versus the prior year.
Excluding the effects of currency translation, sales grew 18% year-over-year. The growth is
primarily due to the launch of new business and favorable platform mix.
Seating & Interiors – Asia
In Asia, Seating & Interiors sales were $1.1 billion, up 8% versus the prior year. Excluding the
effects of currency translation, sales grew 4 percent year-over-year. The growth is primarily due
to higher volumes in Korea and China. This was partially offset by lower volumes in Japan and
Malaysia due to decreased demand for mature vehicle platforms which are nearing the end of their
product life cycle.
Battery Group
Battery Group sales were $2.3 billion, up 21 percent versus the prior year. Excluding the effects
of currency translation, sales grew 16 percent year-over-year.
North American sales of automotive batteries increased 14 percent over last year primarily due to
pass-through pricing of higher lead costs and slightly higher shipments to existing customers.
Battery sales were also favorably impacted by $37 million for the inclusion of two months of
operations associated with the acquisition of the remaining 51 percent interest in its joint
venture with Grupo IMSA, S.A. de C.V. (Latin American JV) (see Note 1 to the Consolidated Financial
Statements).
European sales of automotive batteries increased 34 percent over the prior year primarily due to
favorable currency translation, the inclusion of one additional month from the acquisition of VARTA
(see Note 1 to the Consolidated Financial Statements), slightly higher automotive battery unit
shipments, and the pass-through pricing of higher lead costs to customers.
Fiscal 2005 Sales Outlook
For fiscal 2005, management anticipates Automotive Group (which includes Seating & Interiors and
the Battery Group) sales will grow by 8 to 10 percent, assuming a slight decrease in industry
production in North America and Europe and a relatively stable dollar. New interior systems
business and higher sales of automotive batteries are expected in fiscal 2005. At September 30,
2004, Seating & Interiors had an incremental backlog of new orders for its interior systems to be
executed within the next fiscal year of $2.3 billion, which includes orders of approximately $100
million associated with unconsolidated joint ventures. The backlog is generally subject
to a number of risks and uncertainties, such as related vehicle production volumes and the timing
of production launches.
Controls Group sales for fiscal 2005 are expected to increase approximately 8 to 10 percent over
fiscal 2004. The projected increase anticipates double-digit growth in technical services and
facility management services in the commercial market and slightly higher installed control system
sales.
Orders of installed control systems and technical services for the year ended September 30, 2004
exceeded the prior year level, driven primarily by growth in Europe. Orders for installed control
systems were primarily in the domestic new construction and European existing building markets.
The segment’s backlog relates to its installed control systems and technical service activity and
is accounted for using the percentage-of-completion (POC) method. At September 30, 2004, the
unearned backlog to be executed within the next year was $1.84 billion, five percent above the
prior year’s $1.75 billion. The majority of the increase was attributable to the increase in
orders in North America and Europe.
20
Operating Income
The Company’s operating income for the fiscal years ended September 30, 2004 and 2003 was as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
% |
|
| (in millions) |
|
2004 |
|
|
2003 |
|
|
change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controls Group (1) |
|
|
$284.3 |
|
|
|
$282.6 |
|
|
|
1 |
% |
Seating & Interiors – North America (2) |
|
|
585.6 |
|
|
|
654.5 |
|
|
|
-11 |
% |
Seating & Interiors – Europe (3) |
|
|
154.0 |
|
|
|
(24.4 |
) |
|
|
* |
|
Seating & Interiors – Asia (4) |
|
|
37.8 |
|
|
|
42.0 |
|
|
|
-10 |
% |
Battery Group (5) |
|
|
237.4 |
|
|
|
206.9 |
|
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,299.1 |
|
|
|
1,161.6 |
|
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring costs |
|
|
(82.4 |
) |
|
|
– |
|
|
|
|
|
Japanese pension gain |
|
|
84.4 |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Operating Income |
|
$ |
1,301.1 |
|
|
$ |
1,161.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Controls Group operating income excludes $13.3 million of restructuring costs
for the year ended September 30, 2004. |
|
| (2) |
|
Seating & Interiors – North America operating income excludes $5.1 million of
restructuring costs for the year ended September 30, 2004. |
|
| (3) |
|
Seating & Interiors – Europe operating income excludes $51.1 million of
restructuring costs for the year ended September 30, 2004. |
|
| (4) |
|
Seating & Interiors – Asia operating income excludes a pension gain of $84.4
million for the year ended September 30, 2004. |
|
| (5) |
|
Battery Group operating income excludes $12.9 million of restructuring costs
for the year ended September 30, 2004. |
|
Consolidated operating income for fiscal 2004 was $1.3 billion, 12 percent above the prior
year’s $1.2 billion. Consolidated operating income in fiscal 2004 includes restructuring costs of
$82 million (see Note 16 to the Consolidated Financial Statements) and a pension gain of $84
million (see Note 14 to the Consolidated Financial Statements), in comparison to fiscal 2003.
Controls Group
Fiscal 2004 Controls Group operating income of $284 million, excluding $13 million of restructuring
costs, was one percent above the prior year. The results were attributable to higher volumes and
favorable effects of currency translation, partially offset by lower gross margin percentages in
North America and higher worldwide selling,
general and administrative (SG&A) expenses. In North America, the benefit from higher
volumes of installed control systems and new facility management business was slightly offset by
lower gross margin percentages in the installed systems business due to the competitive new
construction environment. In Europe, gross profit, excluding the effects of currency translation,
was comparable to the prior year. SG&A expenses were higher worldwide resulting from investments
in sales force additions in the technical service business, increased pension and health care costs
and the impact of currency translation.
Seating & Interiors – North America
Seating & Interiors – North America operating income decreased 11 percent to $586 million
(excluding $5 million of restructuring costs) due to higher
commodity costs and higher SG&A expenses partially offset by cost reductions and operational
efficiencies.
The segment experienced commodity cost increases, primarily steel, of approximately $15 million
compared to the prior year. The Company continues to address the rising commodity costs in the
region through negotiations with both its customers and suppliers.
Implemented cost reductions and operational efficiencies exceeded the impact of a lower sales mix
of mature vehicle programs and incremental sales price reductions by $16 million in the period.
The lower sales mix of mature vehicle programs negatively impacted results as these sales typically
deliver more favorable margins due
21
to operational efficiencies and cost reductions that are
implemented throughout the vehicle life cycle. In contrast, new vehicle programs require
significant engineering and start up costs thereby reducing margins at the onset of the program.
Annual price reduction renewal negotiations during the period yielded terms consistent with prior
agreements. It should be noted that price reduction commitments are often made in the context of
broader customer negotiations on several factors, including volume, potential new business
opportunities and geographic expansion.
SG&A expenses increased $70 million in the year primarily due to increased engineering expenses
incurred for new vehicle programs, higher health care, pension and insurance costs, as well as the
impact of currency translation.
Seating
& Interiors – Europe
Operating income in Europe was $154 million (excluding $51 million of restructuring costs) compared
to a prior year loss of $24 million due to higher volumes, an increase of $178 million due to
performance improvements in the majority of the Company’s product offerings and lower SG&A
expenses, partially offset by higher commodity costs. Excluding the positive effects of foreign
currency translation, operating income increased $172 million.
The segment benefited from the full year impact of the region’s turnaround program which
concentrated on the implementation of best business practices and six sigma activities in its
existing operations, new program launches, and changes to the manufacturing footprint. Implemented
cost reductions, operational efficiencies, and the higher sales mix of mature vehicle programs
exceeded incremental sales price reductions by $167 million in the period. Annual sales price
reduction renewal negotiations during the period yielded terms consistent with prior agreements.
The incremental effect of commodity costs totaled approximately $5 million in the current fiscal
year compared to the prior year. As in other regions, the Company continues to address the rising
commodity costs through negotiations with both its customers and suppliers.
SG&A expenses decreased $10 million in the year primarily due to decreased engineering expenses
incurred for new vehicle programs compared to the prior year.
Seating & Interiors – Asia
Operating income in Asia decreased to $38 million in the current year (excluding $84 million of a
pension gain), 10 percent below the prior year. Excluding the positive effect of foreign currency
translation, operating income decreased 22 percent year-over-year. This decrease is primarily
attributable to an increase in the amount of SG&A expenditures and launch costs in Japan and Korea
related to new program awards.
Although overall volumes were up, the segment’s margins were unfavorably impacted by a significant
decrease in sales of higher margin, mature vehicle programs that benefit from operating
efficiencies and cost reductions achieved through the product life cycle.
SG&A expenses in the segment were approximately $12 million higher in the year primarily due to
increased engineering expenses incurred for new vehicle programs.
Battery Group
Battery Group operating income increased to $237 million (excluding $13 million of restructuring
costs) in the current fiscal year, 15 percent above the prior year’s $207 million. In North
America, higher volumes, increased operating efficiencies, and the purchase of the Latin American
JV which contributed $13 million, more than offset higher commodity costs. The incremental effect
of commodity costs unfavorably impacted North America operating income by $16 million versus the
prior year. Operating income in Europe was higher due to increased volumes and integration savings
achieved from previous acquisitions, which outpaced increases in commodity costs. The incremental
effect of commodity costs in Europe on operating income was unfavorable by $28 million versus the
prior year.
22
Fiscal 2005 Operating Income Outlook
In fiscal 2005, the Company anticipates that growth by both the Automotive Group (which includes
Seating & Interiors and the Battery Group) and the Controls Group, together with improvements in
operational quality and cost, will lead to a 10 to 12 percent increase in operating income.
The Automotive Group operating margin percentage for fiscal 2005 is expected to increase slightly
compared to fiscal 2004. Management anticipates that the benefits of operational efficiencies,
restructuring, and lower launch costs will be partially offset by lower pricing, higher commodity
costs, and increased employee benefit costs. The Automotive Group has supply agreements with
certain of its customers that provide for annual price reductions and, in some instances, for the
recovery of material cost increases. The group expects to continue its historical trend of being
able to significantly offset any sales price changes with cost reductions from design changes and
productivity improvements and through similar programs with its own suppliers.
The Controls Group operating margin percentage for fiscal 2005 is expected to decline moderately
compared to the fiscal 2004 level. This reflects competitive pricing in the new construction
market, a higher proportion of facility management sales with inherently lower margins and rising
employee benefit costs. These factors are expected to be partially offset by strong technical
services growth and improved operational efficiencies in North America.
Restructuring Costs
In the second quarter of fiscal year 2004, the Company executed a restructuring plan involving cost
structure improvement actions and recorded an $82.4 million restructuring charge within Selling,
general and administrative (SG&A) expenses in the Consolidated Statement of Income. These costs
primarily relate to workforce reductions of approximately 1,500 employees in the Seating &
Interiors and Battery Group and 470 employees in the Controls Group. In addition, four Seating &
Interiors plants will be consolidated. Through September 30, 2004, all impacted employees from the
Controls Group and approximately 1,100 employees from the Seating & Interiors and Battery Group
have been separated from the Company. Employee severance and termination benefits are paid over
the severance period granted to each employee and on a lump sum basis when required in accordance
with individual severance agreements. A significant portion of the Seating & Interiors and Battery
Group actions are concentrated in Europe as the Company focuses on significantly improving
profitability in the region. The Controls Group restructuring actions involve activities in both
North America and Europe. No further costs related to these specific actions are anticipated. The
majority of the restructuring activities are expected to be completed within one year.
Japanese Pension Settlement Gain
In fiscal 2004, the Company recorded a pension gain related to certain of the Company’s Japanese
pension plans established under the Japanese Welfare Pension Insurance Law (see Note 14 to the
Consolidated Financial Statements). In accordance with recent amendments to this law, the Company
completed the transfer of certain pension obligations and related plan assets to the Japanese
government which resulted in a non-cash settlement gain of $84.4 million, net of $1.2 million
associated with the recognition of unrecognized actuarial losses, recorded within SG&A expenses in
the Consolidated Statement of Income. The funded status of the Company’s non-U.S. pension plans
improved by $85.6 million as a result of the transfer of these pension obligations and related plan
assets.
Other Income/Expense
Despite higher average debt levels in the current year, net interest expense of $97 million was
down $7 million from the prior year due to a higher proportion of floating rate debt that benefited
from the low interest rate environment. Equity income of $71 million was $16 million higher than
the prior year, primarily attributable to
23
increased earnings at certain Seating & Interiors joint
ventures in China. Miscellaneous – net expense was $8 million higher than fiscal 2003 mainly due
to higher foreign currency losses in the current year and the inclusion of a gain in the prior year
related to the conversion and subsequent disposition of the investment in Donnelly Corporation (see
Note 5 to the Consolidated Financial Statements).
Provision for Income Taxes
The effective income tax rate for the year ended September 30, 2004 was 26.0 percent compared with
last year’s 31.0 percent. The effective rate for the current fiscal year was lower than the
combined U.S. federal and state statutory rate due to reduced foreign and U.S. effective rates
resulting from the continued benefits of global tax planning initiatives. The rate was further
impacted by a $17 million favorable tax settlement received in the first quarter and a $10 million
favorable resolution of worldwide tax audits in the fourth quarter.
Minority Interests in Net Earnings of Subsidiaries
Minority interests in net earnings of subsidiaries were $79 million compared with $47 million in
the prior year primarily due to higher earnings at certain Seating & Interiors subsidiaries in
North America and the absence of significant engineering and launch costs incurred in the prior
year.
Net Income
Net income for fiscal 2004 reached $818 million, 20 percent above the prior year’s $683 million as
a result of increased operating and equity income and a reduced effective income tax rate,
partially offset by higher minority interests in net earnings of subsidiaries. Fiscal 2004 diluted
earnings per share were $4.24, 18 percent above the prior year’s $3.60.
FISCAL 2003 COMPARED TO FISCAL 2002
Sales
The Company’s net sales for the fiscal years ended September 30, 2003 and 2002 were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
% |
|
| (in millions) |
|
2003 |
|
|
2002 |
|
|
change |
|
|
|
|
|
|
|
|
|
|
|
|
|
Controls Group |
|
|
$5,576.0 |
|
|
|
$5,088.8 |
|
|
|
10 |
% |
Seating & Interiors – North America |
|
|
8,025.1 |
|
|
|
7,751.9 |
|
|
|
4 |
% |
Seating & Interiors – Europe |
|
|
6,150.3 |
|
|
|
4,964.4 |
|
|
|
24 |
% |
Seating & Interiors – Asia |
|
|
1,013.6 |
|
|
|
999.0 |
|
|
|
1 |
% |
Battery Group |
|
|
1,881.0 |
|
|
|
1,299.3 |
|
|
|
45 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
22,646.0 |
|
|
$ |
20,103.4 |
|
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
For the year ended September 30, 2003, consolidated net sales were $22.6 billion, rising 13
percent from the prior year’s sales of $20.1 billion.
Controls Group
The Controls Group achieved sales of $5.6 billion in fiscal 2003, 10 percent above the prior year.
Excluding the effects of currency translation, sales grew five percent year-over-year.
Controls Group sales in North America were nine percent greater than one year ago with growth in
all major customer offerings. Systems sales were up reflecting higher volumes in both the new
construction and existing buildings markets. Service sales were higher in comparison to the prior
year primarily due to additional facility management service activity with the U.S. Federal
government and an increase in technical service revenues.
Sales in Europe increased 12 percent over the prior year, reflecting the positive effects of
currency translation. Controls Group sales in other geographic markets, which represent less than
10 percent of the segment’s sales, were approximately level with fiscal 2002.
24
Seating & Interiors – North America
In North America, Seating & Interiors sales grew to $8.0 billion, up four percent in comparison to
the prior year, while industry production declined approximately three percent. This favorable
performance was attributable to the region’s new business, customer diversification and favorable
platform mix.
Seating & Interiors – Europe
Seating & Interiors sales in Europe increased 24 percent to $6.2 billion in fiscal year 2003, due
to the positive effects of currency translation and the launch of new business. Excluding the
impacts of currency translation and the acquisition of Borg Instruments AG (Borg) (see Note 1 to
the Consolidated Financial Statements), sales were four percent above the fiscal 2002 level. These
results were favorable to the slight decline in European industry vehicle production. The increase
reflects the Company’s involvement in successful platforms and the launch of new business.
Seating & Interiors – Asia
Sales at Seating & Interiors – Asia locations increased 1 percent to $1.0 billion in the current
year. This increase is attributable to favorable currency translation as overall volumes in Asia
were lower compared to the prior year. Excluding favorable currency translation, sales were down
three percent compared to the prior year. This decrease was due to lower volumes in Japan and
Malaysia.
Battery Group
Battery Group sales increased to $1.9 billion, 45 percent above the prior year’s $1.3 billion.
North American sales of automotive batteries increased three percent over the prior year primarily
due to slightly higher automotive battery shipments to existing customers. Battery sales in Europe
were above the prior year primarily due to the acquisition of Varta (see Note 1 to the Consolidated
Financial Statements).
Operating Income
The Company’s operating income for the fiscal years ended September 30, 2003 and 2002 was as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
% |
|
| (in millions) |
|
2003 |
|
|
2002 |
|
|
change |
|
|
|
|
|
|
|
|
|
|
|
|
|
Controls Group |
|
|
$282.6 |
|
|
|
$259.2 |
|
|
|
9 |
% |
Seating & Interiors – North America |
|
|
654.5 |
|
|
|
574.1 |
|
|
|
14 |
% |
Seating & Interiors – Europe |
|
|
(24.4 |
) |
|
|
67.8 |
|
|
|
|
* |
Seating & Interiors – Asia |
|
|
42.0 |
|
|
|
60.2 |
|
|
|
-30 |
% |
Battery Group |
|
|
206.9 |
|
|
|
160.7 |
|
|
|
29 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,161.6 |
|
|
|
1,122.0 |
|
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
*Metric not meaningful.
In fiscal 2003, consolidated operating income was $1.2 billion, four percent above the prior
year.
Controls Group
Fiscal 2003 Controls Group operating income of $283 million was nine percent above the prior year.
The results were attributable to higher volumes in North America partially offset by additional
SG&A expenses due to increased health care, pension and insurance costs.
Seating & Interiors – North America
Seating & Interiors – North America operating income increased 14 percent to $655 million primarily
due to cost reductions, operational efficiencies, favorable vehicle mix, and lower SG&A expenses.
Implemented cost reductions, operational efficiencies, and the impact of a higher sales mix of
mature vehicle programs exceeded incremental sales price reductions by $69 million in the period.
The higher sales mix of mature vehicle programs positively impacted results as these sales
typically deliver more favorable margins due to operational efficiencies and cost reductions that
are implemented throughout the vehicle life cycle. In contrast, new vehicle programs require
significant engineering and start up costs thereby reducing margins at the
25
onset of the program.
Annual price reduction renewal negotiations during the period yielded terms consistent with prior
agreements. It should be noted that price reduction commitments are often made in the context of
broader customer negotiations on several factors, including volume.
SG&A expenses decreased by $11 million in the year primarily due to decreased engineering expenses,
partially offset by higher health care, pension, and insurance costs.
Seating & Interiors – Europe
Seating & Interiors – Europe experienced an operating loss of $24 million in the current year
compared to operating income of $68 million in the prior year. Excluding favorable currency
translation, the segment had an operating loss of $41 million. This decrease was primarily due to
price reductions, increased SG&A costs and operating inefficiencies in existing business and the
launch of new vehicle programs.
The incremental sales price reductions and operational inefficiencies exceeded the implemented cost
reductions by approximately $48 million in the current period. Annual price reduction renewal
negotiations during the period yielded terms consistent with prior agreements.
SG&A expenses increased $60 million in the year primarily due to increased engineering expenses
incurred for new vehicle programs.
The Company has established a formal turnaround program in the region to institute best business
practices and six sigma activities to improve operational efficiency as well as launch execution
and to realign its manufacturing footprint.
Seating & Interiors – Asia
Operating income at Seating & Interiors – Asia decreased to $42 million, 30 percent below the prior
year’s $60 million. This decrease is due to the overall decrease in volumes of mature vehicle
programs as well as increased SG&A costs.
The segment saw a decreased volume of mature vehicle programs that benefited from operating
efficiencies and cost reductions achieved throughout the life cycle of the vehicle program.
Although overall volumes in Asia were up, the mix of new programs versus mature programs adversely
impacted margin in the segment.
SG&A expenses in the segment were approximately $15 million higher in the year primarily due to
increased administrative costs to support operations.
Battery Group
Battery Group operating income increased 29 percent to $207 million from the prior year’s $161
million. The increase is primarily due to higher volumes driven by the Varta acquisition in
Europe. The Group also benefited from an improvement in their warranty experience as well as
improvements in operating performance in North America.
Other Income/Expense
Despite higher average debt levels, net interest expense of $104 million was down $7 million from
the prior year due to the lower interest rate environment. Equity income of $55 million was $17
million higher than the prior year, primarily attributable to increased earnings at certain Seating
& Interiors joint ventures in China. Miscellaneous – net expense was $12 million higher than
fiscal 2002. Included in the fiscal 2003 amount were costs of a legal settlement with a Mexican
lead supplier, higher environmental provisions for non-operating properties, foreign currency
related charges and other non-operating amounts. Also included in the current year was a gain of
approximately $17 million related to the conversion and subsequent disposition of the Company’s
investment in Donnelly Corporation, which was merged with Magna International in October 2002 (see
Note 5 to the Consolidated Financial Statements).
26
Provision for Income Taxes
The effective income tax rate for the year ended September 30, 2003 was 31.0 percent compared with
34.6 percent for September 30, 2002. The effective rate for fiscal year 2003 was lower than the
combined U.S. federal and state statutory rate due to lower foreign and U.S. effective rates
resulting from the benefits of global tax planning initiatives.
Minority Interests in Net Earnings of Subsidiaries
Minority interests in net earnings of subsidiaries were $47 million compared with $58 million in
the prior year. The impacts of lower earnings at certain Seating & Interiors subsidiaries in North
America, primarily due to higher engineering costs, and the purchase of the remaining interest in a
Seating & Interiors joint venture in Europe were partially offset by the impact of minority
interest in the net earnings of Varta, in which the Company has majority ownership.
Net Income
Net income for fiscal 2003 reached $683 million, 14 percent above the prior year’s $601 million.
The growth in net income was a result of increased operating income, lower net interest expense,
higher equity earnings, the reduced effective income tax rate and lower minority interests in net
earnings of subsidiaries, partially offset by higher miscellaneous – net expense. Fiscal 2003
diluted earnings per share were $3.60, 13 percent above the prior year’s $3.18.
CAPITAL EXPENDITURES AND OTHER INVESTMENTS
Capital expenditures in fiscal 2004 were $862 million, up from $664 million and $496 million in
2003 and 2002, respectively. Consistent with both prior years, the majority of the 2004
expenditures were associated with the Seating & Interiors business. In fiscal 2004, Seating &
Interiors capital expenditures related to investments in launches of new business and cost
reduction projects. Management projects capital expenditures to approximate $725-$775 million in
fiscal 2005, the majority of which is again expected to be used by the Seating & Interiors
business.
Goodwill at September 30, 2004 was $3.8 billion, $0.6 billion higher than the prior year. The
increase was primarily associated with the acquisition of the remaining 51 percent interest in the
Latin American JV (see Notes 1 and 4 to the Consolidated Financial Statements) and the effects of
currency translation.
Investments in partially-owned affiliates at September 30, 2004 were $315 million, $93 million less
than the prior year. The majority of the decrease was attributable to the acquisition of the
remaining interest in the Latin American JV (previously accounted for on the equity method) and
dividend distributions received, partially offset by equity income earned by Seating & Interiors
joint ventures.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL AND CASH FLOW
The Company had negative working capital of $225 million at September 30, 2004, compared with a
positive $36 million one year ago. The decrease is a result of increased short-term borrowings,
accounts payable and accrued compensation and benefits, partially offset by higher accounts
receivable and inventories. Working capital, excluding cash and debt, of $646 million was $168
million higher than the prior year amount of $478 million primarily due to higher accounts
receivable partially offset by increased accounts payable.
The Company’s days sales in accounts receivable for the year ended September 30, 2004 was 55, an
increase compared to the year ended September 30, 2003 days sales in accounts receivable of 51.
The increase from the period ended September 30, 2003, primarily relates to currency translation.
27
The Company’s inventory turnover ratio for the year ended September 30, 2004, was 19, and
consistent with the ratio for the year ended September 30, 2003.
Cash provided by operating activities in fiscal 2004 was $1.5 billion compared with $815 million in
fiscal 2003. The increase primarily reflects favorable working capital changes and higher net
income in the current year. Additionally, the prior year included a $250 million voluntary cash
contribution to fund the accumulated benefit obligations of certain U.S. defined benefit pension
plans.
LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. The Company has certain subsidiaries,
mainly located in Germany, Italy, Mexico, United Kingdom, Japan, and Brazil, that have generated
operating losses and, in certain circumstances, have limited loss carryforward periods. As a
result, the Company has recorded valuation allowances against tax assets for certain of these
subsidiaries. The Company’s long-lived asset impairment analyses indicate that assets of these
countries are not impaired based on undiscounted cash flows. At September 30, 2004, the Company
does not have any material assets whose recovery is at risk.
CAPITALIZATION
Total capitalization of $7.9 billion at September 30, 2004 included short-term debt of $0.8
billion, long-term debt (including the current portion) of $1.9 billion and shareholders’ equity of
$5.2 billion. The Company’s total capitalization was $6.7 billion at September 30, 2003. Despite
the additional debt associated with the purchase of the Latin American JV and higher capital
expenditures in fiscal 2004, the Company reduced total debt as a percentage of total capitalization
at the end of fiscal 2004 to 33.9 percent from 35.6 percent one year ago. By the end of fiscal
2005, the Company expects total debt as a percentage of total capitalization to decline to below 30
percent, excluding the impact of any fiscal 2005 acquisitions.
In December 2003, the Company filed a $1.5 billion universal shelf registration statement, under
which the Company can issue a variety of debt and equity instruments, with the Securities and
Exchange Commission effective March 26, 2004. At September 30, 2004, the Company had $1.5 billion
available under the shelf.
In October 2004, the Company renewed its existing 364-day $625 million revolving credit facilities
for an additional year. The Company also has a five-year $625 million revolving credit facility
which expires in October 2008.
In
October and November of 2004, the Company borrowed a total of $500
million of variable rate bank
loans. The loans mature within one-year. Loan proceeds were primarily used to refinance the
Company’s commercial paper borrowings related to the acquisition of the Latin American JV.
The Company believes its capital resources and liquidity position at September 30, 2004 are
adequate to meet projected needs. Requirements for working capital, capital expenditures,
dividends, pension fund contributions, debt maturities and acquisitions in fiscal 2005 will
continue to be funded from operations, supplemented by short- and long-term borrowings, if
required.
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 Fitch (A), Moody’s (A2), 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. At
September 30, 2004, the Company has a combined availability of $1.25 billion under its revolving
credit facilities to meet commercial paper maturities and operating needs.
28
A summary of the Company’s significant contractual obligations as of September 30, 2004 is as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
|
|
|
Payments Due By Period |
| In millions |
|
Total |
|
|
2005 |
|
|
2006-2007 |
|
|
2008-2009 |
|
|
After 2009 |
|
| |
Contractual Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (including
capital lease obligations)* |
|
$ |
1,857 |
|
|
$ |
227 |
|
|
$ |
533 |
|
|
$ |
358 |
|
|
$ |
739 |
|
Operating leases |
|
|
670 |
|
|
|
168 |
|
|
|
290 |
|
|
|
106 |
|
|
|
106 |
|
Unconditional purchase
obligations |
|
|
2,820 |
|
|
|
1,045 |
|
|
|
1,634 |
|
|
|
137 |
|
|
|
4 |
|
Pension and postretirement
contributions |
|
|
296 |
|
|
|
60 |
|
|
|
45 |
|
|
|
49 |
|
|
|
142 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations |
|
$ |
5,643 |
|
|
$ |
1,500 |
|
|
$ |
2,502 |
|
|
$ |
650 |
|
|
$ |
991 |
|
| |
* See “Capitalization” for additional information related to the Company’s long-term debt.
Unconditional purchase obligations include amounts committed under legally enforceable
contracts or purchase orders for goods and services with defined terms as to price, quantity, and
delivery. Pension and postretirement contributions include amounts expected to be paid by the
Company to the plans. Other noncurrent liabilities primarily consist of pension and postretirement
obligations included in the table and other amounts whose settlement dates cannot be reasonably
determined.
Guarantees and Off-Balance Sheet Arrangements
The Company is party to certain synthetic leases which qualify as operating leases for accounting
purposes. The lease contracts, totaling approximately $69 million, are associated with the
financing of the Company’s aircraft. The Company believes the estimated fair market value of the
aircraft 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 has guaranteed the majority of
the residual values, not to exceed $53 million in aggregate.
In the ordinary course of business, the Company utilizes accounts receivable factoring arrangements
in countries where programs of this type are typical. Under these arrangements, the Company may
sell certain of its trade accounts receivable to financial institutions. The arrangements, in
virtually all cases, do not contain recourse provisions against the Company for its customers’
failure to pay. At September 30, 2004, the Company had sold approximately $138 million of foreign
currency trade accounts receivable. The Company’s use of these arrangements has not been a material
source of liquidity for the Company. Management intends to discontinue financing its accounts
receivables in fiscal 2005.
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 position 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 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. Revenues from contracts with multiple
element arrangements, such as those including both installation and services, are recognized as
each element is earned based on objective
29
evidence of the relative fair value of each element.
Recognized revenues that will not be billed under the terms of the contract until a later date are
recorded as an asset captioned “Costs 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 and such estimates are
reviewed monthly. 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 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 reviews have not resulted in adjustments that
were significant to the Company’s results of operations. 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.
Goodwill and Other Intangible Assets
In conformity with U.S. GAAP, goodwill is tested for impairment annually, or more frequently if
events or changes in circumstances indicate that the asset might be impaired. The Company performs
impairment reviews for its reporting units, which have been determined to be the Company’s
reportable segments, using a fair-value method based on management’s judgments and assumptions.
The fair value represents the amount at which a reporting unit could be bought or sold in a current
transaction between willing parties on an arms-length basis. In estimating the fair value, the
Company uses multiples of earnings based on the average of historical, published multiples of
earnings of comparable entities with similar operations and economic characteristics. The
estimated fair value is then compared with the carrying amount of the reporting unit, including
recorded goodwill. The Company is subject to financial statement risk to the extent that the
carrying amount exceeds the estimated fair value. The impairment testing performed by the Company
at September 30, 2004, indicated that the estimated fair value of each reporting unit exceeded its
corresponding carrying amount, including recorded goodwill and, as such, no impairment existed at
that time. Other intangible assets with definite lives continue to be amortized over their
estimated useful lives. Indefinite and definite lived intangible assets (see Note 4 to the
Consolidated Financial Statements) are also subject to impairment testing. A considerable amount
of management judgment and assumptions are required in performing the impairment tests, principally
in determining the fair value of each reporting unit. While the Company believes its judgments and
assumptions were reasonable, different assumptions could change the estimated fair values and,
therefore, impairment charges could be required.
Employee Benefit Plans
The Company provides a range of benefits to its employees and retired employees, including pensions
and postretirement health care. Plan assets and obligations are recorded annually based on the
Company’s measurement date utilizing various actuarial assumptions such as discount rates, assumed
rates of return, compensation increases, turnover rates and health care cost trend rates as of that
date. Measurements of net periodic benefit cost are based on the assumptions used for the previous
year-end measurements of assets and obligations. The Company reviews its actuarial assumptions on
an annual basis and makes modifications to the 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.
The discount rate used by the Company is based on the interest rate of noncallable high-quality
corporate bonds, with appropriate consideration of the Company’s pension plans’ participants’
demographics and benefit payment terms. At July 31, 2004, the Company decreased its discount rate
on U.S. plans to 6.25 percent from 6.50 percent at July 31, 2003 (see Note 14 to the Consolidated
Financial Statements). The decline of 25 basis points was consistent with the changes in published
bond indices. The change increased the Company’s U.S. projected benefit obligation at September
30, 2004 by approximately $56 million and is expected to increase pension expense in fiscal year
2005 by approximately $8 million.
30
In estimating the expected return on plan assets, the Company considers the historical returns on
plan assets, adjusted for forward-looking considerations, inflation assumptions and the impact of
the active management of the plans’ invested assets. Reflecting the relatively long-term nature of
the plans’ obligations, approximately 60 percent of the plans’ assets were invested in equities,
with the balance primarily invested in fixed income instruments.
The Company uses a market-related value of assets that recognizes the difference between the
expected return and the actual return on plan assets over a three-year period. As of September 30,
2004, the Company had approximately $9 million of unrecognized asset losses associated with its
U.S. pension plans, which will be recognized in the calculation of the market-related value of
assets and subject to amortization in future periods.
Based on information provided by its independent actuaries and other relevant sources, the Company
believes that the assumptions used are reasonable; however, changes in these assumptions could
impact the Company’s financial position, results of operations or cash flows.
The Company has recorded a prepaid benefit cost of $185 million for its U.S. pension plans as of
September 30, 2004 in accordance with SFAS No. 87 “Employers’ Accounting for Pensions” (SFAS 87).
SFAS 87 requires that an asset be recognized if the net periodic pension cost is less than the
amounts the employer has contributed to the plan and a liability be recognized if the net periodic
pension cost exceeds amounts the employer has contributed to the plan. The funded status of a
retirement plan is the difference between the projected benefit obligation and the fair value of
its plan assets. The projected benefit obligation is the actuarial present value of all benefits
attributed by the plan’s benefit formula to employee service. At September 30, 2004, the Company’s
U.S. pension plans were under funded by $248 million since the projected benefit obligation
exceeded the fair value of its plan assets. Material differences may result between the funded
status of a retirement plan and the recorded asset or liability due to certain items that have an
immediate impact on the projected benefit obligation, but are recognized over a longer period of
time in the net periodic pension cost. For example, at September 30, 2004, the Company had an
unrecognized net actuarial loss on its U.S. pension plans of $405 million. This actuarial loss is
included in the projected benefit obligation at September 30, 2004, but in accordance with SFAS 87,
in general, the amount of the loss is amortized to net periodic pension expense over the average
remaining service period of the employees in the plan where the loss was generated.
Product Warranties
The Company offers warranties to its customers depending upon the specific product and terms of the
customer purchase agreement. Most of the Company’s product warranties are customer specific. A
typical warranty program requires that the Company replace defective products within a specified
time period from the date of sale. The Company records an estimate of future warranty-related
costs based on actual historical return rates. At September 30, 2004, the Company had recorded $70
million of warranty reserves based on an analysis of return rates and other factors (see Note 7 to
the Consolidated Financial Statements). While the Company’s warranty costs have historically been
within its calculated estimates, it is possible that future warranty costs could differ
significantly from those estimates.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial Accounting
Standards (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 other loss 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 primarily
represents foreign operating and other 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. In calculating the provision for income taxes on an interim basis, the Company uses an
estimate of the
31
annual effective tax rate based upon the facts and circumstances known at each
interim period. On a quarterly basis, the actual effective tax rate is adjusted as appropriate
based upon the actual results as compared to those forecasted at the beginning of the fiscal year.
In determining the need for a valuation allowance, the historical and projected financial
performance of the operation recording the net deferred tax asset is considered along with any
other pertinent information. Since future financial results may differ from previous estimates,
periodic adjustments to the Company’s valuation allowance may be necessary. At September 30, 2004,
the Company had a valuation allowance of $572 million primarily related to net operating and other
loss carryforwards, mainly in Germany, Italy, Mexico, United Kingdom, Japan and Brazil (see Note 17
to the Consolidated Financial Statements). The Company does not provide additional United States
income taxes on undistributed earnings of consolidated foreign subsidiaries included in
stockholders’ equity. Such earnings could become taxable upon the sale or liquidation of these
foreign subsidiaries or upon dividend repatriation. The Company’s intent is for such earnings to be
reinvested by the subsidiaries or to be repatriated only when it would be tax effective through the
utilization of foreign tax credits.
RISK MANAGEMENT
The Company selectively uses financial instruments to reduce market risk associated with changes in
foreign currency, interest rates and commodity prices. 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. At the inception of the hedge, the Company assesses
the effectiveness of the hedge instrument and designates the hedge instrument as either (1) a hedge
of a recognized asset or liability or of an unrecognized firm commitment (a fair value hedge), (2)
a hedge of a forecasted transaction or of the variability of cash flows to be received or paid
related to a recognized asset or liability (a cash flow hedge) or (3) a hedge of a net investment
in a foreign operation (a net investment hedge). The Company performs hedge effectiveness testing
on an ongoing basis depending on the type of hedging instrument used.
For all foreign currency derivative instruments designated as cash flow hedges, retrospective
effectiveness is tested on a monthly basis using a cumulative dollar offset test. The fair value of
the hedged exposures and the fair value of the hedge instruments are revalued and the ratio of the
cumulative sum of the periodic changes in the value of the hedge instruments to the cumulative sum
of the periodic changes in the value of the hedge is calculated. The hedge is deemed as highly
effective if the ratio is between 80 and 125 percent.
For net investment hedges, the Company assesses its net investment positions in the foreign
operations and compares it with the outstanding net investment hedges on a monthly basis. The hedge
is deemed effective if the aggregate outstanding principal of the hedge instruments designated as
the net investment hedge in a foreign operation do not exceed the Company’s net investment
positions in the respective foreign operation.
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 11 to the
Consolidated Financial Statements.
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
32
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.,” as amended by SFAS No. 137, No. 138, and No. 149.
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 (USD) equivalents of net foreign exchange
contracts (hedging transactional exposure) and non-U.S. dollar denominated cash, 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 U.S. dollar relative to all other currencies on September 30,
2004.
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.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
September 30, 2004 |
|
| |
|
Non-USD |
|
|
|
|
|
|
|
| |
|
Financial Instruments |
|
|
|
|
|
|
|
| |
|
Designated as Hedges of: |
|
|
|
|
|
|
|
| |
|
Transactional |
|
|
Translational |
|
|
Net |
|
|
Foreign Exchange |
|
| |
|
Foreign |
|
|
Foreign |
|
|
Amounts of |
|
|
Gains/(Loss) from: |
|
| |
|
Exposure |
|
|
Exposure |
|
|
Instruments |
|
|
10% |
|
|
10% |
|
| |
|
Long/ |
|
|
Long/ |
|
|
Long/ |
|
|
Appreciation |
|
|
Depreciation |
|
| (in millions) |
|
(Short) |
|
|
(Short) |
|
|
(Short) |
|
|
of USD |
|
|
of USD |
|
| |
Currency (U.S. dollar equivalents) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro |
|
$ |
(237 |
) |
|
$ |
(1,171 |
) |
|
$ |
(1,408 |
) |
|
$ |
141 |
|
|
$ |
(141 |
) |
British pound |
|
|
361 |
|
|
|
7 |
|
|
|
368 |
|
|
|
(37 |
) |
|
|
37 |
|
Japanese yen |
|
|
21 |
|
|
|
(213 |
) |
|
|
(192 |
) |
|
|
19 |
|
|
|
(19 |
) |
Mexican peso |
|
|
84 |
|
|
|
4 |
|
|
|
88 |
|
|
|
(9 |
) |
|
|
9 |
|
South Korean won |
|
|
– |
|
|
|
(77 |
) |
|
|
(77 |
) |
|
|
8 |
|
|
|
(8 |
) |
Canadian dollar |
|
|
(40 |
) |
|
|
(9 |
) |
|
|
(49 |
) |
|
|
5 |
|
|
|
(5 |
) |
Polish zloty |
|
|
(47 |
) |
|
|
5 |
|
|
|
(42 |
) |
|
|
4 |
|
|
|
(4 |
) |
Czech koruna |
|
|
17 |
|
|
|
6 |
|
|
|
23 |
|
|
|
(2 |
) |
|
|
2 |
|
Swiss franc |
|
|
14 |
|
|
|
9 |
|
|
|
23 |
|
|
|
(2 |
) |
|
|
2 |
|
Malaysian ringgit |
|
|
– |
|
|
|
19 |
|
|
|
19 |
|
|
|
(2 |
) |
|
|
2 |
|
Swedish krona |
|
|
(16 |
) |
|
|
(1 |
) |
|
|
(17 |
) |
|
|
2 |
|
|
|
(2 |
) |
South African rand |
|
|
(15 |
) |
|
|
– |
|
|
|
(15 |
) |
|
|
2 |
|
|
|
(2 |
) |
Singaporean dollar |
|
|
(12 |
) |
|
|
(2 |
) |
|
|
(14 |
) |
|
|
1 |
|
|
|
(1 |
) |
Other |
|
|
(28 |
) |
|
|
5 |
|
|
|
(23 |
) |
|
|
2 |
|
|
|
(2 |
) |
| |
|
|
Total |
|
$ |
102 |
|
|
$ |
(1,418 |
) |
|
$ |
(1,316 |
) |
|
$ |
132 |
|
|
$ |
(132 |
) |
| |
|
|
33
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 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 $4 million.
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.
Environmental considerations are a part of all significant capital expenditure decisions; however,
expenditures in 2004 related solely to environmental compliance were not material. At September
30, 2004, the Company had an accrued liability of $61 million relating to environmental matters
compared with $62 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.
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 (see Note 18 to the Consolidated Financial Statements). Costs related to
such matters were not material to the periods presented.
CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION
The Company has made forward-looking statements in this document pertaining to its financial
results for fiscal 2005 and future years that are based on preliminary data and are subject to
risks and uncertainties. Forward-looking statements include information concerning possible or
assumed future risks and may include words such as “believes,” “forecasts,” “expects,” “outlook” or
similar expressions. For those statements, the Company cautions that numerous important factors,
such as automotive vehicle production levels and schedules, the strength of the U.S. or other
economies, currency exchange rates, cancellation of commercial contracts, as well as those factors
discussed in the Company’s Form 8-K filing (dated October 26, 2004), 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.
34
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarterly Financial Data |
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
Full |
|
| In millions, except per share data; unaudited |
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
6,384.1 |
|
|
$ |
6,620.1 |
|
|
$ |
6,792.3 |
|
|
$ |
6,756.9 |
|
|
$ |
26,553.4 |
|
Gross profit |
|
|
861.3 |
|
|
|
849.8 |
|
|
|
907.9 |
|
|
|
903.9 |
|
|
|
3,522.9 |
|
Net income |
|
|
164.5 |
|
|
|
157.7 |
|
|
|
222.3 |
|
|
|
273.0 |
|
|
|
817.5 |
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic* |
|
|
0.90 |
|
|
|
0.83 |
|
|
|
1.17 |
|
|
|
1.43 |
|
|
|
4.35 |
|
Diluted* |
|
|
0.86 |
|
|
|
0.82 |
|
|
|
1.15 |
|
|
|
1.41 |
|
|
|
4.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
5,183.3 |
|
|
$ |
5,503.1 |
|
|
$ |
5,959.9 |
|
|
$ |
5,999.7 |
|
|
$ |
22,646.0 |
|
Gross profit |
|
|
749.4 |
|
|
|
762.2 |
|
|
|
835.7 |
|
|
|
872.9 |
|
|
|
3,220.2 |
|
Net income |
|
|
140.4 |
|
|
|
132.2 |
|
|
|
190.0 |
|
|
|
220.3 |
|
|
|
682.9 |
|
Earnings per share** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic* |
|
|
0.78 |
|
|
|
0.73 |
|
|
|
1.05 |
|
|
|
1.22 |
|
|
|
3.78 |
|
Diluted* |
|
|
0.74 |
|
|
|
0.70 |
|
|
|
1.00 |
|
|
|
1.16 |
|
|
|
3.60 |
|
* Due to the use of the weighted-average shares outstanding for each quarter for computing earnings per share, the sum of the quarterly per share amounts may not equal the per share amount for the year.
** Prior year amounts have been restated to reflect a two-for-one stock split (see Note 19 to the Consolidated Financial Statements).
ITEM
7A QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK See “Risk Management”
included in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.
35
ITEM
8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
| |
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| |
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Page |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
41 |
|
|
|
|
|
|
|
|
|
42 |
|
|
|
|
|
|
|
|
|
66 |
|
36
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
of Johnson Controls, Inc.
In our opinion, the accompanying consolidated statements of financial position and the related
consolidated statements of income, shareholders’ equity and cash flows present fairly, in all
material respects, the financial position of Johnson Controls, Inc. and its subsidiaries at
September 30, 2004 and 2003, and the results of their operations and their cash flows for each of
the three years in the period ended September 30, 2004, 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 the standards of the Public Company Accounting Oversight Board (United States).
Those standards 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 20 to the consolidated financial statements, the Company has restated its
segment disclosures as of and for the years ended September 30, 2004, 2003 and 2002 to reflect a
revision of its reportable segments.
/s/ PricewaterhouseCoopers, LLP
Milwaukee, Wisconsin
November 12, 2004, except for Note 20, as to which the date is August 9, 2005
37
Johnson Controls, Inc.
Consolidated Statement of Income
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (In millions, except per share data) |
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
Products and systems* |
|
$ |
22,849.7 |
|
|
$ |
19,318.7 |
|
|
$ |
17,060.7 |
|
Services* |
|
|
3,703.7 |
|
|
|
3,327.3 |
|
|
|
3,042.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,553.4 |
|
|
|
22,646.0 |
|
|
|
20,103.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
Products and systems |
|
|
19,921.5 |
|
|
|
16,632.1 |
|
|
|
14,677.0 |
|
Services |
|
|
3,109.0 |
|
|
|
2,793.7 |
|
|
|
2,579.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,030.5 |
|
|
|
19,425.8 |
|
|
|
17,256.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
3,522.9 |
|
|
|
3,220.2 |
|
|
|
2,846.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
2,221.8 |
|
|
|
2,058.6 |
|
|
|
1,724.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,301.1 |
|
|
|
1,161.6 |
|
|
|
1,122.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
14.0 |
|
|
|
10.2 |
|
|
|
11.9 |
|
Interest expense |
|
|
(110.8 |
) |
|
|
(113.7 |
) |
|
|
(122.3 |
) |
Equity income |
|
|
71.0 |
|
|
|
54.9 |
|
|
|
37.9 |
|
Miscellaneous – net |
|
|
(63.2 |
) |
|
|
(55.5 |
) |
|
|
(43.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
(89.0 |
) |
|
|
(104.1 |
) |
|
|
(116.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interests |
|
|
1,212.1 |
|
|
|
1,057.5 |
|
|
|
1,006.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
315.7 |
|
|
|
327.8 |
|
|
|
347.6 |
|
Minority interests in net earnings of subsidiaries |
|
|
78.9 |
|
|
|
46.8 |
|
|
|
57.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
817.5 |
|
|
$ |
682.9 |
|
|
$ |
600.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings available for common shareholders |
|
$ |
815.7 |
|
|
$ |
675.7 |
|
|
$ |
592.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
4.35 |
|
|
$ |
3.78 |
|
|
$ |
3.35 |
|
Diluted |
|
$ |
4.24 |
|
|
$ |
3.60 |
|
|
$ |
3.18 |
|
|
|
|
| |
|
|
| * |
|
Products and systems consist of Seating & Interiors products and systems, Battery Group products,
and Controls Group installed systems. Services are Controls Group technical and facility management services. |
The accompanying notes are an integral part of the financial statements.
38
Johnson Controls, Inc.
Consolidated Statement of Financial Position
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
| (In millions, except par value and share data) |
|
2004 |
|
|
2003 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
169.5 |
|
|
$ |
136.1 |
|
Accounts receivable, less allowance for doubtful
accounts of $47.9 and $48.5, respectively |
|
|
4,173.2 |
|
|
|
3,539.1 |
|
Costs and earnings in excess of billings on uncompleted contracts |
|
|
328.6 |
|
|
|
323.0 |
|
Inventories |
|
|
924.6 |
|
|
|
825.9 |
|
Other current assets |
|
|
780.9 |
|
|
|
796.2 |
|
|
|
|
|
|
|
|
Current assets |
|
|
6,376.8 |
|
|
|
5,620.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment – net |
|
|
3,529.4 |
|
|
|
2,963.4 |
|
Goodwill
– net |
|
|
3,753.5 |
|
|
|
3,162.7 |
|
Other
intangible assets – net |
|
|
347.0 |
|
|
|
316.9 |
|
Investments in partially-owned affiliates |
|
|
314.9 |
|
|
|
408.1 |
|
Other noncurrent assets |
|
|
769.2 |
|
|
|
655.9 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
15,090.8 |
|
|
$ |
13,127.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
813.3 |
|
|
$ |
150.5 |
|
Current portion of long-term debt |
|
|
226.8 |
|
|
|
427.8 |
|
Accounts payable |
|
|
3,767.3 |
|
|
|
3,329.3 |
|
Accrued compensation and benefits |
|
|
644.8 |
|
|
|
546.3 |
|
Accrued income taxes |
|
|
47.4 |
|
|
|
58.7 |
|
Billings in excess of costs and earnings on uncompleted contracts |
|
|
197.2 |
|
|
|
186.2 |
|
Other current liabilities |
|
|
904.8 |
|
|
|
885.3 |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
6,601.6 |
|
|
|
5,584.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
1,630.6 |
|
|
|
1,776.6 |
|
Postretirement health and other benefits |
|
|
164.1 |
|
|
|
167.8 |
|
Minority interests in equity of subsidiaries |
|
|
268.7 |
|
|
|
221.8 |
|
Other noncurrent liabilities |
|
|
1,219.5 |
|
|
|
1,115.7 |
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
3,282.9 |
|
|
|
3,281.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $1.00 par value
shares authorized: 2,000,000
shares issued and outstanding: 2004 - 0; 2003 - 189.647 |
|
|
– |
|
|
|
97.1 |
|
Common
stock, $.04 1/6 par value
shares authorized: 600,000,000
shares issued: 2004 - 191,176,609; 2003 - 181,262,254 |
|
|
8.0 |
|
|
|
15.1 |
|
Capital in excess of par value |
|
|
953.0 |
|
|
|
748.0 |
|
Retained earnings |
|
|
4,187.9 |
|
|
|
3,541.1 |
|
Treasury stock, at cost (2004 - 855,668 shares; 2003 - 951,586 shares) |
|
|
(14.5 |
) |
|
|
(9.5 |
) |
Employee
stock ownership plan – unearned compensation |
|
|
– |
|
|
|
(23.6 |
) |
Accumulated other comprehensive income (loss) |
|
|
71.9 |
|
|
|
(106.9 |
) |
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
5,206.3 |
|
|
|
4,261.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
15,090.8 |
|
|
$ |
13,127.3 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
39
Johnson Controls, Inc.
Consolidated Statement of Cash Flows
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
September 30, |
|
|
|
|
| (In millions) |
|
2004 |
|
|
2003 |
|
|
2002 |
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
817.5 |
|
|
$ |
682.9 |
|
|
$ |
600.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to cash provided by operating activities
Depreciation |
|
|
594.4 |
|
|
|
537.8 |
|
|
|
499.4 |
|
Amortization of intangibles |
|
|
22.2 |
|
|
|
20.2 |
|
|
|
17.4 |
|
Equity in earnings of partially-owned affiliates, net of dividends received |
|
|
(8.3 |
) |
|
|
(15.9 |
) |
|
|
(17.1 |
) |
Deferred income taxes |
|
|
100.4 |
|
|
|
122.7 |
|
|
|
(7.4 |
) |
Minority interests in net earnings of subsidiaries |
|
|
78.9 |
|
|
|
46.8 |
|
|
|
57.9 |
|
Gain on sale of long-term investment |
|
|
– |
|
|
|
(16.6 |
) |
|
|
– |
|
Pension contributions in excess of expense |
|
|
– |
|
|
|
(231.7 |
) |
|
|
– |
|
Japanese pension settlement gain |
|
|
(84.4 |
) |
|
|
– |
|
|
|
– |
|
Other |
|
|
(23.2 |
) |
|
|
(0.5 |
) |
|
|
16.0 |
|
Changes in working capital, excluding acquisition of businesses
Receivables |
|
|
(422.4 |
) |
|
|
(31.2 |
) |
|
|
(272.6 |
) |
Inventories |
|
|
(8.5 |
) |
|
|
(7.6 |
) |
|
|
10.5 |
|
Other current assets |
|
|
24.1 |
|
|
|
(78.8 |
) |
|
|
24.6 |
|
Accounts payable and accrued liabilities |
|
|
386.6 |
|
|
|
(72.5 |
) |
|
|
71.3 |
|
Accrued income taxes |
|
|
13.7 |
|
|
|
(128.1 |
) |
|
|
34.4 |
|
Billings in excess of costs and earnings on uncompleted contracts |
|
|
(3.0 |
) |
|
|
(12.3 |
) |
|
|
24.2 |
|
| |
|
|
Cash provided by operating activities |
|
|
1,488.0 |
|
|
|
815.2 |
|
|
|
1,059.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(862.2 |
) |
|
|
(664.4 |
) |
|
|
(496.2 |
) |
Sale of property, plant and equipment |
|
|
50.9 |
|
|
|
52.2 |
|
|
|
54.1 |
|
Acquisition of businesses, net of cash acquired |
|
|
(419.6 |
) |
|
|
(384.7 |
) |
|
|
(644.7 |
) |
Recoverable customer engineering expenditures |
|
|
(55.0 |
) |
|
|
(46.0 |
) |
|
|
– |
|
Proceeds from sale of long-term investment |
|
|
– |
|
|
|
38.2 |
|
|
|
– |
|
Changes in long-term investments |
|
|
(24.2 |
) |
|
|
(8.4 |
) |
|
|
5.2 |
|
| |
|
|
Cash used by investing activities |
|
|
(1,310.1 |
) |
|
|
(1,013.1 |
) |
|
|
(1,081.6 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in short-term debt – net |
|
|
659.9 |
|
|
|
53.0 |
|
|
|
(304.9 |
) |
Increase in long-term debt |
|
|
213.7 |
|
|
|
510.9 |
|
|
|
638.8 |
|
Repayment of long-term debt |
|
|
(869.9 |
) |
|
|
(376.9 |
) |
|
|
(249.0 |
) |
Payment of cash dividends |
|
|
(170.7 |
) |
|
|
(136.3 |
) |
|
|
(125.3 |
) |
Other |
|
|
16.9 |
|
|
|
12.0 |
|
|
|
(41.7 |
) |
| |
|
|
Cash (used) provided by financing activities |
|
|
(150.1 |
) |
|
|
62.7 |
|
|
|
(82.1 |
) |
| |
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
5.6 |
|
|
|
9.3 |
|
|
|
(8.0 |
) |
| |
|
|
Increase (decrease) in cash and cash equivalents |
|
$ |
33.4 |
|
|
$ |
(125.9 |
) |
|
$ |
(112.6 |
) |
| |
|
|
The accompanying notes are an integral part of the financial statements.
40
Johnson Controls, Inc.
Consolidated Statement of Shareholders’ Equity
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Employee Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
| |
|
|
|
|
|
|
|
|
|
Ownership Plan - |
|
|
|
|
|
|
Capital 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) |
|
| |
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 ($0.66 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 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
682.9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
682.9 |
|
|
|
— |
|
|
|
— |
|
Foreign currency translation adjustments |
|
|
203.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
203.5 |
|
Realized gains on marketable
securities |
|
|
(11.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(11.1 |
) |
Realized and
unrealized gains/losses
on derivatives |
|
|
10.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10.5 |
|
Minimum pension liability adjustment |
|
|
(63.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(63.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
139.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
822.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction of guaranteed ESOP debt |
|
|
21.0 |
|
|
|
— |
|
|
|
21.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Cash dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D preferred ($3.97 per
one ten-thousandth of a share),
net of $0.5 million tax benefit |
|
|
(7.2 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7.2 |
) |
|
|
— |
|
|
|
— |
|
Common ($0.72 per share) |
|
|
(128.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(128.6 |
) |
|
|
— |
|
|
|
— |
|
Other, including options exercised |
|
|
54.0 |
|
|
|
(6.7 |
) |
|
|
— |
|
|
|
0.2 |
|
|
|
58.0 |
|
|
|
— |
|
|
|
2.5 |
|
|
|
— |
|
| |
AT SEPTEMBER 30, 2003 |
|
|
4,261.3 |
|
|
|
97.1 |
|
|
|
(23.6 |
) |
|
|
15.1 |
|
|
|
748.0 |
|
|
|
3,541.1 |
|
|
|
(9.5 |
) |
|
|
(106.9 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
817.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
817.5 |
|
|
|
— |
|
|
|
— |
|
Foreign currency translation adjustments |
|
|
171.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
171.2 |
|
Realized and unrealized gains/losses
on derivatives |
|
|
11.3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11.3 |
|
Minimum pension liability adjustment |
|
|
(3.7 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
178.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
996.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction of guaranteed ESOP debt |
|
|
23.6 |
|
|
|
— |
|
|
|
23.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Cash dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D preferred ($0.99 per
one ten-thousandth of a share),
net of tax benefit |
|
|
(1.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.8 |
) |
|
|
— |
|
|
|
— |
|
Common ($0.90 per share) |
|
|
(168.9 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(168.9 |
) |
|
|
— |
|
|
|
— |
|
Par value reduction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7.5 |
) |
|
|
7.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Conversion of preferred stock to common
stock |
|
|
— |
|
|
|
(96.0 |
) |
|
|
— |
|
|
|
0.3 |
|
|
|
95.7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other, including options exercised |
|
|
95.8 |
|
|
|
(1.1 |
) |
|
|
— |
|
|
|
0.1 |
|
|
|
101.8 |
|
|
|
— |
|
|
|
(5.0 |
) |
|
|
— |
|
| |
AT SEPTEMBER 30, 2004 |
|
$ |
5,206.3 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
8.0 |
|
|
$ |
953.0 |
|
|
$ |
4,187.9 |
|
|
$ |
(14.5 |
) |
|
$ |
71.9 |
|
| |
The accompanying notes are an integral part of the financial statements.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Johnson Controls, Inc. and its
domestic and foreign subsidiaries that are consolidated in conformity with accounting principles
generally accepted in the United States of America (U.S. GAAP). 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.
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. GAAP 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 an increase in Cash and a
reduction of Selling, general, & administrative expense when reimbursement from the customer is
received. Costs for molds, dies, and other tools used to make products that will be sold under
long-term supply arrangements are capitalized within Property, plant and equipment 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, 2004 and
2003, approximately $178 million and $144 million of costs for molds, dies and other tools were
capitalized, respectively, within Property, plant and equipment which represented assets to which
the Company had title. In addition, at September 30, 2004 and 2003, the Company recorded within
Other current assets approximately $231 million and $255 million of costs for molds, dies and other
tools, respectively, for which customer reimbursement is assured.
42
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 three 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 and indefinite lived
intangible assets are not amortized; however, both 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 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.
The fair values of all derivatives are recorded in the Consolidated 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.
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. 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 and are recognized in the same
period as gains and losses on the hedged items.
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, “Accounting for Derivative
Instruments and Hedging Activities,” as amended by SFAS No. 137, No. 138 and No. 149 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. 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. At September 30, 2003, the Company had
one interest rate swap outstanding designated as a cash flow hedge related to the Company’s $250
million variable rate note associated with an October 2001 acquisition (see Note 11). There were
no interest rate swaps outstanding designated as cash flow hedges at September 30, 2004.
For the years ended September 30, 2004 and 2003, 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.
Fair Value Hedges The Company had two interest rate swaps outstanding at September 30, 2004
designated as a hedge of the fair value of a portion of fixed-rate bonds (see Note 11). Both the
swap and the hedged portion of
43
the debt are recorded in the Consolidated Statement of Financial
Position. The change in fair value of the swaps 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 $86 million and $70 million associated with hedges of
net investments in foreign operations were recorded in the accumulated OCI account for the periods
ended September 30, 2004 and 2003, respectively.
STOCK-BASED COMPENSATION
The Company adopted the fair value recognition provision of SFAS No. 123, “Accounting for
Stock-Based Compensation” and adopted the disclosure requirements of SFAS No. 148, “Accounting for
Stock-Based Compensation-Transition and Disclosure-an amendment of FAS 123,” effective October 1,
2002. In accordance with SFAS No. 148, the Company has adopted the fair value recognition
provisions on a prospective basis. Compensation expense is recognized over the three-year vesting
period of stock options granted.
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. Effective December 31, 2003, the Company’s Board of Directors authorized the redemption
of all the outstanding Series D Convertible Preferred Stock (see Note 12).
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 income
(loss), were as follows (net of tax):
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
| In millions |
|
2004 |
|
|
2003 |
|
| |
Foreign currency translation adjustments |
|
$ |
158.6 |
|
|
$ |
(12.6 |
) |
Realized and unrealized gains/losses on
derivatives |
|
|
8.9 |
|
|
|
(2.4 |
) |
Minimum pension liability adjustments |
|
|
(95.6 |
) |
|
|
(91.9 |
) |
| |
|
|
Accumulated other comprehensive income (loss) |
|
$ |
71.9 |
|
|
$ |
(106.9 |
) |
| |
|
|
44
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Act)
introduced a prescription drug benefit under Medicare, as well as a federal subsidy to sponsors of
retiree health care benefit plans. In January 2004, the Financial Accounting Standards Board
(FASB) issued FASB Staff Position (FSP) No. FAS 106-1, “Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” This FSP
permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to
make a one-time election to defer accounting for the effects of the Act if there is insufficient
data, time or guidance available to ensure appropriate accounting. The Company is a sponsor of
postretirement health care plans that provide prescription drug benefits. In accordance with the
one-time election under FAS 106-1, the Company elected to defer accounting for the Act. In May
2004, the FASB issued FSP No. FAS 106-2 to address the accounting and disclosure requirements
related to the Act. The FSP was effective for the Company beginning with its fourth quarter ended
September 30, 2004. The effect of the Act on the Company’s financial statements was not
significant.
In December 2003, the FASB issued SFAS No. 132 (revised 2003), “Employers’ Disclosures about
Pensions and Other Postretirement Benefits – an amendment of FASB Statements No. 87, 88 and 106.”
SFAS No. 132 retains the disclosures required by the original Statement No. 132, which standardized
the disclosure requirements for pensions and other postretirement benefits to the extent
practicable and required additional information on changes in the benefit obligations and fair
value of plan assets. Additional disclosure requirements were added in response to concerns
expressed by users of financial statements. Those disclosures include information describing the
types of plan assets, investment strategy, measurement dates, plan obligations, and cash flows.
See Note 14 for the related pension and postretirement benefit disclosures.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current year’s presentation.
1. ACQUISITIONS
The Company acquired 100% ownership of its battery joint venture with Grupo IMSA, S.A. de C.V.
(Latin American JV) in fiscal year 2004. The purchase price for the remaining 51% interest in the
joint venture was approximately $525 million, including the assumption of debt. The acquisition
was funded initially with short-term debt. Management believes the acquisition is in line with the
Company’s growth strategies and provides new opportunities to strengthen the Company’s global
leadership position in the automotive battery industry.
The following table summarizes the preliminary fair values of the assets acquired and liabilities
assumed in the Latin American JV acquisition, which was effective on August 1, 2004.
| |
|
|
|
|
| |
|
|
|
|
| In millions |
|
|
|
|
| |
Current assets, net of cash acquired |
|
$ |
163.9 |
|
Property, plant and equipment |
|
|
218.8 |
|
Goodwill |
|
|
458.0 |
|
Other intangible assets |
|
|
37.0 |
|
Other noncurrent assets |
|
|
4.0 |
|
|
|
|
|
Total assets |
|
|
881.7 |
|
|
|
|
|
Current liabilities |
|
|
167.7 |
|
Long-term liabilities |
|
|
214.0 |
|
|
|
|
|
Total liabilities |
|
|
381.7 |
|
|
|
|
|
Less historical investment balance in partially-owned affiliate |
|
|
117.0 |
|
|
|
|
|
Net assets acquired |
|
$ |
383.0 |
|
|
|
|
|
The operating results of the Latin American JV have been included in the Company’s
consolidated financial statements from the date of acquisition. For periods prior to the
acquisition, the Company’s investment was accounted for by the equity method. Pro forma
information reflecting this acquisition has not been disclosed as the impact on consolidated net
income is not material.
45
Goodwill of $458 million, none of which is tax deductible, has been assigned to the Battery Group
related to the Latin American JV acquisition. Approximately $12 million of customer relationships
subject to amortization were recorded with a weighted average useful life of approximately 39
years. In addition, $25 million was assigned to trademarks with an indefinite useful life. The
purchase price allocation may be subsequently adjusted to reflect final appraisals and other
valuation studies.
In fiscal 2003, the Company made acquisitions for a combined purchase price of approximately $525
million, including the assumption of debt. Short-term borrowings were used to finance the
acquisitions and were partially refinanced through the issuance of senior notes in September 2003.
The most significant of these acquisitions were as follows:
| |
• |
|
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 percent majority
ownership in VB Autobatterie GmbH. Management believes the acquisition gives the Company a
leading market position in Europe. |
| |
| |
• |
|
Effective July 23, 2003, the Company completed the acquisition of Borg Instruments AG
(Borg), an automotive electronics company with headquarters in Germany. Management believes
the Borg acquisition strengthens the Company’s interiors electronics capabilities and
technological presence in Europe. |
The following table summarizes the fair values of the assets acquired and liabilities assumed at
the dates of acquisition.
| |
|
|
|
|
| |
|
|
|
|
| In millions |
|
|
|
|
| |
Current assets, net of cash acquired |
|
$ |
343.1 |
|
Property, plant and equipment |
|
|
261.1 |
|
Goodwill |
|
|
200.3 |
|
Other intangible assets |
|
|
51.6 |
|
Other noncurrent assets |
|
|
14.1 |
|
|
|
|
|
Total assets |
|
|
870.2 |
|
|
|
|
|
Current liabilities |
|
|
278.2 |
|
Long-term liabilities |
|
|
207.3 |
|
|
|
|
|
Total liabilities |
|
|
485.5 |
|
|
|
|
|
Net assets acquired |
|
$ |
384.7 |
|
|
|
|
|
The operating results of these acquisitions have been included in the Company’s Consolidated
Financial Statements from the dates of acquisition. Pro forma information reflecting these
acquisitions has not been disclosed as the impact on consolidated net income was not material.
Goodwill of approximately $200 million, of which $22 million is expected to be deductible for tax
purposes, has been assigned to Seating & Interiors — Europe ($107 million) and the Battery Group
($93 million). Approximately $43 million of intangible assets subject to amortization and with a
weighted average useful life of approximately 24 years were recorded. This included approximately
$1 million and $17 million, respectively, of patented and unpatented technology with a weighted
average useful life of approximately 14 years, and $25 million of customer relationships with a
weighted average useful life of approximately 31 years. In addition, $9 million was assigned to
trademarks with an indefinite useful life.
Restructuring reserves related to the Varta acquisition of approximately $18 million were recorded
at September 30, 2003. The majority of the reserves were established for employee severance costs
related to workforce reductions of approximately 235 employees. As of September 30, 2004, the Varta
restructuring activities were substantially complete. The Company made the final payment of $36.6
million related to the Varta acquisition in fiscal 2004.
46
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 had an initial combined purchase price of approximately $645 million. 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). |
| |
| |
• |
|
In April 2002, the Company acquired the remaining 45 percent 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 operating results of each of the acquisitions have been included in the Company’s Consolidated
Financial Statements since the dates of acquisitions. Pro forma information to reflect these
acquisitions has not been disclosed as the impact on consolidated net income was not material.
2. INVENTORIES
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
| In millions |
|
2004 |
|
|
2003 |
|
| |
Raw materials and supplies |
|
$ |
485.2 |
|
|
$ |
435.5 |
|
Work-in-process |
|
|
137.0 |
|
|
|
105.8 |
|
Finished goods |
|
|
330.2 |
|
|
|
310.9 |
|
| |
FIFO inventories |
|
|
952.4 |
|
|
|
852.2 |
|
LIFO reserve |
|
|
(27.8 |
) |
|
|
(26.3 |
) |
| |
Inventories |
|
$ |
924.6 |
|
|
$ |
825.9 |
|
| |
Inventories valued by the LIFO method of accounting were approximately 31 percent of total
inventories at September 30, 2004 and 2003.
3. PROPERTY, PLANT AND EQUIPMENT
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
| In millions |
|
2004 |
|
|
2003 |
|
| |
Buildings and improvements |
|
$ |
1,713.1 |
|
|
$ |
1,605.0 |
|
Machinery and equipment |
|
|
4,967.1 |
|
|
|
4,203.9 |
|
Construction in progress |
|
|
392.3 |
|
|
|
336.2 |
|
Land |
|
|
253.6 |
|
|
|
238.2 |
|
| |
Total property, plant and equipment |
|
|
7,326.1 |
|
|
|
6,383.3 |
|
Less accumulated depreciation |
|
|
(3,796.7 |
) |
|
|
(3,419.9 |
) |
| |
Property, plant and equipment — net |
|
$ |
3,529.4 |
|
|
$ |
2,963.4 |
|
| |
Interest costs capitalized during 2004, 2003 and 2002 were $16.0 million, $8.4 million and
$10.0 million, respectively.
47
4. GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the years ended September 30, 2003 and 2004 were
as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Seating |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
and |
|
|
Seating |
|
|
Seating |
|
|
|
|
|
|
|
| |
|
Controls |
|
|
Interiors - |
|
|
and |
|
|
and |
|
|
|
|
|
|
|
| |
|
|
|
|
|
North |
|
|
Interiors - |
|
|
Interiors - |
|
|
Battery |
|
|
|
|
| (in millions) |
|
Group |
|
|
America |
|
|
Europe |
|
|
Asia |
|
|
Group |
|
|
Total |
|
Balance as of September 30, 2002 |
|
$ |
414.1 |
|
|
$ |
1,183.4 |
|
|
$ |
832.6 |
|
|
$ |
197.5 |
|
|
$ |
127.0 |
|
|
$ |
2,754.6 |
|
Goodwill from business acquisitions |
|
|
— |
|
|
|
— |
|
|
|
107.1 |
|
|
|
— |
|
|
|
93.2 |
|
|
|
200.3 |
|
Currency translation |
|
|
23.7 |
|
|
|
1.2 |
|
|
|
141.6 |
|
|
|
12.9 |
|
|
|
30.6 |
|
|
|
210.0 |
|
Other |
|
|
(2.7 |
) |
|
|
4.0 |
|
|
|
(4.3 |
) |
|
|
2.5 |
|
|
|
(1.7 |
) |
|
|
(2.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2003 |
|
|
435.1 |
|
|
|
1,188.6 |
|
|
|
1,077.0 |
|
|
|
212.9 |
|
|
|
249.1 |
|
|
|
3,162.7 |
|
Goodwill from business acquisitions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
458.0 |
|
|
|
458.0 |
|
Currency translation |
|
|
31.3 |
|
|
|
0.6 |
|
|
|
81.5 |
|
|
|
2.4 |
|
|
|
10.4 |
|
|
|
126.2 |
|
Other |
|
|
(1.7 |
) |
|
|
— |
|
|
|
10.6 |
|
|
|
(30.0 |
) |
|
|
27.7 |
|
|
|
6.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2004 |
|
$ |
464.7 |
|
|
$ |
1,189.2 |
|
|
$ |
1,169.1 |
|
|
$ |
185.3 |
|
|
$ |
745.2 |
|
|
$ |
3,753.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 1 for discussion of goodwill from business acquisitions during fiscal 2004 and 2003.
The Company’s other intangible assets, primarily from acquisitions, are valued based on independent
appraisals and consisted of:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
September 30, 2004 |
|
|
September 30, 2003 |
|
| |
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
| |
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
| (in millions) |
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
| |
|
|
|
|
Amortized intangible assets
Patented technology |
|
$ |
223.7 |
|
|
$ |
(86.1 |
) |
|
$ |
137.6 |
|
|
$ |
215.1 |
|
|
$ |
(71.5 |
) |
|
$ |
143.6 |
|
Unpatented technology |
|
|
86.9 |
|
|
|
(13.3 |
) |
|
|
73.6 |
|
|
|
81.5 |
|
|
|
(7.4 |
) |
|
|
74.1 |
|
Customer relationships |
|
|
95.9 |
|
|
|
(6.4 |
) |
|
|
89.5 |
|
|
|
78.4 |
|
|
|
(3.3 |
) |
|
|
75.1 |
|
Miscellaneous |
|
|
10.8 |
|
|
|
(7.6 |
) |
|
|
3.2 |
|
|
|
10.7 |
|
|
|
(6.3 |
) |
|
|
4.4 |
|
| |
|
|
|
|
Total amortized
intangible assets |
|
|
417.3 |
|
|
|
(113.4 |
) |
|
|
303.9 |
|
|
|
385.7 |
|
|
|
(88.5 |
) |
|
|
297.2 |
|
Unamortized intangible assets
Trademarks |
|
|
37.1 |
|
|
|
— |
|
|
|
37.1 |
|
|
|
10.9 |
|
|
|
— |
|
|
|
10.9 |
|
Pension asset |
|
|
6.0 |
|
|
|
— |
|
|
|
6.0 |
|
|
|
8.8 |
|
|
|
— |
|
|
|
8.8 |
|
| |
|
|
|
|
Total unamortized
intangible assets |
|
|
43.1 |
|
|
|
— |
|
|
|
43.1 |
|
|
|
19.7 |
|
|
|
— |
|
|
|
19.7 |
|
| |
|
|
|
|
Total intangible assets |
|
$ |
460.4 |
|
|
$ |
(113.4 |
) |
|
$ |
347.0 |
|
|
$ |
405.4 |
|
|
$ |
(88.5 |
) |
|
$ |
316.9 |
|
| |
|
|
|
|
Amortization of other intangible assets was approximately $22 million and $20 million for the
years ended September 30, 2004 and 2003, respectively. Excluding the impact of any future
acquisitions, the Company anticipates that annual amortization of other intangible assets will
approximate $24 million for each of the next five years.
5. SALE OF LONG-TERM INVESTMENT
In fiscal 2003, the Company recorded a pre-tax gain of approximately $17 million related to the
conversion and subsequent sale of its investment in shares of Donnelly Corporation, which merged
with Magna International effective October 1, 2002. Prior to the sale, the investment was reported
as an available-for-sale security in the Consolidated Statement of Financial Position at fair
value. Changes in the fair market value were recorded in the other comprehensive income component
of shareholders’ equity. As a result of the merger, the Company’s shares in Donnelly Corporation
were converted into shares of Magna International and the unrealized gain on the
48
investment was
recognized in the Consolidated Statement of Income. The Company sold the shares in Magna
International in the first quarter of fiscal 2003 and received proceeds of approximately $38
million.
6.
GUARANTEES
At September 30, 2004 and 2003, the Company had guaranteed certain financial liabilities, the
majority of which relate to debt and lease obligations of unconsolidated affiliates. The term of
each of the guarantees is equal to the remaining term of the underlying debt or lease, which ranges
from one to two years. Payment by the Company would be required upon default by the unconsolidated
affiliate. The maximum amount of future payments which the Company could have been required to
make under these guarantees at September 30, 2004 and 2003 was $1 million and $5 million,
respectively.
The Company has guaranteed the residual value related to the Company aircraft accounted for as
synthetic leases. The guarantees extend through the maturity of each respective underlying lease
in September 2006. In the event the Company exercised its option not to purchase the aircraft for
the remaining obligations at the scheduled maturity of the leases, the Company has guaranteed the
majority of the residual values, not to exceed $53 million and $60 million in aggregate at
September 30, 2004 and 2003, respectively. The Company has recorded a liability of approximately
$6 million and $7 million within Other noncurrent liabilities and a corresponding offset within
Other noncurrent assets in the Consolidated Statement of Financial Position relating to the
Company’s obligation under the guarantees at September 30, 2004 and 2003, respectively. These
amounts are being amortized over the life of the guarantees.
7.
PRODUCT WARRANTIES
The Company offers warranties to its customers depending upon the specific product and terms of the
customer purchase agreement. Most of the Company’s product warranties are customer specific. A
typical warranty program requires that the Company replace defective products within a specified
time period from the date of sale. The Company records an estimate for future warranty-related
costs based on actual historical return rates. Based on analysis of return rates and other
factors, the adequacy of the Company’s warranty provisions are adjusted as necessary. While the
Company’s warranty costs have historically been within its calculated estimates, it is possible
that future warranty costs could exceed those estimates. The Company’s product warranty liability
is included in Other current liabilities in the Consolidated Statement of Financial Position.
The changes in the carrying amount of the Company’s total product warranty liability for the years
ended September 30, 2004 and 2003 were as follows:
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
| (in millions) |
|
2004 |
|
|
2003* |
|
| |
Beginning balance |
|
$ |
79.8 |
|
|
$ |
74.5 |
|
Accruals for warranties issued during the period |
|
|
51.3 |
|
|
|
58.1 |
|
Accruals from business acquisition |
|
|
4.2 |
|
|
|
11.5 |
|
Accruals related to pre-existing warranties
(including changes in estimates) |
|
|
(22.9 |
) |
|
|
(15.7 |
) |
Settlements made (in cash or in kind) during the period |
|
|
(45.0 |
) |
|
|
(51.2 |
) |
Currency translation |
|
|
2.4 |
|
|
|
2.6 |
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
69.8 |
|
|
$ |
79.8 |
|
|
|
|
|
|
|
|
*Adjusted to conform to current account classifications.
8.
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
49
and maintenance of the property. Leased capital
assets included in net property, plant and equipment, primarily buildings and improvements, were
$92 million and $88 million at September 30, 2004 and 2003, respectively.
Other facilities and equipment are leased under arrangements that are accounted for as operating
leases. Total rental expense was $250 million in 2004, $214 million in 2003 and $197 million in
2002.
Future minimum capital and operating lease payments and the related present value of capital lease
payments at September 30, 2004 were as follows:
| |
|
|
|
|
|
|
|
|
| |
|
| |
|
Capital |
|
|
Operating |
|
| (in millions) |
|
Leases |
|
|
Leases |
|
| |
2005 |
|
$ |
18.1 |
|
|
$ |
167.9 |
|
2006 |
|
|
12.0 |
|
|
|
199.0 |
|
2007 |
|
|
9.3 |
|
|
|
90.5 |
|
2008 |
|
|
9.1 |
|
|
|
58.6 |
|
2009 |
|
|
33.4 |
|
|
|
47.8 |
|
After 2009 |
|
|
37.2 |
|
|
|
106.4 |
|
| |
Total minimum lease payments |
|
|
119.1 |
|
|
$ |
670.2 |
|
| |
Interest |
|
|
30.1 |
|
|
|
|
|
| |
Present value of net minimum lease payments |
|
$ |
89.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
9. SHORT-TERM DEBT AND CREDIT AGREEMENTS
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
| (in millions) |
|
2004 |
|
|
2003 |
|
| |
|
|
|
|
|
|
|
|
|
Commercial paper |
|
$ |
267.0 |
|
|
$ |
63.8 |
|
Bank borrowings |
|
|
546.3 |
|
|
|
86.7 |
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
813.3 |
|
|
$ |
150.5 |
|
|
|
|
|
|
|
|
Weighted average interest rate on short-term
debt outstanding |
|
|
2.36 |
% |
|
|
2.64 |
% |
|
|
|
|
|
|
|
The Company had committed lines of credit available for support of outstanding commercial
paper that averaged $1.25 billion during the year and were $1.25 billion at September 30, 2004. In
addition, the Company had uncommitted lines of credit from banks totaling $1.41 billion at
September 30, 2004, of which $780 million remained unused. The lines of credit are subject to the
usual terms and conditions applied by banks.
In October 2004, the Company renewed its existing 364-day $625 million revolving credit facilities
for an additional year. The Company also has a five-year $625 million revolving credit facility
which expires in October 2008. There were no draws on either of the committed credit lines through
September 30, 2004.
In October and November of 2004, the Company borrowed a total of $500 million of variable rate bank
loans. The three loans mature within one year. Loan proceeds were primarily used to refinance the
Company’s commercial paper borrowings attributable to the acquisition of the Latin American JV.
50
10. LONG-TERM DEBT
| |
|
|
|
|
|
|
|
|
|
| |
|
| In millions September 30, |
|
2004 |
|
|
|
2003 |
|
| |
|
|
|
Unsecured notes |
|
|
|
|
|
|
|
|
|
Floating rate note due in 2004 |
|
$ |
— |
|
|
|
$ |
250.0 |
|
Floating rate note due in 2005 |
|
|
200.0 |
|
|
|
|
200.0 |
|
4.875% due in 2013 |
|
|
298.5 |
|
|
|
|
298.5 |
|
5% due in 2007 ($350 million par value) |
|
|
361.4 |
|
|
|
|
368.2 |
|
6.3% due in 2008 ($175 million par value) |
|
|
175.6 |
|
|
|
|
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 |
|
6.95% due in 2046 |
|
|
125.0 |
|
|
|
|
125.0 |
|
Unsecured Loan |
|
|
|
|
|
|
|
|
|
Floating rate loan due in 2009 |
|
|
50.0 |
|
|
|
|
— |
|
Industrial revenue bonds due through 2005,
net of unamortized discount of $0.1 million
in 2004 and 2003, respectively |
|
|
9.7 |
|
|
|
|
31.2 |
|
Guaranteed ESOP debt due in increasing annual
installments through 2004 at an average
interest rate of 6.99% (tied in part to LIBOR) |
|
|
— |
|
|
|
|
23.6 |
|
Capital lease obligations |
|
|
89.0 |
|
|
|
|
93.1 |
|
Foreign-denominated debt: |
|
|
|
|
|
|
|
|
|
euro |
|
|
142.2 |
|
|
|
|
99.0 |
|
yen |
|
|
92.1 |
|
|
|
|
93.8 |
|
Other |
|
|
40.0 |
|
|
|
|
48.1 |
|
| |
|
|
|
Gross long-term debt |
|
|
1,857.4 |
|
|
|
|
2,204.4 |
|
Less current portion |
|
|
226.8 |
|
|
|
|
427.8 |
|
| |
|
|
|
Net long-term debt |
|
$ |
1,630.6 |
|
|
|
$ |
1,776.6 |
|
| |
|
|
|
Due dates are by fiscal year.
At September 30, 2004, the Company’s euro-denominated long-term debt was comprised of $138
million of fixed rate debt and $4 million of variable rate debt. The weighted average interest
rate of the fixed and variable portions was 9.52 percent and 2.44 percent, respectively.
The Company had yen-denominated long-term debt totaling $92 million at September 30, 2004. Fixed
rate yen debt was equivalent to $60 million with a weighted average interest rate of 1.71 percent
at September 30, 2004. Variable rate debt was equivalent to $32 million with a weighted average
interest rate of 0.35 percent at September 30, 2004.
In June 2004, the Company redeemed in full $125 million of outstanding principal of its 8.2% bonds
due in 2024, plus accrued interest. The redemption was funded with short-term borrowings. The call
premium and the expense associated with the remaining portion of unamortized debt issuance costs
resulted in a pre-tax charge of approximately $6 million.
The Company’s employee stock ownership plan (ESOP) was financed with debt issued by the ESOP (see
Note 12). The ESOP debt is repaid in full in December 2003. The dividends on the Series D Preferred
Stock held by the ESOP plus Company contributions to the ESOP were used by the ESOP to service the
debt. Therefore, interest incurred on the ESOP debt of $1 million in 2004, $2 million in 2003 and
$4 million in 2002 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 are: 2005 — $227 million, 2006 -
$98 million, 2007 — $435 million, 2008 — $246 million, 2009 – $112 million, 2010 and beyond — $739
million. The indentures for the unsecured notes, the unsecured loan and the foreign-denominated
debt include various financial covenants, none of which are expected to restrict future operations.
51
Total interest paid on both short and long-term debt was $137 million in 2004, $118 million in 2003
and $127 million in 2002. The Company uses financial instruments to manage its interest rate
exposure (see Note 11). These instruments affect the weighted average interest rate of the
Company’s debt and interest expense.
11. 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 $1,892
million and $2,324 million at September 30, 2004 and 2003, 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). In May 2002, the Company entered into a
four-and-a-half-year interest rate swap to hedge a portion of the Company’s 5% notes maturing in
November 2006. Under the swap, the Company receives interest based on a fixed U.S. dollar rate of
5% and pays interest based on a floating three-month U.S. dollar LIBOR rate plus 14.75 basis
points. Terms of the four-and-a-half-year swap were modified since inception of the swap resulting
in a decrease of notional amount of $100 million from the original $250 million. In October 2003,
the Company entered into a four-year and three-month interest rate swap to hedge the Company’s 6.3%
notes maturing in February 2008. Under the swap, the Company receives interest based on a fixed
U.S. dollar rate of 6.3% and pays interest based on a floating three-month U.S. dollar LIBOR rate
plus 283.5 basis points.
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.
In addition, the Company selectively uses equity swaps to reduce market risk associated with its
stock-based compensation plans, such as its deferred compensation plans and stock appreciation
rights. These equity compensation liabilities increase as the Company’s stock price increases and
decrease as the Company’s stock price decreases. In contrast,
the value of the equity swaps move in the opposite direction of these liabilities, allowing the Company to fix a portion of the
liabilities at a stated amount. In March 2004, the Company
entered into an equity swap agreement (Swap Agreement).
In connection with the Swap Agreement, a third party may purchase shares of the Company’s stock in
the market or in privately negotiated transactions up to an amount equal to $135 million in
aggregate market value at any given time. Although the Swap Agreement has a stated expiration
date, the Company’s intention is to continually renew the Swap
Agreement with the third party’s consent.
The Swap Agreement’s impact on the Company’s earnings for the year ended September 30, 2004 was not
material.
The Company’s derivative instruments are recorded at fair value in the Consolidated Statement of
Financial Position as follows:
52
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, (in millions) |
|
2004 |
|
|
2003 |
|
| |
|
Notional |
|
|
Fair Value |
|
|
Notional |
|
|
Fair Value |
|
| (U.S. dollar equivalents) |
|
Amount |
|
|
Asset (Liability) |
|
|
Amount |
|
|
Asset (Liability) |
|
| |
Other noncurrent assets
Interest rate swaps |
|
$ |
325 |
|
|
$ |
9 |
|
|
$ |
150 |
|
|
$ |
14 |
|
Other current liabilities
Foreign currency exchange contracts |
|
|
1,219 |
|
|
|
1 |
|
|
|
1,681 |
|
|
|
1 |
|
Other noncurrent liabilities
Interest rate swaps |
|
|
— |
|
|
|
— |
|
|
|
250 |
|
|
|
(4 |
) |
Cross-currency interest rate swaps |
|
|
816 |
|
|
|
(24 |
) |
|
|
734 |
|
|
|
(106 |
) |
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.
12. 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, was recorded as a deduction from shareholders’ equity. The net
increase in shareholders’ equity at September 30, 2003 resulting from the above transactions was
$74 million.
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 could be converted into four shares of
common stock (on a post-split basis, see Note 19) or redeemed for $51.20 in cash, at the election
of the employee or beneficiary, upon retirement, death or vested termination.
Dividends on the preferred stock are deductible for income tax purposes and entered into the
determination of earnings available for common shareholders, net of their tax benefit.
Effective December 31, 2003, the Company’s Board of Directors authorized the redemption of all the
outstanding Series D Convertible Preferred Stock, held in the ESOP, and the ESOP trustee converted
the preferred stock into common shares in accordance with the terms of the preferred stock
certificate. The conversion resulted in the issuance of approximately 7.5 million common shares
(on a post-split basis, see Note 19) and was accounted for through a transfer from preferred stock
to common stock and capital in excess of par value. The conversion of $96 million of preferred
shares held by the ESOP has been reflected within Shareholders’ Equity in the Consolidated
Statement of Financial Position. The conversion of these shares resulted in their inclusion in the
basic weighted average common shares outstanding amount used to compute basic earnings per share
(EPS). The conversion of preferred shares has always been assumed in the determination of diluted
EPS. The Company’s ESOP was financed with debt issued by the ESOP, and the final ESOP debt payment
was paid by the Company in December 2003.
53
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 9.5 million at September 30, 2004.
Following is a summary of activity in the stock option plans for the three-year period ended
September 30, 2004:
| |
|
|
|
|
|
|
|
|
| |
|
Weighted |
|
|
Shares |
|
|
| |
|
Average |
|
|
Subject to |
|
|
| |
|
Option Price |
|
|
Option |
|
SARs |
| |
Outstanding, |
|
|
|
|
|
|
|
|
September 30, 2001 |
|
|
$25.36 |
|
|
9,708,428 |
|
1,847,570 |
Granted |
|
|
40.12 |
|
|
2,768,280 |
|
328,500 |
Exercised |
|
|
21.04 |
|
|
(1,593,934) |
|
(684,180) |
Cancelled |
|
|
31.89 |
|
|
(332,900) |
|
(41,600) |
| |
Outstanding, |
|
|
|
|
|
|
|
|
September 30, 2002 |
|
|
$29.68 |
|
|
10,549,874 |
|
1,450,290 |
Granted |
|
|
40.32 |
|
|
2,735,582 |
|
268,100 |
Exercised |
|
|
25.38 |
|
|
(2,600,164) |
|
(352,392) |
Cancelled |
|
|
31.84 |
|
|
(365,884) |
|
(292,488) |
| |
Outstanding, |
|
|
|
|
|
|
|
|
September 30, 2003 |
|
|
$33.51 |
|
|
10,319,408 |
|
1,073,510 |
Granted |
|
|
52.55 |
|
|
2,523,335 |
|
268,992 |
Exercised |
|
|
28.31 |
|
|
(2,175,428) |
|
(286,115) |
Cancelled |
|
|
41.02 |
|
|
(287,406) |
|
(81,710) |
| |
Outstanding,
September 30, 2004 |
|
|
$39.02 |
|
|
10,379,909 |
|
974,677 |
| |
Options outstanding at September 30, 2004:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
Weighted |
| |
|
|
|
|
|
Average |
|
Average |
| |
|
Outstanding at |
|
|
Remaining |
|
Exercise |
| |
|
September 30, |
|
|
Contractual |
|
Price |
| Range of Exercise Prices |
|
2004 |
|
|
Life (years) |
|
per Share |
| |
$12.00 - $23.99 |
|
|
421,374 |
|
|
2.3 |
|
$19.42 |
$24.00 - $35.99 |
|
|
2,936,309 |
|
|
5.2 |
|
$28.72 |
$36.00 - $47.99 |
|
|
4,586,798 |
|
|
7.6 |
|
$40.22 |
$48.00 - $59.99 |
|
|
2,435,428 |
|
|
9.1 |
|
$52.55 |
| |
Options exercisable:
| |
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted |
| |
|
Exercisable |
|
|
Average Exercise |
| Range of Exercise Prices |
|
Shares |
|
|
Price per Share |
| |
At
September 30, 2004
$12.00 - $23.99 |
|
|
421,374 |
|
|
$19.42 |
$24.00 - $35.99 |
|
|
2,936,309 |
|
|
$28.72 |
$36.00 - $47.99 |
|
|
1,236,948 |
|
|
$40.12 |
$48.00 - $59.99 |
|
|
18,190 |
|
|
$52.55 |
| |
|
|
|
4,612,821 |
|
|
$31.02 |
At September 30, 2003 |
|
|
3,805,118 |
|
|
$26.12 |
| |
At September 30, 2002 |
|
|
4,182,984 |
|
|
$24.00 |
| |
54
Effective October 1, 2002, the Company voluntarily adopted the fair value recognition
provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” and adopted the disclosure
requirements of SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure-an
amendment of FAS 123.” In accordance with SFAS No. 148, the Company has adopted the fair value
recognition provisions on a prospective basis and, accordingly, the expense recognized in fiscal
2004 represents a pro rata portion of the 2004 and 2003 grants which are earned over a three-year
vesting period.
The fair values of each option and the assumptions used to estimate these values using the
Black-Scholes option pricing model were as follows:
| |
|
|
|
|
|
|
| |
|
|
| Grants Issued in Year ended September 30, |
|
2004 |
|
2003 |
|
2002 |
| |
Expected life of option (years) |
|
5 |
|
6 |
|
6 |
Risk-free interest rate |
|
3.00% |
|
3.13% |
|
3.97% |
Expected volatility of the
Company’s stock |
|
23.00% |
|
26.95% |
|
22.89% |
Expected dividend yield on the
Company’s stock |
|
1.75% |
|
1.82% |
|
1.84% |
Fair value of each option |
|
$11 |
|
$11 |
|
$10 |
| |
The following table illustrates the pro forma effect on net income and earnings per share as
if the fair value based method had been applied to all outstanding and unvested awards in each
fiscal year:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| In millions, except per share data |
|
| Year ended September 30, |
|
2004 |
|
|
2003 |
|
|
2002 |
|
| |
Net income, as reported |
|
$ |
817.5 |
|
|
$ |
682.9 |
|
|
$ |
600.5 |
|
Add: Stock-based employee compensation expense
included in reported net income, net of related tax effects |
|
|
17.6 |
|
|
|
5.5 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects |
|
|
(21.9 |
) |
|
|
(15.0 |
) |
|
|
(12.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
813.2 |
|
|
$ |
673.4 |
|
|
$ |
588.2 |
|
| |
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic — as reported |
|
$ |
4.35 |
|
|
$ |
3.78 |
|
|
$ |
3.35 |
|
Basic — pro forma |
|
$ |
4.33 |
|
|
$ |
3.73 |
|
|
$ |
3.29 |
|
| |
Diluted — as reported |
|
$ |
4.24 |
|
|
$ |
3.60 |
|
|
$ |
3.18 |
|
Diluted — pro forma |
|
$ |
4.22 |
|
|
$ |
3.55 |
|
|
$ |
3.11 |
|
| |
In 2002, the Company adopted a restricted stock plan that 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 131,000 restricted shares or restricted
share units awarded in 2004 with an average fair market value of $57.80 per share. In 2002, there
were 316,000 restricted shares or restricted share units awarded with an average fair market value
of $40.50 per share. There were no shares issued in 2003. 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 $6 million,
$3 million and $2 million in 2004, 2003 and 2002, respectively.
Approximately $94 million of consolidated retained earnings at September 30, 2004 represents
undistributed earnings of the Company’s partially-owned affiliates accounted for by the equity
method.
55
13. 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, 2004, 2003 and 2002:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended September 30, |
|
| (in millions) |
|
2004 |
|
|
2003 |
|
|
2002 |
|
| |
Income Available to
Common Shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
Net income, as reported |
|
$ |
817.5 |
|
|
$ |
682.9 |
|
|
$ |
600.5 |
|
Preferred stock dividends, net of tax benefit |
|
|
(1.8 |
) |
|
|
(7.2 |
) |
|
|
(7.7 |
) |
| |
Basic income available to common shareholders |
|
$ |
815.7 |
|
|
$ |
675.7 |
|
|
$ |
592.8 |
|
| |
Net income |
|
$ |
817.5 |
|
|
$ |
682.9 |
|
|
$ |
600.5 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense, net of tax, arising
from assumed conversion of preferred stock |
|
|
(0.1 |
) |
|
|
(2.1 |
) |
|
|
(2.8 |
) |
| |
Diluted income available to common shareholders |
|
$ |
817.4 |
|
|
$ |
680.8 |
|
|
$ |
597.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
Shares Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
|
187.7 |
|
|
|
178.7 |
|
|
|
176.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
3.0 |
|
|
|
2.8 |
|
|
|
3.3 |
|
Convertible preferred stock |
|
|
1.9 |
|
|
|
7.6 |
|
|
|
8.2 |
|
| |
Diluted weighted average shares outstanding |
|
|
192.6 |
|
|
|
189.1 |
|
|
|
188.2 |
|
| |
14. RETIREMENT PLANS
Pension Measurement Date
The Company and its subsidiaries sponsor many U.S. and non-U.S. defined benefit plans and primarily
U.S. postretirement health and other benefit plans. In 2003, the Company changed the measurement
date for the U.S. defined benefit pension and postretirement health and other benefit plans from
June 30 to July 31 to more closely align the measurement date of these plans with the measurement
date of the Company’s non-U.S. defined benefit plans and with the Company’s fiscal year-end
financial reporting date. The cumulative and fiscal year 2003 impact of this change was not
material to the Company’s financial position, results of operations or cash flows.
Pension Benefits
The Company has noncontributory defined benefit pension plans covering most U.S. and certain
non-U.S. employees. The benefits provided are primarily based on years of service and average
compensation or a monthly retirement benefit amount. Funding for U.S. pension plans equals or
exceeds the minimum requirements of the Employee Retirement Income Security Act of 1974. Funding
for non-US plans observes the local legal and regulatory limits. Also, the Company makes
contributions to union-trusteed pension funds for construction and service personnel.
The Company’s investment policies employ an approach whereby a mix of equities and fixed income
investments are used to maximize the long-term return of plan assets for a prudent level of risk.
The investment portfolio primarily contains a diversified blend of equity and fixed-income
investments. Equity investments are diversified across domestic and non-domestic stocks, as well
as growth, value, and small to large capitalizations. Fixed income investments include corporate
and government issues, with short-, mid- and long-term maturities, with a focus on investment grade
when purchased. Investment and market risks are measured and monitored on
56
an ongoing basis through
regular investment portfolio reviews, annual liability measurements, and periodic asset/liability
studies.
The Company’s actual asset allocations are in line with target allocations. The Company rebalances
asset allocations monthly, or as appropriate, in order to stay within a range of allocation for
each asset category.
The Company’s pension plan asset allocations by asset category at the respective measurement dates
are shown below.
| |
|
|
|
|
|
|
|
|
| |
|
2004 |
|
|
2003 |
|
| |
Equity securities: |
|
|
|
|
|
|
|
|
U.S. plans |
|
|
62.5 |
% |
|
|
66.0 |
% |
Non-U.S. plans |
|
|
49.0 |
% |
|
|
37.0 |
% |
Debt securities: |
|
|
|
|
|
|
|
|
U.S. plans |
|
|
37.4 |
% |
|
|
32.3 |
% |
Non-U.S. plans |
|
|
45.0 |
% |
|
|
57.0 |
% |
Real estate: |
|
|
|
|
|
|
|
|
U.S. plans |
|
|
— |
|
|
|
— |
|
Non-U.S. plans |
|
|
5.0 |
% |
|
|
5.0 |
% |
Cash/liquidity: |
|
|
|
|
|
|
|
|
U.S. plans |
|
|
0.1 |
% |
|
|
1.7 |
% |
Non-U.S. plans |
|
|
1.0 |
% |
|
|
1.0 |
% |
The expected return on plan assets is based on the Company’s expectation of the long-term
average rate of return of the capital markets in which the plans invest. The average market
returns are adjusted, where appropriate, for active asset management returns. The expected return
reflects the investment policy target asset mix and considers the historical returns earned for
each asset category.
At the measurement dates of July 31, 2003 for U.S. plans and September 30, 2003 for non-U.S. plans,
plan assets included approximately 943,000 shares of Johnson Controls, Inc. common stock with total
market value of $91 million at the respective dates. No shares of Johnson Controls, Inc. common
stock were directly held in the plans at the respective measurement dates in 2004.
For pension plans with accumulated benefit obligations (ABO) that exceed plan assets, the projected
benefit obligation (PBO), ABO and fair value of plan assets of those plans were $702 million, $625
million and $279 million, respectively, as of September 30, 2004 and $763 million, $710 million and
$283 million, respectively, as of September 30, 2003.
The Company expects to contribute approximately $48 million in cash to its defined benefit pension
plans in fiscal 2005. Projected benefit payments from the plans as of September 30, 2004 are
estimated as follows:
| |
|
|
|
|
| (in millions) |
|
|
|
|
| |
2005 |
|
$ |
70.9 |
|
2006 |
|
|
76.2 |
|
2007 |
|
|
82.8 |
|
2008 |
|
|
89.3 |
|
2009 |
|
|
95.6 |
|
2010-2014 |
|
|
614.3 |
|
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 $32 million for the fiscal year ended 2004 and $26 million for the fiscal years
ended 2003 and 2002.
57
The Company established an ESOP as part of its savings and investment plans. The Company’s annual
contributions to the ESOP, when combined with the preferred stock dividends, were of an amount
which will allow the ESOP to meet its debt service requirements. This contribution amount was $17
million in 2004, $12 million in 2003 and $14 million in 2002. No further contributions to the ESOP
will be made (see Note 12). Total compensation expense recorded by the Company was $26 million in
2004, $17 million in 2003 and $12 million in 2002.
Postretirement Health and Other Benefits
The Company provides certain health care 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, 2004 accumulated postretirement benefit obligation was determined using assumed
health care cost trend rates of eight percent for both pre-65 and post-65 years of age employees,
decreasing one percent each year to an ultimate rate of six percent. The September 30, 2003
accumulated postretirement benefit obligation was determined using assumed health care cost trend
rates of nine percent for both pre-65 and post-65 years of age employees, decreasing one percent
each year to an ultimate rate of six percent. The health care cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, a one percentage point change in the
assumed health care cost trend rate would have changed the accumulated benefit obligation by $6
million at September 30, 2004 and the sum of the service and interest costs in 2004 by $0.5
million.
The Company expects to contribute approximately $12 million in cash to its postretirement health
and other benefit plans in fiscal 2005. Projected benefit payments from the plans as of September
30, 2004 are estimated as follows:
| |
|
|
|
|
| (in millions) |
|
|
|
|
| |
2005 |
|
$ |
12.2 |
|
2006 |
|
|
12.4 |
|
2007 |
|
|
12.6 |
|
2008 |
|
|
12.8 |
|
2009 |
|
|
13.3 |
|
2010-2014 |
|
|
75.5 |
|
Japanese Pension Settlement Gain
During fiscal 2004, the Company recorded a pension gain related to certain of the Company’s
Japanese pension plans established under Japanese Welfare Pension Insurance Law. In accordance
with recent amendments to this law, the Company completed the transfer of certain pension
obligations and related plan assets to the Japanese government which resulted in a non-cash
settlement gain of $84.4 million, net of $1.2 million associated with the recognition of
unrecognized actuarial losses, recorded within SG&A expenses in the Consolidated Statement of
Income. The excess of benefit obligations over plan assets (funded status) of the Company’s
non-U.S. pension plans decreased $85.6 million as a result of the transfer.
58
The table that follows contains the accumulated benefit obligation and reconciliations of the
changes in the PBO, the changes in plan assets and the funded status.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
|
Pension |
|
|
Postretirement |
|
| |
|
U.S. Plans |
|
|
Non-U.S. Plans |
|
|
Health and Other |
|
| September 30, |
|
2004 |
|
|
2003 |
|
|
2004 |
|
|
2003 |
|
|
2004 |
|
|
2003 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Benefit Obligation |
|
$ |
1,206.9 |
|
|
$ |
1,064.1 |
|
|
$ |
743.8 |
|
|
$ |
812.0 |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Projected Benefit Obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year |
|
$ |
1,263.4 |
|
|
$ |
1,089.5 |
|
|
$ |
891.6 |
|
|
$ |
725.3 |
|
|
$ |
177.9 |
|
|
$ |
163.3 |
|
Service cost |
|
|
57.6 |
|
|
|
52.3 |
|
|
|
28.4 |
|
|
|
22.4 |
|
|
|
5.1 |
|
|
|
4.9 |
|
Interest cost |
|
|
82.1 |
|
|
|
76.2 |
|
|
|
35.3 |
|
|
|
30.7 |
|
|
|
11.0 |
|
|
|
11.2 |
|
Amendments made during the year |
|
|
1.1 |
|
|
|
— |
|
|
|
(8.1 |
) |
|
|
(0.1 |
) |
|
|
0.5 |
|
|
|
1.4 |
|
Acquisitions |
|
|
— |
|
|
|
— |
|
|
|
41.9 |
|
|
|
40.1 |
|
|
|
— |
|
|
|
— |
|
Settlement (1) |
|
|
— |
|
|
|
— |
|
|
|
(198.3 |
) |
|
|
(47.4 |
) |
|
|
0.9 |
|
|
|
— |
|
Actuarial loss (gain) |
|
|
71.3 |
|
|
|
88.9 |
|
|
|
16.9 |
|
|
|
83.8 |
|
|
|
(7.4 |
) |
|
|
14.3 |
|
Benefits paid |
|
|
(46.9 |
) |
|
|
(43.2 |
) |
|
|
(38.5 |
) |
|
|
(33.2 |
) |
|
|
(18.5 |
) |
|
|
(19.0 |
) |
Currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
57.9 |
|
|
|
70.1 |
|
|
|
0.7 |
|
|
|
1.8 |
|
Curtailment loss |
|
|
(0.2 |
) |
|
|
(0.3 |
) |
|
|
— |
|
|
|
(0.1 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year |
|
$ |
1,428.4 |
|
|
$ |
1,263.4 |
|
|
$ |
827.1 |
|
|
$ |
891.6 |
|
|
$ |
170.2 |
|
|
$ |
177.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
$ |
1,108.1 |
|
|
$ |
840.1 |
|
|
$ |
471.9 |
|
|
$ |
404.6 |
|
|
$ |
— |
|
|
$ |
— |
|
Actual return on plan assets |
|
|
110.1 |
|
|
|
55.2 |
|
|
|
25.5 |
|
|
|
53.0 |
|
|
|
— |
|
|
|
— |
|
Acquisitions |
|
|
— |
|
|
|
— |
|
|
|
30.7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Settlement (1) |
|
|
— |
|
|
|
— |
|
|
|
(98.7 |
) |
|
|
(30.4 |
) |
|
|
— |
|
|
|
— |
|
Employer and employee contributions |
|
|
8.9 |
|
|
|
256.0 |
|
|
|
44.1 |
|
|
|
41.1 |
|
|
|
18.5 |
|
|
|
19.0 |
|
Benefits paid |
|
|
(46.9 |
) |
|
|
(43.2 |
) |
|
|
(38.5 |
) |
|
|
(33.2 |
) |
|
|
(18.5 |
) |
|
|
(19.0 |
) |
Currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
39.6 |
|
|
|
36.8 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
$ |
1,180.2 |
|
|
$ |
1,108.1 |
|
|
$ |
474.6 |
|
|
$ |
471.9 |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status |
|
$ |
(248.2 |
) |
|
$ |
(155.3 |
) |
|
$ |
(352.5 |
) |
|
$ |
(419.7 |
) |
|
$ |
(170.2 |
) |
|
$ |
(177.9 |
) |
Unrecognized net transition (obligation) asset |
|
|
(6.0 |
) |
|
|
(8.7 |
) |
|
|
0.3 |
|
|
|
0.4 |
|
|
|
— |
|
|
|
— |
|
Unrecognized net actuarial loss |
|
|
405.0 |
|
|
|
350.1 |
|
|
|
121.8 |
|
|
|
118.6 |
|
|
|
6.8 |
|
|
|
14.6 |
|
Unrecognized prior service cost |
|
|
8.5 |
|
|
|
9.1 |
|
|
|
(6.4 |
) |
|
|
1.0 |
|
|
|
(14.3 |
) |
|
|
(17.1 |
) |
Employer contributions paid between August 1 and September 30 |
|
|
0.4 |
|
|
|
0.3 |
|
|
|
— |
|
|
|
0.7 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net accrued benefit cost recognized at end of year |
|
$ |
159.7 |
|
|
$ |
195.5 |
|
|
$ |
(236.8 |
) |
|
$ |
(299.0 |
) |
|
$ |
(177.7 |
) |
|
$ |
(180.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the Statement of
Financial Position consist of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid benefit cost |
|
$ |
184.5 |
|
|
$ |
225.6 |
|
|
$ |
4.3 |
|
|
$ |
2.3 |
|
|
$ |
— |
|
|
$ |
— |
|
Accrued benefit liability |
|
|
(71.6 |
) |
|
|
(62.4 |
) |
|
|
(313.6 |
) |
|
|
(394.6 |
) |
|
|
(177.7 |
) |
|
|
(180.4 |
) |
Intangible asset |
|
|
5.9 |
|
|
|
7.4 |
|
|
|
0.1 |
|
|
|
1.4 |
|
|
|
— |
|
|
|
— |
|
Accumulated other comprehensive income |
|
|
40.9 |
|
|
|
24.9 |
|
|
|
72.4 |
|
|
|
91.9 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
159.7 |
|
|
$ |
195.5 |
|
|
$ |
(236.8 |
) |
|
$ |
(299.0 |
) |
|
$ |
(177.7 |
) |
|
$ |
(180.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Assumptions (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
6.25 |
% |
|
|
6.50 |
% |
|
|
4.50 |
% |
|
|
4.00 |
% |
|
|
6.25 |
% |
|
|
6.50 |
% |
Expected return on plan assets |
|
|
8.75 |
% |
|
|
8.75 |
% |
|
|
5.75 |
% |
|
|
5.25 |
% |
|
NA |
|
NA |
Rate of compensation increase |
|
|
4.00 |
% |
|
|
4.00 |
% |
|
|
3.00 |
% |
|
|
3.00 |
% |
|
NA |
|
NA |
| |
(1) The settlement for the non-U.S. plans for the year ended September 30, 2004
includes $198.3 million projected benefit obligation and $98.7 million of plan assets related to
the Japanese pension settlements of which
59
the resultant gain of $85.6 million relates to Seating &
Interiors – Asia and $14.0 million relates to the Controls Group. These gains were offset by the
recognition of unrealized losses associated with the settlements of $1.2 million and $12.7 million
at Seating & Interiors – Asia and the Controls Group, respectively. The unrealized losses were
recorded as a component of net periodic benefit cost in fiscal 2004.
(2) Plan assets and obligations are determined based on a July 31 measurement date at
September 30, 2004 and 2003 for U.S. plans and a September 30 measurement date at September 30,
2004 and 2003 for non-U.S. plans, utilizing assumptions as of those dates. Measurements of net
periodic benefit cost are based on the assumptions used for the previous year-end measurements of
assets and obligations.
The table that follows contains the components of net periodic benefit cost.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| In millions |
|
Pension |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement |
|
| |
|
U.S. Plans |
|
|
Non-U.S. Plans |
|
|
Health and Other |
|
| Year ended September 30, |
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
| |
Components of Net Periodic Benefit Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
57.6 |
|
|
$ |
52.3 |
|
|
$ |
46.4 |
|
|
$ |
28.4 |
|
|
$ |
22.4 |
|
|
$ |
23.9 |
|
|
$ |
5.1 |
|
|
$ |
4.9 |
|
|
$ |
4.1 |
|
Interest cost |
|
|
82.1 |
|
|
|
76.2 |
|
|
|
70.2 |
|
|
|
35.3 |
|
|
|
30.7 |
|
|
|
28.4 |
|
|
|
11.0 |
|
|
|
11.2 |
|
|
|
10.6 |
|
Employee contributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4.6 |
) |
|
|
(3.1 |
) |
|
|
(2.9 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Expected return on plan assets |
|
|
(104.4 |
) |
|
|
(94.5 |
) |
|
|
(100.2 |
) |
|
|
(26.1 |
) |
|
|
(20.0 |
) |
|
|
(21.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Amortization of transitional (obligation) asset |
|
|
(2.7 |
) |
|
|
(2.5 |
) |
|
|
(2.7 |
) |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Amortization of net actuarial loss |
|
|
10.3 |
|
|
|
0.8 |
|
|
|
0.4 |
|
|
|
5.6 |
|
|
|
4.9 |
|
|
|
1.5 |
|
|
|
1.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
Amortization of prior service cost |
|
|
1.3 |
|
|
|
1.8 |
|
|
|
1.8 |
|
|
|
(0.2 |
) |
|
|
0.1 |
|
|
|
0.2 |
|
|
|
(2.4 |
) |
|
|
(2.4 |
) |
|
|
(2.5 |
) |
Curtailment loss (gain) |
|
|
0.5 |
|
|
|
(0.3 |
) |
|
|
(0.8 |
) |
|
|
— |
|
|
|
(0.1 |
) |
|
|
— |
|
|
|
1.0 |
|
|
|
— |
|
|
|
(5.0 |
) |
Recognition of unrealized loss
associated with transfer of
Japanese pension obligation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13.9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
44.7 |
|
|
$ |
33.8 |
|
|
$ |
15.1 |
|
|
$ |
52.4 |
|
|
$ |
35.0 |
|
|
$ |
29.4 |
|
|
$ |
15.8 |
|
|
$ |
13.8 |
|
|
$ |
7.3 |
|
| |
15. RESEARCH AND DEVELOPMENT
Expenditures for research activities relating to product development and improvement are charged
against income as incurred. Such expenditures amounted to $885 million in 2004, $929 million in
2003 and $895 million in 2002.
A portion of the costs associated with these activities is reimbursed by customers, and totaled
$370 million in 2004, $445 million in 2003 and $456 million in 2002.
16. RESTRUCTURING COSTS
In the second quarter of fiscal year 2004, the Company executed a restructuring plan involving cost
structure improvement actions and recorded an $82.4 million restructuring charge within Selling,
general and administrative (SG&A) expenses in the Consolidated Statement of Income. These costs
primarily relate to workforce reductions of approximately 1,500 employees in the Seating &
Interiors and Battery Group and 470 employees in the Controls Group. In addition, four Seating &
Interiors plants will be consolidated. Through September 30, 2004, all impacted employees from the
Controls Group and approximately 1,100 employees from the Seating & Interiors and Battery Group
have been separated from the Company. Employee severance and termination benefits are paid over
the severance period granted to each employee and on a lump sum basis when required in accordance
with individual severance agreements. A significant portion of the Seating & Interiors and Battery
Group actions are concentrated in Europe as the Company focuses on significantly improving
profitability in the region. The Controls Group restructuring actions involve activities in both
North America and Europe. No further costs related to these specific actions are anticipated. The
majority of the restructuring activities are expected to be completed within one year.
60
The following table summarizes the Company’s restructuring reserve, included within Other
current liabilities in the Consolidated Statement of Financial Position:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
| (in millions) |
|
Original |
|
|
Utilized |
|
|
September 30, |
|
| |
|
Reserve |
|
|
Cash |
|
|
Noncash |
|
|
2004 |
|
Employee severance and
termination benefits |
|
$ |
74.6 |
|
|
$ |
(32.8 |
) |
|
$ |
— |
|
|
$ |
41.8 |
|
Writedowns of long-lived assets |
|
|
7.1 |
|
|
|
— |
|
|
|
(7.1 |
) |
|
|
— |
|
Other |
|
|
0.7 |
|
|
|
(0.7 |
) |
|
|
— |
|
|
|
— |
|
Currency translation |
|
|
— |
|
|
|
— |
|
|
|
(0.4 |
) |
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
82.4 |
|
|
$ |
(33.5 |
) |
|
$ |
(7.5 |
) |
|
$ |
41.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17. INCOME TAXES
An analysis of effective income tax rates is shown below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended September 30, |
|
| |
|
2004 |
|
|
2003 |
|
|
2002 |
|
| |
Federal statutory rate |
|
|
35.0% |
|
|
|
35.0% |
|
|
|
35.0% |
|
State income taxes,
net of federal benefit |
|
|
1.7 |
|
|
|
3.3 |
|
|
|
2.4 |
|
Foreign tax expense at different rates and
foreign losses without tax benefits |
|
|
(3.9) |
|
|
|
(0.3) |
|
|
|
(1.7) |
|
U.S. tax on foreign income |
|
|
(4.2) |
|
|
|
(4.4) |
|
|
|
(1.5) |
|
Reserve and valuation allowance adjustment |
|
|
(2.2) |
|
|
|
(1.7) |
|
|
|
2.1 |
|
Other |
|
|
(0.4) |
|
|
|
(0.9) |
|
|
|
(1.7) |
|
| |
Effective income tax rate |
|
|
26.0% |
|
|
|
31.0% |
|
|
|
34.6% |
|
| |
The Company’s effective income tax rate for fiscal 2004 was 26.0%. The base effective tax
rate of 28.3% for 2004 was lower than the prior year’s effective rate of 31.0% because of global
tax planning initiatives. The 2004 effective rate was further reduced by a favorable tax
settlement of $17 million received in the first quarter related to prior periods, and a $10 million
adjustment in the fourth quarter primarily related to the favorable resolution of certain worldwide
tax audits.
Components of the provision for income taxes were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended September 30, |
|
| In millions |
|
2004 |
|
|
2003 |
|
|
2002 |
|
| |
Current |
Federal |
|
$ |
141.7 |
|
|
$ |
163.9 |
|
|
$ |
241.1 |
|
State |
|
|
16.1 |
|
|
|
31.9 |
|
|
|
28.7 |
|
Foreign |
|
|
57.5 |
|
|
|
9.3 |
|
|
|
85.2 |
|
| |
|
|
|
215.3 |
|
|
|
205.1 |
|
|
|
355.0 |
|
| |
Deferred |
Federal |
|
|
72.8 |
|
|
|
95.0 |
|
|
|
39.5 |
|
State |
|
|
9.3 |
|
|
|
12.2 |
|
|
|
4.9 |
|
Foreign |
|
|
18.3 |
|
|
|
15.5 |
|
|
|
(51.8 |
) |
| |
|
|
|
100.4 |
|
|
|
122.7 |
|
|
|
(7.4 |
) |
| |
Provision for income taxes |
|
$ |
315.7 |
|
|
$ |
327.8 |
|
|
$ |
347.6 |
|
| |
Consolidated domestic income before income taxes and minority interests was $861 million in
2004, $979 million in 2003 and $862 million in 2002. The corresponding amounts for foreign
operations were $351 million in 2004, $79 million in 2003 and $144 million in 2002.
61
Income taxes paid during 2004, 2003 and 2002 were $137 million, $305 million and $292 million,
respectively.
The Company has not provided additional United States income taxes on approximately $661 million of
undistributed earnings of consolidated foreign subsidiaries included in shareholders’ equity. Such
earnings could become taxable upon the sale or liquidation of these foreign subsidiaries or upon
dividend repatriation. The Company’s intent is for such earnings to be reinvested by the
subsidiaries or to be repatriated only when it would be tax effective through the utilization of
foreign tax credits. It is not practicable to estimate the amount of unrecognized withholding tax
and deferred tax liability on such earnings. The Company is currently assessing the potential
impact of the provisions recently enacted as part of the American Jobs Creation Act of 2004.
Deferred taxes were classified in the Consolidated Statement of Financial Position as follows:
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
| In millions |
|
2004 |
|
|
2003 |
|
| |
Other current assets |
|
$ |
140.2 |
|
|
$ |
174.7 |
|
Other noncurrent assets |
|
|
309.6 |
|
|
|
293.6 |
|
Other current liabilities |
|
|
(48.9 |
) |
|
|
- |
|
Other noncurrent liabilities |
|
|
(424.6 |
) |
|
|
(248.5 |
) |
| |
|
|
|
|
|
|
|
|
|
Net deferred tax (liability) asset |
|
$ |
(23.7 |
) |
|
$ |
219.8 |
|
| |
Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities
included:
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
| In millions |
|
2004 |
|
|
2003 |
|
| |
Deferred Tax Assets |
|
|
|
|
|
|
|
|
Accrued expenses and reserves |
|
$ |
315.1 |
|
|
$ |
339.5 |
|
Employee benefits |
|
|
35.7 |
|
|
|
48.2 |
|
Net operating loss and other carryforwards |
|
|
592.7 |
|
|
|
526.6 |
|
| |
|
|
|
943.5 |
|
|
|
914.3 |
|
Valuation allowance |
|
|
(571.7 |
) |
|
|
(472.1 |
) |
| |
|
|
|
371.8 |
|
|
|
442.2 |
|
| |
Deferred Tax Liabilities |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
126.4 |
|
|
|
63.9 |
|
Long-term contracts |
|
|
8.6 |
|
|
|
7.7 |
|
Joint ventures |
|
|
14.1 |
|
|
|
13.9 |
|
Intangible assets |
|
|
134.0 |
|
|
|
98.0 |
|
Other |
|
|
112.4 |
|
|
|
38.9 |
|
| |
|
|
|
395.5 |
|
|
|
222.4 |
|
| |
Net deferred tax (liability) asset |
|
$ |
(23.7 |
) |
|
$ |
219.8 |
|
| |
At September 30, 2004, the Company had available foreign net operating loss carryforwards of
approximately $1,464 million, of which $452 million will expire at various dates between 2005 and
2019, and the remainder have an indefinite carryforward period. The valuation allowance primarily
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/or limited carryforward
periods in certain countries.
18. CONTINGENCIES
The Company is involved in a number of proceedings relating to environmental matters. At September
30, 2004, the Company had an accrued liability of approximately $61 million relating to
environmental matters compared with $62 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
62
related to
these environmental matters, the Company believes that these matters will not have a materially
adverse effect upon its capital expenditures, earnings or competitive position.
Additionally, the Company is involved in a number of product liability and various other suits
incident to the operation of its businesses. Insurance coverages are maintained and estimated
costs are recorded for claims and suits of this nature. It is management’s opinion that none of
these will have a materially adverse effect on the Company’s financial position, results of
operations or cash flows. Costs related to such matters were not material to the periods
presented.
In 1989, Johnson Controls initiated an action in the Milwaukee County, Wisconsin Circuit Court,
Johnson Controls, Inc. v. Employers Insurance of Wausau, which sought reimbursement under
comprehensive general liability insurance policies dating from 1954 through 1985 for costs relating
to certain environmental matters. In 1995, the Circuit Court dismissed the action based on the
Wisconsin Supreme Court’s decision in City of Edgerton v. General Casualty Co. of Wisconsin. The
Company twice appealed the case to the Court of Appeals and then petitioned the Wisconsin Supreme
Court to review the lower courts’ judgments. The Supreme Court granted the petition and on July
11, 2003 overruled its decision in the Edgerton case and found that the comprehensive general
liability insurance policies may provide coverage for environmental damages, subject to other
available defenses. The Supreme Court’s decision remands the case to the Circuit Court for further
consideration, where the merits of Johnson Controls’ various environmental claims will be
determined.
19. STOCK SPLIT
On November 19, 2003, the Company’s Board of Directors declared a two-for-one split of the
Company’s common stock payable January 2, 2004 to shareholders of record on December 12, 2003. All
prior year share and per share amounts disclosed in this document have been restated to reflect the
two-for-one stock split. The stock split resulted in the issuance of approximately 90.5 million
additional shares of common stock. In connection with the stock split, the par value of the common
stock was changed from $.16 2/3 per share to $.04 1/6 per share.
20. SEGMENT INFORMATION (RESTATED)
Business Segments
In response to comments raised by the Staff of the Securities and Exchange Commission, the Company
is revising its segment disclosure. Revising the segment disclosure also requires the Company to
update additional information that is disclosed based on the Company’s reportable segments in
other notes to the Consolidated Financial Statements, primarily Note 4 – Goodwill and Other
Intangible Assets. In addition, the Company’s Summary of Significant Accounting Policies, Note 11
– Financial Instruments and Note 18 – Contingencies, were amended to address additional comments
from the Staff of the Securities and Exchange Commission.
The Company operates in three primary businesses, the Controls Group, the Seating & Interiors
Group, and the Battery Group. The Controls Group provides facility systems and services including
comfort, energy and security management for the non-residential buildings market. The Seating &
Interiors Group designs and manufactures interior systems and products for passenger cars and
light trucks, including vans, pick-up trucks and sport utility vehicles. The Battery Group
designs and manufactures automotive batteries for the replacement and original equipment markets.
SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information,” (SFAS 131)
establishes the standards for reporting information about operating segments in financial
statements. In applying the criteria set forth in SFAS 131, the Company has determined that it
operates in six operating segments, two within the Battery Group are aggregated under the
accounting standard to arrive at the Company’s five reportable segments for financial reporting
purposes.
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, excluding significant restructuring
costs and other significant non-recurring gains and losses.
Operating revenues and expenses are allocated to business segments
in determining segments 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.
63
Financial information relating to the Company’s reportable segments were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended September 30, |
|
| (in millions) |
|
2004 |
|
|
2003 |
|
|
2002 |
|
| |
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Controls Group |
|
$ |
6,077.8 |
|
|
$ |
5,576.0 |
|
|
$ |
5,088.8 |
|
Seating & Interiors — North America |
|
|
8,997.8 |
|
|
|
8,025.1 |
|
|
|
7,751.9 |
|
Seating & Interiors — Europe |
|
|
8,113.5 |
|
|
|
6,150.3 |
|
|
|
4,964.4 |
|
Seating & Interiors — Asia |
|
|
1,092.6 |
|
|
|
1,013.6 |
|
|
|
999.0 |
|
Battery Group |
|
|
2,271.7 |
|
|
|
1,881.0 |
|
|
|
1,299.3 |
|
| |
Total |
|
$ |
26,553.4 |
|
|
$ |
22,646.0 |
|
|
$ |
20,103.4 |
|
| |
Operating Income |
|
|
|
|
|
|
|
|
|
|
|
|
Controls Group (1) |
|
$ |
284.3 |
|
|
$ |
282.6 |
|
|
$ |
259.2 |
|
Seating & Interiors — North America (2) |
|
|
585.6 |
|
|
|
654.5 |
|
|
|
574.1 |
|
Seating & Interiors — Europe (3) |
|
|
154.0 |
|
|
|
(24.4 |
) |
|
|
67.8 |
|
Seating & Interiors — Asia (4) |
|
|
37.8 |
|
|
|
42.0 |
|
|
|
60.2 |
|
Battery Group (5) |
|
|
237.4 |
|
|
|
206.9 |
|
|
|
160.7 |
|
| |
Total |
|
$ |
1,299.1 |
|
|
$ |
1,161.6 |
|
|
$ |
1,122.0 |
|
| |
Assets (Year-end) |
|
|
|
|
|
|
|
|
|
|
|
|
Controls Group |
|
$ |
2,231.1 |
|
|
$ |
2,074.2 |
|
|
$ |
1,954.8 |
|
Seating & Interiors — North America |
|
|
4,111.1 |
|
|
|
3,842.2 |
|
|
|
3,536.9 |
|
Seating & Interiors — Europe |
|
|
5,186.1 |
|
|
|
4,092.0 |
|
|
|
3,351.7 |
|
Seating & Interiors — Asia |
|
|
751.1 |
|
|
|
718.0 |
|
|
|
711.4 |
|
Battery Group |
|
|
2,562.2 |
|
|
|
1,580.1 |
|
|
|
870.6 |
|
Unallocated |
|
|
249.2 |
|
|
|
820.8 |
|
|
|
739.9 |
|
| |
Total |
|
$ |
15,090.8 |
|
|
$ |
13,127.3 |
|
|
$ |
11,165.3 |
|
| |
Depreciation/Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
Controls Group |
|
$ |
53.0 |
|
|
$ |
57.6 |
|
|
$ |
59.2 |
|
Seating & Interiors — North America |
|
|
216.3 |
|
|
|
207.1 |
|
|
|
219.3 |
|
Seating & Interiors — Europe |
|
|
235.0 |
|
|
|
190.4 |
|
|
|
160.1 |
|
Seating & Interiors — Asia |
|
|
17.2 |
|
|
|
20.1 |
|
|
|
28.8 |
|
Battery Group |
|
|
95.1 |
|
|
|
82.8 |
|
|
|
49.4 |
|
| |
Total |
|
$ |
616.6 |
|
|
$ |
558.0 |
|
|
$ |
516.8 |
|
| |
Capital Expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
Controls Group |
|
$ |
33.5 |
|
|
$ |
36.1 |
|
|
$ |
44.6 |
|
Seating & Interiors — North America |
|
|
351.1 |
|
|
|
222.1 |
|
|
|
156.3 |
|
Seating & Interiors — Europe |
|
|
354.4 |
|
|
|
286.1 |
|
|
|
194.6 |
|
Seating & Interiors — Asia |
|
|
41.1 |
|
|
|
25.8 |
|
|
|
42.6 |
|
Battery Group |
|
|
82.1 |
|
|
|
94.3 |
|
|
|
58.1 |
|
| |
Total |
|
$ |
862.2 |
|
|
$ |
664.4 |
|
|
$ |
496.2 |
|
| |
(1) Controls Group operating income for the year ended September 30, 2004 excludes $13.3 million
of restructuring costs which is included within selling, general and administrative expenses in the
Consolidated Statement of Income.
(2) Seating and Interiors — North America operating income for the year ended September 30, 2004
excludes $5.1 million of restructuring costs which is included within selling, general and
administrative expenses in the Consolidated Statement of Income.
(3) Seating and Interiors — Europe operating income for the year ended September 30, 2004 excludes
$51.1 million of restructuring costs which is included within selling, general and administrative
expenses in the Consolidated Statement of Income.
(4) Seating and Interiors — Asia operating income for the year ended September 30, 2004 excludes a
pension gain of $84.4 million which is included within selling, general and administrative expenses
in the Consolidated Statement of Income.
(5) Battery Group operating income for the year ended September 30, 2004 excludes $12.9 million
of restructuring costs which is included within selling, general and administrative expenses in the
Consolidated Statement of Income.
64
The Company has significant sales to the automotive industry. The following is a summary of
the percentages of revenues from major customers:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended September 30, |
|
| |
|
2004 |
|
|
2003 |
|
|
2002 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
General Motors Corporation |
|
|
14 |
% |
|
|
15 |
% |
|
|
15 |
% |
DaimlerChrysler AG |
|
|
10 |
% |
|
|
11 |
% |
|
|
14 |
% |
Ford Motor Company |
|
|
13 |
% |
|
|
11 |
% |
|
|
10 |
% |
Approximately 49 percent of the Company’s 2004 net sales to these customers were in the United
States, 36 percent were European sales and 15 percent were attributable to sales in other foreign
markets. As of September 30, 2004, the Company had accounts receivable totaling approximately $1.4
billion from these customers.
Geographic Segments
Financial information relating to the Company’s operations by geographic area is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended September 30, |
|
| (in millions) |
|
2004 |
|
|
2003 |
|
|
2002 |
|
| |
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
11,683.8 |
|
|
$ |
10,524.9 |
|
|
$ |
10,146.4 |
|
Germany |
|
|
2,680.1 |
|
|
|
2,452.9 |
|
|
|
1,868.3 |
|
Other European countries |
|
|
7,554.9 |
|
|
|
5,503.0 |
|
|
|
4,230.0 |
|
Other foreign |
|
|
4,634.6 |
|
|
|
4,165.2 |
|
|
|
3,858.7 |
|
| |
Total |
|
$ |
26,553.4 |
|
|
$ |
22,646.0 |
|
|
$ |
20,103.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Assets (Year-end) |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
1,326.5 |
|
|
$ |
1,208.4 |
|
|
$ |
1,147.6 |
|
Germany |
|
|
640.2 |
|
|
|
542.6 |
|
|
|
350.6 |
|
Other European countries |
|
|
849.7 |
|
|
|
752.8 |
|
|
|
476.1 |
|
Other foreign |
|
|
713.0 |
|
|
|
459.6 |
|
|
|
471.2 |
|
| |
Total |
|
$ |
3,529.4 |
|
|
$ |
2,963.4 |
|
|
$ |
2,445.5 |
|
| |
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.
65
JOHNSON CONTROLS, INC. AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(in millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended September 30, |
|
2004 |
|
|
2003 |
|
|
2002 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable — Allowance for
Doubtful Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
48.5 |
|
|
$ |
44.8 |
|
|
$ |
28.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision charged to costs and expenses |
|
|
23.4 |
|
|
|
17.1 |
|
|
|
20.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve adjustments |
|
|
(11.2 |
) |
|
|
(9.2 |
) |
|
|
(7.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts charged off |
|
|
(17.7 |
) |
|
|
(13.7 |
) |
|
|
(4.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of businesses |
|
|
2.4 |
|
|
|
4.4 |
|
|
|
10.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation |
|
|
2.5 |
|
|
|
4.4 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
— |
|
|
|
0.7 |
|
|
|
(3.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
47.9 |
|
|
$ |
48.5 |
|
|
$ |
44.8 |
|
| |
|
|
| |
| |
Deferred
Tax Assets — Valuation Allowance |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance at
beginning of period |
|
$ |
472.1 |
|
|
$ |
352.2 |
|
|
$ |
88.7 |
|
| |
Allowance
established for new operating and other loss carryforwards |
|
|
112.8 |
|
|
|
128.8 |
|
|
|
277.3 |
|
| |
Allowance
reversed for loss carryforwards utilized |
|
|
(13.2 |
) |
|
|
(8.9 |
) |
|
|
(13.8 |
) |
| |
|
|
| |
Balance at
end of period |
|
$ |
571.7 |
|
|
$ |
472.1 |
|
|
$ |
352.2 |
|
| |
|
|
66
|
|
|
| ITEM 9 |
|
DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
|
|
|
| ITEM 9A |
|
CONTROLS AND PROCEDURES |
Restatement
On July 18, 2005, in response to a comment raised by the Staff of the Securities and Exchange
Commission concerning the Company’s segment disclosure, the Audit Committee of the Board of
Directors and management of Johnson Controls, Inc. concluded that the Company’s financial
statements for the years ended September 30, 2004, 2003 and 2002 and as of and for the three month
periods ended December 31, 2004 and 2003 and March 31, 2005 and 2004 and June 30, 2004 and for the six month periods
ended March 31, 2005 and 2004 and the nine month period ended June 30, 2004 should be restated and
such financial statements should no longer be relied upon. The restatement revised the segment
information included in the aforementioned financial statements.
As the restatement only related to the disclosure of the Company’s segment information, the
previously reported amounts in the Consolidated Statement of Income, including Net Sales, Operating
Income, Net Income and Earnings Per Share were unchanged.
Evaluation of Disclosure Controls and Procedures
In connection with the restatement, under the direction of the Chief Executive Officer and Chief
Financial Officer, the Company reevaluated its disclosure controls and procedures that were in
effect as of September 30, 2004 and identified the following material weakness:
| • |
|
A failure to ensure the proper application of SFAS 131 when identifying operating and
reportable segments of the Company resulting in a restatement of the Company’s previously
issued consolidated financial statements. |
Solely as a result of this material weakness, the Company concluded that our disclosure controls
and procedures were not effective as of September 30, 2004.
The Company also determined that there was no resultant financial statement effect of this material
weakness as it relates to the application of SFAS No. 142, “Goodwill and Other Intangible Assets”
given the revised operating and reportable segments.
Remediation of Material Weakness in Internal Control
The Company’s management believes that the following corrective actions have remediated the
identified deficiency in the Company’s disclosure controls and procedures as of the date of this
filing. The remedial actions taken by the Company are as follows:
| • |
|
Key personnel involved in the financial reporting process have enhanced the controls by which the SFAS No. 131
authoritative guidance is monitored and applied on a regular basis. |
| • |
|
The Company has revised its monthly reporting package used by the Chief Operating Decision Maker. |
| • |
|
The Company will now require the Company’s Disclosure Committee to review its segment reporting on a quarterly basis. |
Under the direction of the Chief Executive Officer and Chief Financial Officer, the Company has
evaluated its disclosure controls and procedures as currently in effect, including the remedial
action discussed above, and have concluded that, as of this date, our disclosure controls and
procedures are effective.
67
Changes in Internal Control over Financial Reporting
There were no significant changes in the Company’s internal control over financial reporting during
the quarter ended September 30, 2004, that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting. However, subsequent to
March 31, 2005, the Company took the remedial actions described above.
ITEM 9B OTHER INFORMATION
None.
PART III
The information required by Part III, Items 10, 11, 12 and 14, are incorporated herein by reference
to the Company’s Proxy Statement for its 2005 Annual Meeting of Shareholders (fiscal year 2004
Proxy Statement), dated and filed with the SEC on December 3, 2004, as follows:
|
|
|
| ITEM 10 |
|
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -
Incorporated by reference to sections entitled “Election of
Directors,” “Board Information,” “Board Compensation,” “Section
16(a) Beneficial Ownership Reporting Compliance,” “Q: Where can I
find Corporate Governance materials for Johnson Controls” and
“Audit Committee Report” of the fiscal year 2004 Proxy Statement.
Required information on executive officers of the Company
appears on pages 15-17 of Part I of this report. |
|
|
|
| ITEM 11 |
|
EXECUTIVE COMPENSATION — Incorporated by reference to sections
entitled “Executive Compensation,” “Compensation Committee
Report,” “Performance Graph,” “Board Information” and “Employment
Agreements” of the fiscal year 2004 Proxy Statement. |
|
|
|
| ITEM 12 |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -
Incorporated by reference to the section entitled “Johnson
Controls Share Ownership” and “Equity Compensation Plan
Information” of the fiscal year 2004 Proxy Statement. |
|
|
|
| ITEM 13 |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS – None. |
|
|
|
| ITEM 14 |
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES – Incorporated by
reference to the section entitled “Audit Committee Report” of the
fiscal year 2004 Proxy Statement. |
68
PART IV
|
|
|
| ITEM 15 |
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULE |
| |
|
|
|
|
| |
|
Page in |
|
| |
|
Form 10-K/A |
|
|
|
|
|
|
(a) The following documents are filed as part of this Form 10-K/A: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37 |
|
|
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
41 |
|
|
|
|
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|
|
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|
42 |
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|
66 |
|
|
|
|
|
|
|
|
|
71 |
|
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.
|
|
|
|
|
|
|
|
|
|
(3) Exhibits |
|
|
|
|
|
Reference is made to the separate exhibit index contained on pages 73 through 76 filed
herewith. |
69
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, 333-41564, and
333-117898.
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 SEC
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 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.
70
Report of Independent Registered Public Accounting Firm on
Financial Statement Schedule
To the Board of Directors
of Johnson Controls, Inc.
Our audits of the consolidated financial statements referred to in our report dated November 12,
2004, except for Note 20, as to which the date is August 9, 2005, appearing in the 2004 Annual Report
to Shareholders of Johnson Controls, Inc. (which report and consolidated financial statements are
included in this Annual Report on Form 10-K/A) also included an audit of the financial statement
schedule listed in Item 15(a)(2) of this Form 10-K/A. 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
November 12, 2004, except for Note 20, as to which the date is August 9, 2005
71
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/ R. Bruce McDonald |
|
|
|
|
R. Bruce McDonald |
|
|
|
|
Vice President and |
|
|
|
|
Chief Financial Officer |
Date: August 9, 2005
72
JOHNSON CONTROLS, INC.
INDEX TO EXHIBITS
| |
|
|
|
|
|
|
|
|
| |
|
EXHIBITS |
|
TITLE |
|
PAGE |
|
|
|
|
|
|
|
|
|
|
|
|
3.(i)A |
|
|
Articles of Amendment to Restated Articles of Incorporation of
Johnson Controls, Inc., filed and effective December 12, 2003
(incorporated by reference to Exhibit 3.(i) to Johnson Controls, Inc.
Quarterly Report on Form 10-Q for the quarter ended December 31, 2003).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.(i)B |
|
|
Composite of Restated Articles of Incorporation of Johnson Controls,
Inc., as amended through December 12, 2003 (incorporated by reference
to Exhibit 3.(ii) to Johnson Controls, Inc. Quarterly Report on Form
10-Q for the quarter ended December 31, 2003). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.(ii) |
|
|
By-laws of Johnson Controls, Inc., as amended March 27, 2002
(incorporated by reference to Exhibit 3 (ii) to Johnson Controls, Inc.
Annual Report on Form 10-K for the year ended September 30, 2002). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
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). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.D |
|
|
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 Johnson Controls, Inc.
Registration Statement on Form S-3, [Reg. No. 33-57685]). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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., Common Stock Purchase Plan for Executives as
amended November 17, 2004 and effective December 1, 2004.** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.C |
|
|
Johnson Controls, Inc., 1992 Stock Option 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). |
|
|
73
JOHNSON CONTROLS, INC.
INDEX TO EXHIBITS
| |
|
|
|
|
|
|
|
|
| |
|
EXHIBITS |
|
TITLE |
|
PAGE |
|
|
|
|
|
|
|
|
|
|
|
|
10.D |
|
|
Johnson Controls, Inc., Deferred Compensation Plan for Certain
Directors as amended through October 1, 2003 (incorporated by reference
to Exhibit 10.D to Johnson Controls, Inc. Annual Report on Form 10-K
for the year ended September 30, 2003). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.E |
|
|
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.F |
|
|
Johnson Controls, Inc., Executive Incentive Compensation Plan,
Deferred Option, Qualified Plan as amended and restated effective
October 1, 2003, (incorporated by reference to Exhibit C of the
Definitive Proxy Statement of Johnson Controls, Inc. filed on Schedule
14A on December 4, 2003) (Commission File No. 1-5097). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.G |
|
|
Johnson Controls, Inc., Long-Term Performance Plan, as amended and
restated effective October 1, 2003 (incorporated by reference to
Exhibit B of the Definitive Proxy Statement of Johnson Controls, Inc.
filed on Schedule 14A on December 4, 2003) (Commission File No.
1-5097). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.H |
|
|
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.I |
|
|
Johnson Controls, Inc., Equalization Benefit Plan, as amended
through October 1, 2003.** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.J |
|
|
Johnson Controls, Inc., PERT Equalization Benefit Plan, as amended
through October 1, 2003 (incorporated by reference to Exhibit 10.J to
Johnson Controls, Inc. Annual Report on Form 10-K for the year ended
September 30, 2003). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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). |
|
|
74
JOHNSON CONTROLS, INC.
INDEX TO EXHIBITS
| |
|
|
|
|
|
|
|
|
| |
|
EXHIBITS |
|
TITLE |
|
PAGE |
|
|
|
|
|
|
|
|
|
|
|
|
10.M |
|
|
Johnson Controls, Inc., Director Share Unit Plan, as amended through
October 1, 2003 (incorporated by reference to Exhibit 10.M to Johnson
Controls, Inc. Annual Report on Form 10-K for the year ended September
30, 2003). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.O |
|
|
Johnson Controls, Inc., 2001 Restricted Stock Plan, as amended and
restated effective October 1, 2003 (incorporated by reference to
Exhibit E of the Definitive Proxy Statement of Johnson Controls, Inc.
filed on Schedule 14A on December 4, 2003) (Commission File No.
1-5097). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.P |
|
|
Johnson Controls, Inc., Executive Deferred Compensation Plan, as
amended through October 1, 2003.** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.Q |
|
|
Johnson Controls, Inc., 2003 Stock Plan for Outside Directors,
effective October 1, 2003 (incorporated by reference to Exhibit D of
the Definitive Proxy Statement of Johnson Controls, Inc. filed on
Schedule 14A on December 4, 2003) (Commission File No. 1-5097). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.R |
|
|
Letter agreement relating to James H. Keyes’ retirement
(incorporated by reference to an exhibit to the Form 8-K dated July 23,
2003). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.S |
|
|
Letter agreement dated November 21, 2002 amending Giovanni Fiori’s
Executive Employment Agreement (incorporated by reference to Exhibit
10.R to Johnson Controls, Inc. Annual Report on Form 10-K for the year
ended September 30, 2003), relating to the Johnson Controls, Inc.
Executive Survivor Benefits Plan (incorporated by reference to Exhibit
10.I 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, 2004.** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
Subsidiaries of the Registrant.** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23 |
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Consent of Independent Registered Public Accounting Firm dated
August 9, 2005, filed herewith. |
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31.1 |
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Certification by the Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, filed herewith. |
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78 |
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31.2 |
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Certification by the Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, filed herewith. |
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75
JOHNSON CONTROLS, INC.
INDEX TO EXHIBITS
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EXHIBITS |
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TITLE |
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PAGE |
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32 |
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Certification of Periodic Financial Report by the Chief Executive
Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
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80 |
*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.
**Exhibits were filed with the Form 10-K as originally filed on November 30, 2004.
76