FY2004 1st Quarter Form 10-Q
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FY2004 1st Quarter Form 10-Q

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 FY2004 1st Quarter Form 10-Q  FY2004 1st Quarter Form 10-Q Document Transcript

  • UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2003 OR [] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-5097 JOHNSON CONTROLS, INC. (Exact name of registrant as specified in its charter) Wisconsin 39-0380010 (State of Incorporation) (I.R.S. Employer Identification No.) 5757 North Green Bay Avenue, P.O. Box 591, Milwaukee, WI 53201 (Address of principal executive office) Registrant's telephone number, including area code: (414) 524-1200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at December 31, 2003* Common Stock $.04 1/6 Par Value 188,551,068 * Reflects two-for-one stock split effective January 2, 2004.
  • JOHNSON CONTROLS, INC. FORM 10-Q December 31, 2003 REPORT INDEX Page No. PART I - FINANCIAL INFORMATION: Item 1. Consolidated Financial Statements Consolidated Statement of Financial Position at December 31, 2003, September 30, 2003 and December 31, 2002 ........................................ 3 Consolidated Statement of Income for the Three-Month Periods Ended December 31, 2003 and 2002 ....................................... 4 Consolidated Statement of Cash Flows for the Three-Month Periods Ended December 31, 2003 and 2002 ....................................... 5 Notes to Consolidated Financial Statements ............................................ 6 Report of Independent Accountants ....................................................... 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................................................ 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk ................ 21 Item 4. Controls and Procedures ......................................................................... 21 PART II - OTHER INFORMATION: Item 1. Legal Proceedings ................................................................................... 21 Item 4. Results of Votes of Security Holders ...................................................... 21 Item 6. Exhibits and Reports on Form 8-K ......................................................... 22 SIGNATURES .......................................................................................................... 23 2
  • PART I. - FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS JOHNSON CONTROLS, INC. CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in millions; unaudited) December 31, September 30, December 31, 2003 2003 2002 ASSETS Cash and cash equivalents $ 302.6 $ 136.1 $ 351.6 Accounts receivable - net 3,490.6 3,539.1 3,026.3 Costs and earnings in excess of billings on uncompleted contracts 318.7 323.0 311.7 Inventories 845.6 825.9 781.2 Other current assets 792.6 796.2 680.3 Current assets 5,750.1 5,620.3 5,151.1 Property, plant and equipment - net 3,125.9 2,963.4 2,613.9 Goodwill - net 3,288.6 3,162.7 2,980.2 Other intangible assets - net 326.5 316.9 271.4 Investments in partially-owned affiliates 425.9 408.1 366.0 Other noncurrent assets 753.9 655.9 393.4 Total assets $ 13,670.9 $ 13,127.3 $ 11,776.0 LIABILITIES AND EQUITY Short-term debt $ 717.6 $ 150.5 $ 615.5 Current portion of long-term debt 130.9 427.8 327.9 Accounts payable 3,253.1 3,329.3 2,676.3 Accrued compensation and benefits 477.6 546.3 422.0 Accrued income taxes 100.2 58.7 158.0 Billings in excess of costs and earnings on uncompleted contracts 204.4 186.2 197.0 Other current liabilities 847.7 885.3 1,092.3 Current liabilities 5,731.5 5,584.1 5,489.0 Long-term debt 1,830.6 1,776.6 1,526.5 Postretirement health and other benefits 167.1 167.8 166.4 Minority interests in equity of subsidiaries 229.5 221.8 212.0 Other noncurrent liabilities 1,130.6 1,115.7 718.4 Shareholders' equity 4,581.6 4,261.3 3,663.7 Total liabilities and equity $ 13,670.9 $ 13,127.3 $ 11,776.0 The accompanying notes are an integral part of the financial statements. 3
  • JOHNSON CONTROLS, INC. CONSOLIDATED STATEMENT OF INCOME (in millions, except per share data; unaudited) Three Months Ended December 31, 2003 2002 Net sales Products and systems* $ 5,520.0 $ 4,415.9 Services* 864.1 767.4 6,384.1 5,183.3 Cost of sales Products and systems 4,802.1 3,790.3 Services 720.7 643.6 5,522.8 4,433.9 Gross profit 861.3 749.4 Selling, general and administrative expenses 599.5 501.5 Operating income 261.8 247.9 Interest income 1.9 2.0 Interest expense (27.2) (29.1) Equity income 17.8 8.3 Miscellaneous - net (24.6) (2.4) Other income (expense) (32.1) (21.2) Income before income taxes and minority interests 229.7 226.7 Provision for income taxes 49.7 70.4 Minority interests in net earnings of subsidiaries 15.5 15.9 Net income $ 164.5 $ 140.4 Earnings available for common shareholders $ 162.7 $ 138.7 Earnings per share** Basic $ 0.90 $ 0.78 Diluted $ 0.86 $ 0.74 * Products and systems consist of Automotive Group products and systems and Controls Group installed systems. Services are Controls Group technical and facility management services. ** Per share amounts have been restated to reflect a two-for-one stock split (see Note 14). The accompanying notes are an integral part of the financial statements. 4
  • JOHNSON CONTROLS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (in millions; unaudited) Three Months Ended December 31, 2003 2002 Operating Activities Net income $ 164.5 $ 140.4 Adjustments to reconcile net income to cash provided by operating activities Depreciation 142.9 129.0 Amortization of intangibles 5.7 4.5 Equity in earnings of partially-owned affiliates, net of dividends received (4.4) (8.2) Minority interests in net earnings of subsidiaries 15.5 15.9 Deferred income taxes 7.2 3.6 Gain on sale of long-term investment - (16.6) Pension contributions in excess of expense - 4.7 Other 3.7 (5.7) Changes in working capital, excluding acquisition of businesses Receivables 191.1 249.8 Inventories 13.0 (10.1) Other current assets 30.1 (32.3) Accounts payable and accrued liabilities (378.7) (448.8) Accrued income taxes 43.8 (28.5) Billings in excess of costs and earnings on uncompleted contracts 13.6 3.8 Cash provided by operating activities 248.0 1.5 Investing Activities Capital expenditures (203.6) (106.6) Sale of property, plant and equipment 7.2 6.0 Acquisition of businesses, net of cash acquired (36.6) (218.9) Proceeds from sale of long-term investment - 38.2 Changes in long-term investments (4.7) (1.9) Cash used by investing activities (237.7) (283.2) Financing Activities Increase in short-term debt - net 567.3 509.6 Increase in long-term debt 1.1 - Repayment of long-term obligations (423.9) (122.8) Payment of cash dividends (5.4) (5.2) Other 17.1 (10.3) Cash provided by financing activities 156.2 371.3 Increase in cash and cash equivalents $ 166.5 $ 89.6 The accompanying notes are an integral part of the financial statements. 5
  • NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Financial Statements In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. These condensed financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company's Annual Report to Shareholders for the year ended September 30, 2003. The September 30, 2003 Consolidated Statement of Financial Position is derived from the audited financial statements. The results of operations for the three- month period ended December 31, 2003 are not necessarily indicative of the results which may be expected for the Company's 2004 fiscal year because of seasonal and other factors. Certain prior period amounts have been reclassified to conform to the current year’s presentation. 2. Stock-Based Compensation – Stock Options Effective October 1, 2002, the Company voluntarily adopted the fair value recognition provisions of Statement of Financial Accounting Standards (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 the three-month period ended December 31, 2003 represents a pro rata portion of the 2004 and 2003 grants which are earned over a three-year vesting period. 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 period: Three Months Ended December 31, (in millions) 2003 2002 Net income, as reported $164.5 $140.4 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 3.6 0.5 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (5.5) (3.4) Pro forma net income $162.6 $137.5 Earnings per share* Basic - as reported $0.90 $0.78 Basic - pro forma $0.89 $0.76 Diluted - as reported $0.86 $0.74 Diluted - pro forma $0.85 $0.73 *Per share amounts have been restated to reflect a two-for-one stock split (see Note 14). 6
  • NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 3. Earnings Per Share The following table reconciles the numerators and denominators used to calculate basic and diluted earnings per share (EPS): Three Months Ended December 31, (in millions) 2003 2002 Income Available to Common Shareholders Net income $164.5 $140.4 Preferred stock dividends, net of tax benefit (1.8) (1.7) Basic income available to common shareholders $162.7 $138.7 Net income $164.5 $140.4 Effect of dilutive securities: Compensation expense, net of tax benefit, arising from assumed conversion of preferred stock (0.1) (0.5) Diluted income available to common shareholders $164.4 $139.9 Weighted Average Shares Outstanding* Basic weighted average shares outstanding 181.0 177.9 Effect of dilutive securities: Stock options 3.3 2.8 Convertible preferred stock 7.5 8.0 Diluted weighted average shares outstanding 191.8 188.7 *Weighted average shares outstanding have been restated to reflect a two-for-one stock split (see Note 14). See also Note 4 regarding the conversion of the Series D Convertible Preferred Stock. 4. Conversion of Preferred Stock 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 Company's Employee Stock Ownership Plan (ESOP), and the 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 14) 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 as of December 31, 2003. The conversion of these shares will result in their inclusion in the basic weighted average common stock outstanding amount used to compute basic EPS. The conversion of preferred shares had previously been assumed in the determination of diluted EPS, accordingly, the conversion had no impact on diluted EPS in the first quarter of fiscal 2004 as compared to the comparable period 7
  • NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) of the prior year. 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. 5. Acquisition of Businesses On October 31, 2002, the Company acquired VARTA AG’s Automotive Battery Division, a major European automotive battery manufacturer headquartered in Germany. The Varta Automotive Battery Division (Varta) consists of VARTA Automotive GmbH and the 80% majority ownership in VB Autobatterie GmbH. Restructuring reserves related to the Varta acquisition of approximately $18 million were recorded. The majority of the reserves were established for severance costs related to workforce reductions of approximately 235 employees. Approximately $2 million of severance costs, associated with workforce reductions of approximately 20 employees, have been incurred to date. The Varta restructuring activities are expected to be completed within the current fiscal year. The purchase price allocation may be subsequently adjusted to reflect final valuation studies. In the first quarter of fiscal 2004, the Company made the final payment related to the Varta acquisition of $36.6 million. Effective September 1, 2000, the Company completed the acquisition of a Japanese supplier of automotive seating. As part of this acquisition, a restructuring reserve of approximately $54 million was recorded. The reserve was established for expected severance costs as the Company eliminates certain non-core activities to focus on the operation’s principal seating and interiors businesses. Seven plants and facilities have been or will be closed as part of the restructuring plan, with resulting workforce reductions of approximately 1,000 employees. Through December 31, 2003 approximately $29 million of severance costs associated with the restructuring plan were paid or incurred, and approximately 600 employees separated from the Company. In fiscal 2002, the Company recorded an adjustment to the restructuring reserve of approximately $10 million which resulted in a decrease to the goodwill assigned to the Automotive Group of approximately $6 million. The reserve balance at December 31, 2003 of approximately $15 million represents remaining severance payments to be made in accordance with underlying agreements. 6. Goodwill and Other Intangible Assets The changes in the carrying amount of goodwill for the nine-month period ended September 30, 2003 and the three-month period ended December 31, 2003 were as follows: 8
  • NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Automotive Controls (in millions) Group Group Total Balance as of December 31, 2002 $2,554.9 $425.3 $2,980.2 Goodwill from business acquisitions 29.4 - 29.4 Currency translation 142.8 18.5 161.3 Other 0.5 (8.7) (8.2) Balance as of September 30, 2003 2,727.6 435.1 3,162.7 Currency translation 101.3 18.0 119.3 Other 6.4 0.2 6.6 Balance as of December 31, 2003 $2,835.3 $453.3 $3,288.6 The Company’s other intangible assets, primarily from business acquisitions, are valued based on independent appraisals and consisted of: December 31, 2003 September 30, 2003 December 31, 2002 Gross Gross Gross Carrying Accumulated Carrying Accumulated Carrying Accumulated (in millions) Amount Amortization Net Amount Amortization Net Amount Amortization Net Amortized intangible assets Patented technology $219.2 $(75.5) $143.7 $215.1 $(71.5) $143.6 $215.6 $(61.9) $153.7 Unpatented technology 87.1 (9.1) 78.0 81.5 (7.4) 74.1 61.5 (5.0) 56.5 Customer relationships 84.3 (4.2) 80.1 78.4 (3.3) 75.1 42.5 (1.3) 41.2 Miscellaneous 10.8 (6.7) 4.1 10.7 (6.3) 4.4 10.2 (5.5) 4.7 Total amortized intangible assets 401.4 (95.5) 305.9 385.7 (88.5) 297.2 329.8 (73.7) 256.1 Unamortized intangible assets Trademarks 11.7 - 11.7 10.9 - 10.9 9.2 - 9.2 Pension asset 8.9 - 8.9 8.8 - 8.8 6.1 - 6.1 Total unamortized intangible assets 20.6 - 20.6 19.7 - 19.7 15.3 - 15.3 Total intangible assets $422.0 $(95.5) $326.5 $405.4 $(88.5) $316.9 $345.1 $(73.7) $271.4 Amortization of other intangible assets for the three-month periods ended December 31, 2003 and 2002 was $6 million and $5 million, respectively. Excluding the impact of any future acquisitions, the Company anticipates annual amortization of other intangible assets will approximate $23 million for each of the next five years. 7. Guarantees At December 31, 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 9
  • NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) future payments which the Company could be required to make under these guarantees at December 31, 2003 was $2 million. 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 in aggregate. The Company has recorded a liability of approximately $6 million within other noncurrent liabilities and a corresponding amount within other noncurrent assets in the Consolidated Statement of Financial Position relating to the Company’s obligation under the guarantees. These amounts are being amortized over the life of the guarantees. 8. Product Warranties The Company provides warranties to certain of 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 replacement of 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 warranty provisions are adjusted as necessary. While warranty costs have historically been within 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 total product warranty liability for the three- month period ended December 31, 2003 were as follows: (in millions) Balance as of September 30, 2003 $70.7 Accruals for warranties issued during the period 9.7 Accruals related to pre-existing warranties (including changes in estimates) (5.6) Settlements made (in cash or in kind) during the period (9.7) Currency translation 1.4 Balance as of December 31, 2003 $66.5 9. Inventories Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method for most inventories at domestic locations. The cost of other inventories is determined on the first-in, first-out (FIFO) method. Finished 10
  • NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) goods and work-in-process inventories include material, labor and manufacturing overhead costs. Inventories were comprised of the following: December 31, September 30, December 31, (in millions) 2003 2003 2002 Raw materials and supplies $461.0 $435.5 $402.1 Work-in-process 108.7 105.8 105.5 Finished goods 302.6 310.9 303.7 FIFO inventories 872.3 852.2 811.3 LIFO reserve (26.7) (26.3) (30.1) Inventories $845.6 $825.9 $781.2 10. Comprehensive Income Comprehensive income is defined as the sum of net income and all other non-owner changes in equity, including foreign currency translation, unrealized gains and losses on equity securities, realized and unrealized gains and losses on derivatives and minimum pension liability adjustments. Comprehensive income for the three-month periods ended December 31, 2003 and 2002 was $313 million and $178 million, respectively. The difference between comprehensive income and net income for the periods presented principally represents foreign currency translation adjustments (CTA). Specifically, in the current quarter $151 million of comprehensive income was related to CTA versus $45 million in the prior year period. The current quarter CTA increase from the prior year primarily relates to the 20% strengthening of the euro year-over-year. The Company has foreign currency-denominated debt obligations and cross-currency interest rate swaps which are designated as hedges of net investments in foreign subsidiaries. Gains and losses, net of tax, attributable to these hedges are deferred as CTA within the accumulated other comprehensive income (loss) account. A net loss of approximately $38 million and $16 million was recorded for the three-month periods ending December 31, 2003 and 2002, respectively. 11. Segment Information The Company has two operating segments, the Automotive Group and the Controls Group, which also constitute its reportable segments. The Automotive Group designs and manufactures products for motorized vehicles. The segment supplies interior systems and batteries for cars, light trucks and vans. The Controls Group provides facility systems and services including comfort, energy and security management for the non-residential buildings market. Financial information relating to the Company’s reportable segments were as follows: 11
  • NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Three months Ended December 31, (in millions) 2003 2002 Sales Automotive Group $4,977.2 $3,941.4 Controls Group 1,406.9 1,241.9 Total $6,384.1 $5,183.3 Operating Income Automotive Group $207.2 $196.1 Controls Group 54.6 51.8 Total $261.8 $247.9 12. Income Taxes The provision for income taxes is determined by applying an estimated annual effective income tax rate to income before income taxes. The rate is based on the most recent annualized forecast of pretax income, permanent book/tax differences and tax credits. It also includes the effect of any valuation allowance expected to be necessary at the end of the year. The Company’s estimated annual effective tax rate declined to 29% from 31% for the prior year due to continuing global tax planning initiatives. The current quarter rate further benefited from a $17 million favorable tax settlement related to prior periods (1991-1996), resulting in an effective tax rate for the quarter of 21.6%. 13. Contingencies The Company is involved in a number of proceedings relating to environmental matters. Although it is difficult to estimate the liability 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. 14. 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 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 12
  • NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 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. 13
  • ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Comparison of Operating Results for the Three-Month Periods ended December 31, 2003 and December 31, 2002 Sales Consolidated net sales in the first quarter of fiscal 2004 were $6.4 billion, rising 23% above the prior year period sales of $5.2 billion. Double-digit growth was achieved by both the Automotive Group and the Controls Group. Automotive Group Automotive Group sales in the first quarter of fiscal 2004 grew 26% to $5.0 billion from $3.9 billion in the prior year. Segment sales were up significantly in both North America and Europe. Sales in North America increased 19% over the prior year. Interior systems sales were up 22% in the current quarter, surpassing the domestic industry production increase of 1%. The strong performance resulted from a high level of new interiors business with a variety of automakers and the Company’s involvement in platforms where demand year-over-year was above the industry average. Sales and unit shipments of automotive batteries approximated the prior year level. Segment sales in Europe for the current year rose 44% above the comparable prior year period. Excluding the impact of currency translation and acquisitions, European sales were up 17%. The growth, which compares favorably to a slight decline in European industry production, was primarily attributable to the launch of new interiors business in the current year. Sales in Asia and South America, which represent less than 10% of total segment sales, declined in comparison to the prior year, with lower volumes in Japan offsetting the positive impact of new business in South America. Controls Group Controls Group sales in the current period were $1.4 billion, 13% above the $1.2 billion in the prior year period. Excluding the impact of currency translation, segment sales were up 6% over the prior year. North American sales were 13% above the prior year. Sales of installed systems contracts grew 16%, with increased business in both the construction and existing buildings markets. Service sales were up 12%, primarily attributable to higher volumes of technical services and new facility management business. Excluding the positive effects of currency translation, segment sales in Europe were approximately 6% lower compared with the prior year. Increases in technical service activity were offset by lower volumes of facility management activity and installed systems. 15
  • Sales in Asia, which represent less than 10% of segment revenue, were above the prior year, primarily attributable to the favorable impact of currency translation. Operating Income Consolidated operating income for the first quarter of fiscal 2004 was $262 million, up 6% from the prior year’s $248 million. Both of the Company’s operating segments reported higher operating earnings in the quarter. Operating margins were somewhat diluted by stock-based employee compensation expense of $19 million, attributable to a 23% increase in the market price of the Company’s stock in the quarter. Automotive Group Automotive Group operating income was $207 million, 6% above the prior year period. The segment benefited from higher gross profits in North America and Europe, somewhat offset by higher selling, general and administrative (SG&A) expenses in all regions. In North America, gross profit was up due to increased volumes of interior systems and cost improvements within the automotive battery business. The significant increase in European gross profit was attributable to higher volumes associated with interior systems and the benefit of continued cost savings initiatives. Gross profit increases in both regions were achieved despite higher launch costs relating to the execution of a record level of new business. The segment’s increased SG&A expenses reflect currency translation and higher engineering costs. Controls Group Controls Group operating income in the first quarter of the current year was $55 million, 5% higher than the prior year, despite costs associated with growth investments due to an expansion in the service workforce. Gross profit was up in North America, primarily the result of higher volumes. Excluding the impact of currency translation, European gross profit declined slightly in comparison to the prior year due to lower volumes. SG&A expenses were up, primarily due to currency translation and increased pension and health care costs. Full Year Outlook The Company has adjusted its full-year sales outlook to reflect the stronger than originally anticipated euro, increasing its assumed exchange rate from $1.10 to $1.20. Management now expects full-year consolidated sales to exceed the prior year by 13% to 15%. For the Automotive Group, sales are expected to be 13% to 18% above the prior year. This outlook assumes North American and European vehicle production levels will be flat to slightly higher in comparison to the prior year. Controls Group sales are projected to increase 5% to 10% above the prior year, with full year sales currently anticipated to be at the high end of the range. The estimate anticipates double-digit growth in systems installation, technical services and facility management services in the commercial market through market share expansion. Certain of the Company’s Japanese subsidiaries have defined benefit pension plans established under the Japanese Welfare Pension Insurance Law. Recent amendments to the laws that govern pension arrangements will allow the transfer of certain pension obligations and related plan assets to the Japanese government. The Company’s Japanese 16
  • subsidiaries are currently performing the steps of a process that will enable them to complete the transfers. The transfers are expected to result in a non-cash settlement gain of approximately $70-85 million in the second or third quarter of fiscal 2004. The resulting gain is dependent on several factors, including currency exchange and interest rates and the value of plan assets on the transfer date. In accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), the gain will be reported in the Company’s Consolidated Statement of Income as a reduction of operating expenses upon completion of the transfers. The Company expects to incur incremental operating expenses of approximately $80 million in the second quarter of fiscal 2004, reflecting its decision to accelerate cost structure improvement actions. The actions primarily relate to workforce reductions and plant consolidations. The majority of the actions will concentrate on Automotive Group operations in Europe as the Company focuses on significantly improving profitability in the region in future years. A modest portion of the actions will involve Controls Group activities. The Company anticipates double-digit growth in consolidated operating income for 2004. For the Automotive Group, management has adjusted the segment’s full-year operating margin percentage from level with the prior year to level to slightly lower. The revision relates to the net impact of the stronger euro on consolidated margins, incremental stock- based employee compensation costs and accelerated cost reduction expenses, offset by the expected Japanese pension settlement gain. The Company continues to anticipate that the benefit of operating improvement initiatives in Europe will result in a significantly higher operating margin percentage of approximately three percent for the full year, excluding the impact of incremental cost reduction programs. For the Controls Group, management expects operating margin as a percentage of sales to be slightly below the prior year level, rather than comparable, due to the impact of the stronger euro on consolidated margins, incremental stock-based employee compensation costs and accelerated cost reduction expenses. Orders for installed control systems in the first quarter were above the prior year for performance contracting in the domestic market. Strong domestic market sectors included education, government and health care. The new construction market remained weak in all regions except Japan. The Controls Group backlog relates to its installed systems and technical service activity, accounted for using the percentage-of-completion method. At December 31, 2003, the unearned backlog to be executed within the next year was $1.75 billion, 6% above the prior year level of $1.65 billion, despite the high level of sales in the quarter. Other Income/Expense Net interest expense in the current period decreased from the prior year primarily as a result of higher levels of capitalized interest compared to the prior year and the current quarter’s lower interest rate environment. Management expects net interest expense for fiscal year 2004 to be between $105 and $110 million. Equity income for the three months ended December 31, 2003 increased approximately $10 million year-over-year due to higher earnings at certain Automotive Group joint ventures in China resulting from 17
  • strong revenue and earnings growth in the quarter. Miscellaneous – net expense in the current quarter was up approximately $22 million from the prior year period. The increase reflects a $17 million gain included in the prior year related to the conversion and subsequent disposition of the Company’s investment in Donnelly Corporation, which was merged with Magna International in October 2002. In addition, the current year includes higher foreign currency related losses. Provision for Income Taxes The effective income tax rate for the first quarter of fiscal 2004 was 21.6% compared with 31.0% for the prior year period. The decrease was due to global tax planning initiatives and a tax settlement of $17 million received in the current quarter related to prior periods (1991-1996). The Company anticipates the fiscal year 2004 effective tax rate to be 29.0% (excluding the tax benefit related to the current quarter’s favorable tax settlement) compared with 31.0% in fiscal year 2003 as a result of the Company’s continued efforts in global tax planning initiatives. Minority Interests in Net Earnings of Subsidiaries Minority interests in net earnings of subsidiaries in the current quarter were comparable with the prior year. Management has increased its full-year estimate for minority interest in net earnings of subsidiaries to approximately $70 to $75 million compared to its previous estimate range of $62 to $67 million. The increase is attributable to higher operating income anticipated at certain Automotive Group joint ventures. Net Income Net income for the three months ended December 31, 2003 was $165 million, 17% above the prior year’s $140 million. The increased earnings were a result of higher operating and equity income, reduced net interest expense and a lower effective income tax rate, partially offset by higher miscellaneous – net expense. Diluted earnings per share for the three months ended December 31, 2003 were $0.86, up 16% from $0.74 in the comparable prior year period. All per share amounts reflect a two-for-one stock split effective January 2, 2004. Comparison of Financial Condition Working Capital and Cash Flow Working capital, excluding cash and debt, of $565 million at December 31, 2003 was $86 million higher than at the fiscal year-end and $311 million higher than one year ago. The increase from year-end was due to lower accounts payable and accrued compensation and benefits at December 31, 2003. The increase from one year ago primarily reflects higher accounts receivable and other current assets and lower other current liabilities, partially offset by higher accounts payable. Cash provided by operating activities was $247 million higher in the three-month period ended December 31, 2003 compared to December 31, 2002. The increase primarily 18
  • relates to higher net income and favorable changes in working capital compared to the prior year period. The Company uses cross-currency interest rate swaps and foreign denominated debt to hedge portions of its net investments in foreign operations. Certain of these swaps matured during the current quarter, with the Company paying $143 million upon settlement. These payments are reflected as financing activities in the Consolidated Statement of Cash Flows. Capital Expenditures Capital spending for property, plant and equipment for the three-month period ended December 31, 2003 was $204 million, up $97 million from the comparable prior year period. The majority of the current quarter spending was attributable to the Automotive Group. Management has increased its estimate of fiscal 2004 capital expenditures to $700 to $750 million. The increase reflects a stronger euro assumption, additional complexity associated with several new programs and revised timing of costs for certain major programs. Capitalization Total capitalization of $7.3 billion at December 31, 2003 included short-term debt of $0.7 billion, long-term debt (including the current portion) of $2.0 billion and shareholders' equity of $4.6 billion. The Company’s total capitalization at September 30, 2003 and December 31, 2002 was $6.6 billion and $6.1 billion, respectively. Total debt as a percentage of total capitalization at December 31, 2003 was 37%, compared with 36% at fiscal year-end and 40% one year ago. The current quarter’s increase in the ratio of debt to total capitalization primarily relates to higher capital spending in support of future, incremental automotive business and seasonal working capital outflows. 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. The Company believes its capital resources and liquidity position at December 31, 2003 were adequate to meet projected needs. Requirements for working capital, capital expenditures, dividends, debt maturities and any potential acquisitions in fiscal 2004 will continue to be funded from operations, supplemented by short- and long-term borrowings, if required. Guarantees and Off-Balance Sheet Arrangements 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 December 31, 2003 the Company had sold $247 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 does not consider these arrangements to be an important part of its future financing plans. 19
  • Future Accounting Changes 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.” The statement requires employers to provide additional disclosures regarding the assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The new disclosure requirements are effective for the Company beginning with the quarter ending March 31, 2004, with a delayed effective date for certain disclosures. The Company is currently evaluating the effect of this pronouncement on its financial statement disclosures. In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “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 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 FSP is effective for the Company’s second fiscal quarter. The Company is currently evaluating the impact the Act and the FSP may have on its postretirement health care plan and its financial position, results of operations and cash flows. Cautionary Statements for Forward-Looking Information The Company has made forward-looking statements in this document that are subject to risks and uncertainties. Forward-looking statements include information concerning possible or assumed future risks and may include words such as “believes,” “expects,” “anticipates,” “projects” or similar expressions. For those statements, the Company cautions that numerous important factors, including industry vehicle production levels, U.S. dollar exchange rates and those discussed elsewhere in this document and in the Company’s Form 8-K filing (dated January 7, 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. Other Financial Information The interim financial information included in this 10-Q Report has not been audited by PricewaterhouseCoopers LLP (PwC). In reviewing such information, PwC has applied limited procedures in accordance with professional standards for reviews of interim financial information. Accordingly, you should restrict your reliance on their reports on such information. PwC is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their reports on the interim financial information because such reports do not constitute “reports” or “parts” of the registration statements prepared or certified by PwC within the meaning of Sections 7 and 11 of the Securities Act of 1933. 20
  • ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For the three-month period ended December 31, 2003, the Company did not experience any adverse changes in market risk exposures that materially affect the quantitative and qualitative disclosures presented in the Company's Annual Report to Shareholders for the year ended September 30, 2003. ITEM 4. CONTROLS AND PROCEDURES As of the end of the period covered by this report, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that such disclosure controls and procedures were effective in alerting them on a timely basis to material information relating to the Company required to be included in the Company’s periodic filings under the Exchange Act. There have been no changes in the Company’s internal controls over financial reporting, or in factors that could significantly affect internal controls over financial reporting, subsequent to the date of the evaluation. PART II. - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There have been no significant changes in status since the last Report. ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS The registrant held its Annual Meeting of Shareholders on January 28, 2004. Proxies for the meeting were solicited pursuant to Regulation 14; there was no solicitation in opposition to management’s nominees for directors as listed in the Proxy Statement, and all such nominees (Robert L. Barnett, Willie D. Davis, Jeffrey A. Joerres and Richard F. Teerlink) were elected. Of the 79,780,413 shares voted, at least 76,043,476 shares granted authority to vote for these directors and no more than 3,736,937 shares withheld such authority. The retention of PricewaterhouseCoopers LLP as auditors was approved by the shareholders with 76,660,162 shares voted for such appointment, 2,583,158 shares voted against and 537,093 shares abstained. The ratification of the Long-Term Performance Plan was approved by shareholders with 63,675,001 shares voted for ratification, 6,291,096 shares voted against ratification, 982,000 shares abstained and a broker non-vote of 8,832,316 shares. 21
  • The ratification of the Executive Incentive Compensation Plan was approved by shareholders with 62,385,400 shares voted for ratification, 7,433,930 shares voted against ratification, 1,128,767 shares abstained and a broker non-vote of 8,832,316 shares. The ratification of the 2003 Stock Plan for Outside Directors was approved by shareholders with 64,241,763 shares voted for ratification, 5,565,681 shares voted against ratification, 1,140,653 shares abstained and a broker non-vote of 8,832,316 shares. The approval of the 2001 Restricted Stock Plan amendment was approved by shareholders with 62,164,978 shares voted for ratification, 7,606,592 shares voted against ratification, 1,176,527 shares abstained and a broker non-vote of 8,832,316 shares. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Reference is made to the separate exhibit index contained on page 24 filed herewith. (b) The following Form 8-K’s were filed from the date of the Company’s Annual Report on Form 10-K, filed December 4, 2003, or thereafter through the date of this report: (i) The Company filed a Form 8-K on January 22, 2004 to disclose the Company’s financial results for the first quarter of fiscal 2004. (ii) A Form 8-K was filed January 7, 2004 to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and to provide updated disclosure of the factors that could affect any forward-looking statements made by, or on behalf of, the Company. 22
  • SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. JOHNSON CONTROLS, INC. Date: February 6, 2004 By: /s/ Stephen A. Roell Stephen A. Roell Senior Vice President and Chief Financial Officer 23
  • JOHNSON CONTROLS, INC. INDEX TO EXHIBITS Exhibit No. Description 3.(i) Articles of Amendment to Restated Articles of Incorporation of Johnson Controls, Inc., filed and effective December 12, 2003, filed herewith. 3.(ii) Composite of Restated Articles of Incorporation of Johnson Controls, Inc., as amended through December 12, 2003, filed herewith. 10.F Johnson Controls, Inc., Executive Incentive Compensation Plan, Deferred Option, Qualified Plan, as amended and restated effective October 1, 2003, incorporate herein by reference to Exhibit C to 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 herein by reference to Exhibit B to the Definitive Proxy Statement of Johnson Controls, Inc. filed on Schedule 14A on December 4, 2003 (Commission File No. 1-5097). 10.O Johnson Controls, Inc., 2001 Restricted Stock Plan, as amended and restated effective October 1, 2003, incorporate herein by reference to Exhibit E to the Definitive Proxy Statement of Johnson Controls, Inc. filed on Schedule 14A on December 4, 2003 (Commission File No. 1-5097). 10.S Johnson Controls, Inc., 2003 Stock Plan for Outside Directors, effective October 1, 2003, incorporate herein by reference to Exhibit D to the Definitive Proxy Statement of Johnson Controls, Inc. filed on Schedule 14A on December 4, 2003 (Commission File No. 1-5097). 12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges for the Three Months Ended December 31, 2003. 15 Letter of PricewaterhouseCoopers LLP, Independent Accountants, dated February 6, 2004, relating to Financial Information. 31.1 Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 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. 24
  • Exhibit 3.(i) ARTICLES OF AMENDMENT OF JOHNSON CONTROLS, INC. Pursuant to the provisions of Section 180.1006 of the Wisconsin Business Corporation Law, the undersigned officer of Johnson Controls, Inc., a corporation organized and existing under and by virtue of the laws of the State of Wisconsin (the “Corporation”): FIRST: The name of the Corporation is Johnson Controls, Inc. SECOND: The introductory paragraph of Article III of the Corporation’s Restated Articles of Incorporation is amended to read in its entirety as follows: The aggregate number of shares which this Corporation has authority to issue is 602,000,000 shares, consisting of 600,000,000 shares of class of designated quot;Common Stockquot; of the par value of $0.04-1/6 per share and 2,000,000 shares of class designated quot;Preferred Stockquot; of the par value of $1.00 per share. Any and all such shares of Common Stock and Preferred Stock may be issued for such consideration, not less than the par value thereof, as shall be fixed from time to time by the Board of Directors. Any and all such shares so issued, the full consideration for which has been paid or delivered, shall be deemed fully paid stock and shall not be liable to any further call or assessment thereon, and the holders of such share shall not be liable for any further payments except as otherwise provided by applicable Wisconsin Statutes. Notwithstanding any other provision hereof, the Board of Directors shall have no authority to cause any shares of Preferred Stock to be issued if, as a result of such issuance, the aggregate amount payable in the event of voluntary or involuntary liquidation on all shares of Preferred Stock outstanding would exceed $100,000,000. At the close of business on December 12, 2003, the effective date of this Amendment (the “Record Date”), each share of Common Stock outstanding or held in treasury immediately prior to the Record Date shall be changed into two shares of said Common Stock (the “Stock Split”). Stock certificates evidencing shares of Common Stock outstanding or held in treasury on the Record Date shall continue to evidence the same number of shares that such certificates evidenced prior to the Record Date and the additional shares issuable as a result of such change of each share into two shares shall be evidenced by new certificates distributed on or about January 2, 2004 to persons who are at the close of business on the Record Date the holders of record of Common Stock. The preferences, limitations and relative rights of each class shall be as follows: All subsequent paragraphs to the introductory paragraph of Article III of the Corporation’s Restated Articles of Incorporation remain in full force. 25
  • THIRD: The foregoing amendment provides for change of issued shares as set forth therein. FOURTH: The foregoing amendment was adopted by the Board of Directors of the Corporation on November 19, 2003. Shareholder approval of the foregoing amendment was not required. FIFTH: The foregoing amendment was adopted in accordance with Section 180.1002 of the Wisconsin Statutes. SIXTH: The foregoing amendment shall be effective at the close of business on December 12, 2003. Executed in Milwaukee, Wisconsin, on the 12th day of December, 2003. JOHNSON CONTROLS, INC. By: /s/ John P. Kennedy John P. Kennedy, Senior Vice President, Secretary and General Counsel SUBSCRIBED AND SWORN to before me this 12th day of December, 2003. /s/ Ann E. Alt Notary Public, State of Wisconsin Commission Expires: 1-25-2004 This instrument was drafted by and should be returned to John P. Kennedy, Esq., of Johnson Controls, Inc., 5757 N. Green Bay Avenue, P.O. Box 591, Milwaukee, Wisconsin 53201-0591. 26
  • Exhibit 3(ii) RESTATED ARTICLES OF INCORPORATION OF JOHNSON CONTROLS, INC. Pursuant to the authority and provisions of Chapter 180 of the Wisconsin Statutes, the existing Articles of Incorporation are hereby amended, superseded and restated to read as follows: ARTICLE I Name The name of the corporation is Johnson Controls, Inc. ARTICLE II Purpose The corporation is organized for the purpose of any lawful activity within the purposes for which corporations may be organized under the Wisconsin Business Corporation Law, Chapter 180 of the Wisconsin Statues, including (without in any manner limiting by the following enumeration the generality of the foregoing) the manufacture, sale and installation of, and dealing in, automatic temperature and humidity controls for heating, cooling, ventilating, air- conditioning and industrial processing. ARTICLE III Authorized Shares The aggregate number of shares which this Corporation has authority to issue is 602,000,000* shares, consisting of 600,000,000 shares of class of designated quot;Common Stockquot; of the par value of $0.04-1/6 per share and 2,000,000 shares of class designated quot;Preferred Stockquot; of the par value of $1.00 per share. Any and all such shares of Common Stock and Preferred Stock may be issued for such consideration, not less than the par value thereof, as shall be fixed from time to time by the Board of Directors. Any and all such shares so issued, the full consideration for which has been paid or delivered, shall be deemed fully paid stock and shall not be liable to any further call or assessment thereon, and the holders of such share shall not be liable for any further payments except as otherwise provided by applicable Wisconsin Statutes. Notwithstanding any other provision hereof, the Board of Directors shall have no authority to cause any shares of Preferred Stock to be issued if, as a result of such issuance, the aggregate amount payable in the event of voluntary or involuntary liquidation on all shares of Preferred Stock outstanding would exceed $100,000,000. The preferences, limitations and relative rights of each class shall be as follows: *(Amendment filed and effective December 12, 2003) (A) Preferred Stock (1) Series of Preferred Stock The Board of Directors shall (have) authority to divide the Preferred Stock into series, and shall determine and fix the relative rights and preferences of the shares of any series so established prior to the issuance thereof, but only with respect to: (a) The rate of dividend and the date from which such dividends shall be cumulative; (b) The price at and the terms and conditions on which shares may be redeemed; (c) The amount payable upon shares in the event of voluntary or involuntary liquidation; (d) Sinking fund provisions for the redemption or purchase of share; 27
  • (e) The terms and conditions on which shares may be converted into shares of Common Stock, if the shares or any series are issued with the privilege of conversion. (f) Voting rights, if any. Except as to the matters expressly set forth above in this Paragraph (1), all series of the Preferred Stock of the corporation, whenever designated and issued, shall have the same preferences, limitations and relative rights and shall rank equally, share ratably and be identical in all respects as to all matters. All shares of any one series of Preferred Stock hereinabove authorized shall be alike in every particular, and each series thereof shall be distinctively designated by letter or descriptive words or figures. (2) Dividends The holders of Preferred Stock shall be entitled to receive dividends at the rate per annum specified as to each series pursuant to Paragraph (1), and no more, payable quarterly on the last day of March, June, September, and December in each year for the respective calendar quarter ending on such dates (quot;Dividend Periodsquot;) out of the unreserved earned surplus of the corporation or out of any capital surplus legally available for the payment of such dividends, when and as declared by the Board of Directors. Such dividends shall accrue on each share of Preferred Stock from the first day of the Dividend Period in which such share is issued or from such other date as the Board of Directors may fix for this purpose pursuant to Paragraph (1). All dividends on Preferred Stock shall be cumulative so that if the corporation shall not pay or set apart for payment the dividend, or any part thereof, for any Dividend Period, on the Preferred Stock then issued and outstanding, such deficiency in the dividend on the Preferred Stock shall thereafter be fully paid or declared and set apart for payment, but without interest before any dividend shall be paid or declared and set apart for payment on the Common Stock. The holders of Preferred Stock shall not be entitled to participate in any other or additional earnings or profits of the corporation, except for such premiums, if any, as may be payable in case of redemption, liquidation, dissolution or winding up. Any dividend paid upon the Preferred Stock at a time when any accrued dividends for any prior Dividend Period are delinquent shall be expressly declared to be in whole or partial payment of the accrued dividends to the extent thereof, beginning with the earliest Dividend Period for which dividends are then wholly or partly delinquent, and shall be so designated to each shareholder to whom payment is made. No dividends shall be paid upon any shares of any series of Preferred Stock of the corporation for a current Dividend Period unless there shall have been paid or declared and set apart for payment dividends required to be paid to the holders of each other series of Preferred Stock for all past Dividend Periods of such other series. If any dividends are paid on any of the Preferred Stock with respect to any past Dividend Period at any time when less than the total dividends then accumulated and payable for all past Dividend Periods on all of the Preferred Stock then outstanding are to be paid or declared and set apart for payment, then the dividends being paid shall be paid on each series of Preferred Stock in proportions that the dividends than accumulated and payable on each series for all past Dividend Periods bear to the total dividends then accumulated and payable for all such past Dividend Periods on all outstanding Preferred Stock. (3) Liquidation, Dissolution or Winding Up In case of voluntary or involuntary liquidation, dissolution or winding up of the corporation, the holders of each series of Preferred Stock shall be entitled to receive out of the assets of the corporation in money or money's worth the amount specified pursuant to Paragraph (1) with respect to that series of Preferred Stock, together with all accrued but unpaid dividends thereon (whether or not earned or declared), before any of such assets shall be paid or distributed to holders of Common Stock. In case of voluntary or involuntary liquidation, dissolution or winding up of the corporation, if the assets shall be insufficient to pay the holders of all of the series of Preferred stock then outstanding the full amounts to which they may be entitled, the holders of each outstanding series shall share ratably in such assets in proportion to the amounts which would be payable with respect to such series if all amounts payable thereon were paid in full. The consolidation or merger of the corporation with or into nay restoration, or a 28
  • sale of all or any part of its assets, shall not be deemed a liquidation, dissolution or winding up of the corporation within the meaning of this paragraph. (4) Redemption Except as otherwise provided with respect to a particular series pursuant to Paragraph (1), the following general redemption provisions shall apply to each series of Preferred stock (hereinafter in this paragraph referred to as quot;Seriesquot;): On or prior to the date fixed for redemption of a particular Series or any part thereof as specified in the notice of redemption for said Series, the corporation shall deposit adequate funds for such redemption, in trust for the account of holders of the Series to be redeemed, with a bank having trust company in good standing organized under the laws of the United States of America or the State of Wisconsin doing business in the State of Wisconsin and having capital, surplus and undivided profits aggregating at least One Million Dollars ($1,000,000), and if the name and address of such bank or trust company and the deposit of or intent to deposit the redemption funds in such trust account shall have been stated in such notice of redemption, them from and after the mailing of such notice and the making of such deposit the shares of the Series called for redemption no longer be deemed to be outstanding for any purpose whatsoever, and all rights of the holders of such share in or with respect to the corporation shall forthwith cease and terminate except only the right of the holders of such shares (2) to transfer such shares prior to the date fixed for redemption, (b) to receive out of said deposit the redemption price of such shares, which shall nevertheless include accrued but unpaid dividends to the date fixed for redemption, without interest, upon surrender of the certificate or certificates representing the shares to be redeemed, and (c) to exercise on or before the close of business on the fifth day preceding the date fixed for redemption privileges of conversion, if any, not theretofore expired. In case of redemption of only a part of a Series, the corporation shall designate by lot, in such manner as the Board of Directors may determine, the share to be redeemed, or shall effect such redemption pro rata. Any moneys so deposited by the corporation which shall remain unclaimed by the holders of the shares called for redemption and not converted shall, at the end of six years after the date fixed for redemption, be paid to the corporation upon its request, after which repayment the holders of the shares so called for redemption shall no longer look to the said bank or trust company for the payment of the redemption price but shall look only to the corporation or to others, as the case may be, for the payment of any lawful claim for such moneys which holders of said shares may still have. After said six-year period, the right of any shareholder other person to receive such payment may be forfeited in the manner and with the effect provided under Wisconsin Law. Any portion of the moneys so deposited by the corporation, in respect of shares of the Series converted into Common Stock, shall be repaid to the corporation upon its request. (5) Conversion Rights Except as otherwise provided with respect to a particular series pursuant to Paragraph (1), the following general conversion provisions shall apply to each series of Preferred Stock which is convertible into Common Stock (hereinafter, in this paragraph, referred to as quot;Seriesquot;): (a) All shares of Common Stock issued upon conversion shall be fully paid and nonassessable, and shall be free of all taxes, liens and charges with respect to the issue thereof except taxes, if any, payable by reason of issuance in a name other than that of the holder of the share or shares converted and except as otherwise provided by applicable Wisconsin Statutes. (b) The number of shares of Common Stock issuable upon conversion of a particular Series at any time shall be the quotient obtained by dividing the aggregate conversion value, as herein provided, of the shares of that Series surrendered for conversion, by the price per share of Common Stock then in effect for that Series as herein provided. The corporation shall not be required, however, upon any such conversion, to issue any fractional share of Common Stock, but in lieu thereof the corporation shall pay to the shareholder who would otherwise be entitled 29
  • to receive such fractional share if issued, a sum in case equal to the value of such fractional share at the rate of the then market value per share of Common Stock which for purposes hereof shall mean the last reported sale price of Common Stock on the New York Stock Exchange. Share of Preferred Stock shall be deemed to have been converted as of the close of business on the date of receipt at the office of the Transfer Agent of the certificates therefor, duly endorsed, together with written notice by the holder of his election to convert the same. (c) The basic conversion price per share of Common Stock for a particular Series, as provided for under the detailed description of the individual Series, shall be subject to adjustment from time to time as follows: (i) In Case the corporation shall (A) pay a dividend or make a distribution of all holders of outstanding shares of its Common Stock as a class in shares of its Common Stock, (B) subdivide or split the outstanding shares of its Common Stock into a larger number of shares, or (C) combine the outstanding shares of its Common Stock into a smaller number of shares, the base conversion price per share of Common Stock in effect immediately prior thereto shall be adjusted retroactively so that the holder of each outstanding share of each Series of Preferred Stock which by its terms is convertible into Common Stock shall thereafter be entitled to receive upon the conversion of such share the number of shares of Common Stock of the corporation which he would have owned and been entitled to receive after the happening of any of the events described above had such share of such Series been converted immediately prior to the happening of such event. An adjustment made pursuant to this clause (c) (i) shall become effective retroactively immediately after such record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, split or combination. such adjustments shall be made successively whenever any event described above shall occur. (ii) In case the corporation shall issue to all holders of its Common Stock as a class any rights or warrants enabling them to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share of Common Stock (as hereinafter defined) at the record date fir determination of shareholders entitled to receive such rights or warrants, the basic conversion price per share of Common Stock in effect immediately prior thereto for each Series of Preferred Stock which by its terms is convertible into Common Stock shall be adjusted retroactively by multiplying such basic conversion price by a fraction, of which the numerator shall be the sum of the number of shares of Common Stock outstanding at such record date and the number of share of Common Stock which the aggregate exercise price (before deduction of underwriting discounts or commissions and other expenses of the corporation in connection with the issue) of the total number of shares so offered for subscription or purchase would purchase at such current market price per share of which the denominator shall be the sum of the number of shares of Common Stock outstanding at such record date and the number of additional shares of Common Stock so offered for subscription or purchase. An adjustment made pursuant to this clause (c) (ii) shall become effective retroactively immediately after the record date for determination of shareholders entitled to receive such rights or warrants. Such adjustments shall be made successively whenever any event described above shall occur. (iii) In case the corporation shall distribute to all holders of its Common Stock as a class evidences of its indebtedness or assets (other than cash dividends), the basic conversion price per share of Common Stock in effect immediately prior thereto for each Series of Preferred Stock which by its terms is convertible into Common Stock shall be adjusted retroactively by multiplying such basis conversion price by a fraction, of which the numerator shall be the difference between the current market price per share per share of Common Stock at the record date for determination of shareholders entitled to receive such distribution and the fair value (as determined by the Board of Directors) of the portion of the evidences of indebtedness or assets (other than cash dividends) so distributed applicable to one share of Common Stock, and of which the denominator shall be the current market price per share of Common Stock. An adjustment made pursuant to this clause (c) (iii) shall become effective retroactively immediately after such record date. Such adjustments shall be made successively whenever any event described above shall occur. (d) For the purpose of any computation under clause (c) (iii) above, the current market price per share of Common Stock on any date shall be deemed to be the average of the high and low sale prices of the Common Stock of the corporation, as reported in the New York Stock Exchange - Composite Transactions (or such other principal 30
  • market quotation as may then be applicable to such Common Stock) for each of the 30 consecutive trading days commencing 45 trading days before such date. (e) For the purpose of making the computations prescribed in clause (c) of this Paragraph (5), no adjustment shall be made in the basic conversion price for any Series of Preferred Stock in effect immediately prior to such computation if the amount of such adjustment would be less than fifty cents; provided however, that any adjustments which by reason of this clause (e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment; and provided further that anything to the contrary in the foregoing notwithstanding any adjustment required for purposes of making the computations in said clause (c) shall be made not later than the earlier of (x) 3 years after the effective date provided for under said clause (c) for such adjustment or (y) the date as of which such adjustment would require an increase or decrease of at least 3% in the aggregate number of shares of Common Stock issued and outstanding on the first date on which an event occurred which required the making of a computation prescribed in said clause (c). All calculations under this Paragraph (5) shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be.quot; (f) In the case of any capital reorganization or reclassification of Common Stock, or if the corporation shall be consolidated with or merged into, or sell or dispose of all substantially all of its property and assets, to any other corporation, proper provisions shall be made as part of the terms of such capital reorganization, reclassification, consolidation, merger or sale that any shares of a particular Series at the time outstanding shall thereafter be convertible into the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock deliverable upon conversion of such shares of a particular Series would have been entitled upon such capital reorganization, reclassification, consolidation or merger. (g) No adjustment with respect to dividends upon any Series or with respect to dividends upon Common Stock shall be made in connection with any conversion. (h) Whenever there is an issue of additional shares Common Stock of the corporation requiring a change in the conversion price as provided above, and whenever there occurs any other event which results in a change in the existing conversion rights of the holders of shares of a series, the corporation shall file and its transfer agent or agents and at its principal office in Milwaukee, Wisconsin, a statement signed by the President or a Vice President and by the Treasurer or Assistant Treasurer of the corporation, describing specifically such issue of additional shares of Common Stock or such other event (and, in the case of a capital reorganization, reclassification, consolidation or merger, the terms thereof) and the actual conversion prices or basis of conversion as changed by such issue or event and the change, if any, in the securities issuable upon conversion. Whenever there are issued by the corporation to all holders of its Common Stock as a class any rights or warrants enabling them to subscribe for or purchase shares of Common Stock, the corporation shall also file in like manner a statement describing the same and the consideration receivable by the corporation therefrom. The statement so filed shall be open to inspection by any holder of record of shares of any Series. (i) The corporation shall at all times have authorized and shall at all times reserve and set aside a sufficient number of duly authorized shares of Common Stock for the conversion of all stock of all then outstanding Series which are convertible into Common Stock. (6) Reissuance of Shares Any shares of Preferred Stock retired by purchase, redemption, through conversion or through the operation of any sinking fund or redemption or purchase account, shall thereafter have the status of authorized but unissued shares of Preferred Stock of the corporation, and may thereafter be reissued as part of the same series or may be reclassified and reissued by the Board of Directors in the same manner as any other authorized and unissued shares of Preferred Stock. 31
  • (7) Voting Rights of Preferred Stock (a) Ordinary Voting Rights. Holders of Preferred Stock shall be entitled to one vote for each share of such class held on all questions on which shareholders of the corporation are entitled to vote and shall vote together share for share with the holders of Common Stock as one class, except as otherwise provided by law or as hereinafter otherwise provided or as otherwise determined by the Board of Directors at the time of the establishment of such Series of Preferred Stock pursuant to clause (f) of Paragraph (1) of this Section (A). (b) Special Voting Rights. Holders of Preferred Stock shall have voting rights as provided in the preceding clause (a) and, in addition, the following special voting rights: (i) Election of Directors. Whenever dividends payable on any series of the Preferred Stock shall be in arrears in an aggregate amount equivalent to six full quarterly dividends on the shares of all of the Preferred Stock of that series then outstanding, the holders of Preferred Stock of that series shall have the exclusive and special right voting separately as a class, to elect two directors of the corporation, and the number of directors constituting the Board of Directors shall be increased to the extent necessary to effectuate such right. Whenever such right of the Board of Directors shall be increased to the extent necessary to effectuate such right. Whenever such right of the holders of any series of the Preferred Stock shall have vested, such right may be exercised initially either at a special meeting of the holders of such series of the Preferred Stock called as hereinafter provided in clause (b) (ii), or at any annual meeting of shareholders, and thereafter at annual meetings of shareholders. The right of the holders of any series of the Preferred Stock voting separately as a class to elect members of the Board of Directors of the corporation as aforesaid shall continue until such time as all dividends accumulated on such series of the Preferred Stock shall have been paid in full, at which time the special right of the holders of such series of the Preferred Stock so to vote separately as a class for the election of directors shall terminate, subject to revesting in the event of each and every subsequent default in an aggregate amount equivalent to six full quarterly dividends. (ii) Special Meetings of Holders of Preferred Stock. At any time when such special voting power shall have vested in the holders of any series of the Preferred Stock as hereinbefore provided in clause (b) (i), a proper officer of the corporation shall, upon the written request of the holders of record of at least 10% of such series of the Preferred Stock then outstanding addressed to the Secretary of the corporation, call a special meeting of the holders of such series of the Preferred Stock for the purpose of electing directors pursuant to clause (b) (i). Such meeting shall be held at the earliest practicable date in such place as may be designated pursuant to the By-laws (or if there be no designation, at the principal offices of the corporation in Milwaukee, Wisconsin). If such meeting shall not be called by the proper officers of the corporation within 20 days after personal service of the said written request upon the Secretary of the corporation, or within 30 days after mailing the same within the United States of America by registered or certified mail addressed to the Secretary of the corporation at its principal office, then the holders of record of at least 10% of such series of the Preferred Stock then outstanding may designate in writing one of their numbers to call such meeting at the expense of the corporation, and such meeting may be called by such person so designated upon the notice required for annual meetings of shareholders and shall be held in Milwaukee, Wisconsin. Any holder of such series of Preferred Stock so designated shall have access to the stock books of the corporation for the purpose of causing meeting of shareholders to be called pursuant to these provisions. Notwithstanding the provisions of this clause (b) (ii), no such special meeting shall be called during the period within 90 days immediately preceding the date fixed for the next annual meeting of shareholders. (iii) Special Rules Applicable While Any Series of Preferred Stock Has Special Voting Rights. At any annual or special meeting at which the holders of any series of the Preferred Stock shall have the special right, voting separately as a class, to elect directors as provided in clause (b) (i), the presence, in person or by proxy, of the holders of 33-1/3% of such series of the Preferred Stock shall be required to constitute a quorum of such series for the election of any director by the holders of such series as a class. At any such meeting or adjournment thereof, (A) the absence of a quorum of such series of the Preferred Stock shall not prevent the election of directors other than those to be elected by such series of the Preferred Stock voting as a class, and the absence of a quorum for the election of such other directors shall not prevent the election of the directors to be elected by such series of the Preferred Stock voting as a class and (B) in the absence of either or both such quorums, a majority of the holders 32
  • present in person or by proxy of the stock or stocks which lack a quorum shall have power to adjourn the meeting for the election of directors which they are entitled to elect from time to time until a quorum shall be present, without notice other than announcement at the meeting. During any period in which the holders of any series of the Preferred Stock have the right to vote as a class for directors as provided in clause (b) (i), any vacancies in the Board of Directors shall be filled only be vote of a majority (even if that be only a single director) of the remaining directors theretofore elected by the holders of the series or class of stock which elected the directors whose office shall have become vacant. During such period the directors so elected by the holders of any series of the Preferred Stock shall continue in office (A) until the next succeeding annual meeting or until their successors, if any are elected by such holders and qualify, or (B) unless required by applicable law to continue in office for longer period, until termination of the right of the holders of such series of the Preferred Stock to vote as a class for directors, if earlier. If and to the extent permitted by applicable law, immediately upon any termination of the right of the holders of any series of the Preferred Stock to vote as a class for directors as provided in clause (b) (i), the term of office of the directors then in office so elected by the holders of such series shall terminate. (iv) Action Requiring Approval of Two-Thirds of Outstanding Shares of Each Series of Preferred Stock. The affirmative vote or written consent of the holders of record of at least tow-thirds of the outstanding shares of a series of the Preferred Stock shall be a prerequisite of the right of the corporation. (A) To create any shares of any securities convertible into or evidencing the right to purchase shares ranking prior to such series of the Preferred Stock with respect to the payment of dividends or of assets upon liquidation, dissolution or winding up; or (B) To change the designations, preferences, limitations, or relative rights of the outstanding shares or such series of Preferred Stock in any manner prejudicial to the holders thereof. (v) Action Requiring Approval of a Majority of Outstanding Shares of Each Series of Preferred Stock. The affirmative vote or written consent of the holders of a majority of the outstanding shares of each series of Preferred Stock shall be a prerequisite to the right of the corporation to authorize any shares of Preferred Stock in excess of 2,000,000 shares or any other shares ranking on a parity with Preferred Stock with respect to the payment of dividends or of assets upon liquidation, dissolution or winding up. (8) Restrictions in Event of Default in Dividends on Preferred Stock If at any time the corporation shall have failed to pay dividends in full on the Preferred Stock, thereafter and until dividends in full, including all accrued and unpaid dividends for all past quarterly dividend periods on the Preferred Stock outstanding, shall have been declared and set apart in trust for payment or paid, or if at any time the corporation shall have failed to pay in full amounts payable with respect to any obligations to retire shares of the Preferred Stock, thereafter and until such amount shall have been paid in full or set apart in trust for payment (a) the corporation, without the affirmative vote or consent of the holders of at least 66-2/3% of the Preferred Stock at the time outstanding given in person or by proxy, either in writing or by resolution adopted at a special meeting called for the purpose, at which the holders of the Preferred Stock shall vote separately as a class, regardless of series, shall not redeem less than all of the Preferred Stock at such time outstanding; (b) the corporation shall not purchase any Preferred Stock except in accordance with a purchase offer made in writing to all holders of Preferred Stock of all series upon such terms as the Board of Directors in its sole discretion after consideration of the respective annual dividend rate and other relative rights and preferences of the respective series, shall determine (which determination shall be final and conclusive) will result in fair and equitable treatment among the respective series; provided that (i) the corporation, to meet the requirements of any purchase retirement or sinking fund provisions with respect to any series, may use shares of such series acquired by it prior to such failure and then held by it as treasury stock and (ii) nothing shall prevent the corporation from completing the purchase or redemption of shares of Preferred Stock for which a purchase contract was entered into for any purchase, retirement or sinking fund purposes, or the notice of redemption of which was initially mailed, prior to such failure; and (c) the corporation shall not redeem, purchase or 33
  • otherwise acquire, or permit any subsidiary to purchase or acquire any shares of any other stock of the corporation ranking junior to the Preferred Stock as to dividends and upon liquidation. (9) Series B, $2.00 Cumulative Convertible Preferred Stock. (a) Designation - Series B. There shall be a series of the Preferred Stock of this corporation hereby designated as Series B, $2.00 Cumulative Convertible Preferred Stock (hereinafter in this Paragraph (9) referred to as quot;Series B Stockquot;) consisting of 1,000,000 shares. The shares of Series B Stock shall have the rights and preferences hereinafter set forth, in addition to those otherwise provided with respect to all shares of Preferred Stock. (b) Dividends - Series B. The rate of dividends on the Series B Stock shall be $2.00 pre annum, payable quarterly on the last days of March, June, September and December of each year for the respective Dividend Periods ending on such dates. Dividends on shares of Series B Stock shall accrue from and after October 1, 1978 and shall be cumulative from and after such date whether or not on nay quarterly dividend date there shall be funds legally available for the payment of dividends. (c) Liquidation, Dissolution or Winding Up - Series B. In case of voluntary or involuntary liquidation, dissolution or winding up of the corporation, the holders of Series B Stock shall be entitled to receive out of the assets of the corporation in money's worth an amount equal to $40.00 for each share of the Series B Stock, plus all accrued but unpaid dividends thereon, and no more, before any of such assets shall be paid or distributed to holders of Common Stock. The consolidation or merger of the corporation with or into any other corporation, or a sale of all or any part of its assets, shall not be deemed a liquidation, dissolution or winding up of the corporation within the meaning of this paragraph. (d) Redemption - Series B. (i) The shares of Series B Stock shall not be redeemable on or before October 9, 1983 and thereafter will be redeemable at any time at the option of the corporation, exercised by resolution of the Board of Directors, either in whole or in part, at (x) a redemption price per share equal to the lesser of (i) $40.00 per share, or (ii) 110% of the less of (A) the average of the high and low sales prices of the shares of Common Stock, par value $5 per share, of Globe-Union Inc. as reported in the New York Stock Exchange - Composite Transactions (or by any such other national securities exchange on which such shares shall be listed) on the trading day immediately preceding the date on which the shareholders of Globe-Union Inc. approve the Plan and Agreement of Reorganization dated June 27, 1978 between Globe-Union Inc. and the corporation, or (B) the average quot;when issuedquot; price of the Series B Stock as quoted in the customary quot;when issuedquot; market on such trading day immediately preceding the date of such approval by the shareholders of Globe-Union Inc., except that in the event that there is not in the opinion of Goldman Sachs & Co. a readily ascertainable quot;when issuedquot; market for the Series B Stock on such trading day, then such average quot;when issuedquot; price shall, for purposes of this clause (II) (B), be the average of the high and low sales prices of the Series B Stock as reported in the New York Stock Exchange - Composite Transactions (or by any such other national securities exchange on which such shares shall be listed) on the first trading day on which such shares are traded after October 10, 1978 (or if such Series B Stock is not listed on the New York Stock Exchange (or any such other national securities exchange) on such first trading date after October 10, 1978 then the average of the bid and asked prices of the Series B Stock on such first trading date as quoted by the National Association of Securities Dealers through its automated quotation system), plus (y) in each case a sum equal to all accrued but unpaid dividends of such Series B Stock; provided, however, that the corporation shall have no such right to redeem shares of Series B Stock unless the product of (A) the quotient of the conversion value (as defined in clause (e) below) divided by the basic conversion price (as adjusted from time to time), times (B) the average of the high and low sales prices of the Common Stock of the corporation, as reported in the New York Stock Exchange - Composite Transactions (or such other principal market quotation as may then be applicable to such Common Stock) for ten consecutive trading days ending with the tenth trading day prior to the date of the corporation's notice of redemption under clause (d) (2) below, is at least $42.00 for each such trading day. (ii) Notice of any redemption of Series B Stock, specifying the time and place of redemption, shall be mailed to each holder of record of the shares to be redeemed, at his address of record, not more than all the shares 34
  • owned by such shareholder are then to be redeemed, the notice shall also specify the number of shares thereof which are to be redeemed and the number of the certificates representing such shares. (e) Conversion Right - Series B. Any holder of Series B Stock may convert the same, at any time, into shares of Common Stock on the basis herein provided, at a basic conversion price of $32.40 per share, subject to adjustment from time to time as hereinbefore provided in Paragraph (5), provided that the conversion right of any shares of Series B Stock which shall have been called for redemption shall terminate at the close of business on the fifth day preceding the date fixed for the redemption of such shares. For the purpose of such conversion, shares of Series B Stock shall at all times be taken to have a conversion value of 440.00 per share. (f) Notice to Holders of Series B Stock. Immediately after the initial issuance of the Series B Stock the corporation shall file with its transfer agent or agents a statement specifying the redemption price provided in clause (d) (1) (x) and the basic conversion price provided in clause (e) (including, in reasonable detail, the manner in which such redemption price and basic conversion price were calculated), and cause a notice, setting forth such redemption price and basic conversion price, to be mailed to holders of record of shares of Series B Stock at their addresses as shown on the books of the corporation.quot; (B) Common Stock (1) Dividends After all dividends on all series of Preferred Stock entitled to dividends which shall have accrued through the ends of the last preceding Dividend Periods set for all such series shall have been paid or declared and set apart for payment at the rates at which such series of Preferred Stock are entitled for the last preceding Dividend Periods set for such series, the holders of the Common Stock shall be entitled to receive such dividends as may be declared thereon from time to time by the Board of Directors, at its discretion, out of any assets of the corporation at the time legally available for payment of dividends of Common Stock. (2) Dissolution In the event of the dissolution of the corporation, whether voluntary or involuntary, after distribution to the holders of all shares of Preferred Stock which shall be entitled to a preference over the holders of Common Stock of the full preferential amounts to which they are entitled, the holders of Common Stock shall be entitled to share ratably in the distribution of the remaining assets of the corporation. (3) Voting Rights of Common Stock Holders of Common Stock shall be entitled to one vote for each share of such class held on all questions on which shareholders of the corporation as entitled to vote and shall vote together share for share with the holders of Preferred Stock as one class, except as otherwise provided by law or as herein otherwise provided. (C) General (1) Pre-emptive Rights No holder of any class of stock of the corporation shall have any pre-emptive or preferential right to subscribe for or purchase any of the unissued shares of stock the corporation, whether now or hereafter authorized, or any stock of this corporation purchased by this corporation or by its nominee or nominees, or any bonds, certificates of indebtedness, debentures or other securities convertible into stock of this corporation, or any right of subscription to any thereof other than such, if any, as the Board of Directors in its discretion may from time to time determine. (2) Holders of Record 35
  • The corporation shall be entitled to treat the holder of record of any share or shares or stock as the owner thereof for all purposes, and shall not be bound to recognize any equitable or other claim to or interest in any such share or shares on the part of any other person, whether or not it shall have express or other notice thereof. (3) Increases Shareholder Voting Requirement in Connection with Certain Merger and Other Transactions (a) Except as set forth in clause (d) of this Paragraph (3), the affirmative vote or consent of the holders of four-fifths of all classes of stock of this corporation entitled to vote in elections of directors, considered for the purposes of this Paragraph (3) as one class, shall be required (i) for the adoption of any agreement for the merger or consolidation of this corporation with or into any other corporation, or (ii) to authorize any sale, lease, exchange, mortgage, pledge or other disposition of all or any substantial part of the assets of this corporation to, or any sale, lease, exchange, mortgage, pledge or other disposition to this corporation or any subsidiary thereof in exchange for securities of this corporation of any assets of, any other corporation, person or other entity, if, in either case, as of the record date for the determination of shareholders entitled to notice thereof and to vote thereon or consent thereto such other corporation, person or entity is the beneficial owner, directly or indirectly, of more than 10% of the outstanding shares of stock of this corporation entitled to vote in elections of directors considered for the purposes of this Paragraph (3) as one class. Such affirmative vote or consent shall be in addition to the vote or consent of the holders of the stock of this corporation otherwise required by law, these Articles of Incorporation or any agreement between this corporation and any national securities exchange. (b) For the purposes of this paragraph (3), (i) any corporation, person or other entity shall be deemed to be the beneficial owner of any shares of stock of this corporation (A) which it has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise or (B) which are beneficially owned, directly or indirectly (including shares deemed owned through application of subclause (A), above), by any other corporation, person or entity with which it or its quot;affiliatequot; or quot;associatequot; (as defined below) has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposition of stock of this corporation, or which is its quot;affiliatequot; or quot;associatequot; as those terms are defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on January 1, 1969, and (ii) the outstanding shares of any class of stock of this corporation shall include shares deemed owned through application of subclauses (A) and (B) above but shall not include any other shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise. (c) The Board of Directors shall have the power and duty to determine for the purposes of this Paragraph (3), on the basis of information known to such Board, whether (i) such other corporation, person or other entity beneficially owns more than 10% of the outstanding shares of stock of this corporation entitled to vote in elections of directors, (ii) a corporation, person, or entity is an quot;affiliatequot; or associate (as defined above) of another, and (iii) the memorandum of understanding referred to below is substantially consistent with the transaction covered thereby. Any such determination shall be conclusive and binding for all purposes of this Paragraph (3). (d) The provisions of this Paragraph (3) shall not be applicable to (i) any merger or consolidation of this corporation with or into any other corporation, or any sale, lease, exchange, mortgage, pledge or other disposition of all or any substantial part of the assets of this corporation to, or any sale, lease mortgage, pledge or other disposition to this corporation or any subsidiary thereof in exchange for securities of this corporation of any assets of, any other corporation, person or other entity, if the Board of Directors of this corporation shall by resolution have approved a memorandum of understanding with such other corporation, person or other entity, with respect to and substantially consistent with such transaction prior to the time such other corporation, person or other entity shall have become a beneficial owner of more than 10% of the shares of stock of this corporation entitled to vote in elections of directors; or (ii) any merger or consolidation of this corporation with, or any sale, lease, exchange, mortgage, pledge or other disposition to this corporation or any subsidiary thereof of any assets of any corporation of which a majority of the outstanding shares of all classes of stock entitled to vote in elections of directors is owned of record or beneficially by this corporation and its subsidiaries. (e) No amendment to these Articles of Incorporation shall amend, alter, change or repeal any of the provisions of this Paragraph (3), unless the amendment effecting such amendment, alteration, change or repeal shall receive the 36
  • affirmative vote or consent of the holders of four-fifths of all classes of stock of this corporation entitled to vote in elections of directors, considered for the purposes of this Paragraph (3) as one class. ARTICLE IV Board of Directors The Board of Directors shall consist of such number of directors (not less than three) as in fixed from time to time by the By-laws. The By-laws may provide, to the extent permitted by law, that the directors be divided into classes and that the terms of office or directors of each class may be more than one year. A director may be removed from office during the term for which he has been elected only by affirmative vote to two-thirds of the outstanding shares entitled to vote for the election of such director. ARTICLE V Registered Office and Agent The address of the registered office is 5757 North Green Bay Avenue, Glendale, Wisconsin 53209, and the name of the registered agent at such address is John P. Kennedy. ARTICLE VI Indemnification (A) The corporation shall indemnify any person who was or is a party or threatened to be made a party to any threatened, pending or completed action, suite or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorney's fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connect with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to he best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (B) The corporation shall indemnify any person who was or is a party threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including attorney's fees, actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. (C) To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in the preceding Sections (A) and (B) of this 37
  • Article VI, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses, including attorney's fees, actually and reasonably incurred by him in connection therewith. (D) Any indemnification under Sections (A) or (B) of this Article VI, unless ordered by a court, shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in such Sections. Such determination shall be made: (1) By the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding. (2) If such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion; or (3) By the shareholders. (E) Expenses, including attorney's fees, incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized in the manner provided in Section (D) upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the corporation as authorized in this Article VI. (F) The right to indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (G) The corporation may purchase and maintain insurance on behalf of any person who is or was a director, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI. ******* These Restated Articles of Incorporation supersede and take the place of the existing Articles of Incorporation and all amendments to the Articles of Incorporation. This document was drafted by John P. Kennedy, Esq. 38
  • EXHIBIT 12 JOHNSON CONTROLS, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions) Three Months Ended December 31, 2003 Net income $164.5 Provision for income taxes 49.7 Minority interests in net earnings of subsidiaries 15.5 Income from equity affiliates (17.8) Distributed income of equity affiliates 2.5 Amortization of previously capitalized interest 2.0 216.4 Fixed charges: Interest incurred and amortization of debt expense 30.8 Estimated portion of rent expense 19.6 Fixed charges 50.4 Less: Interest capitalized during the period (3.1) 47.3 Earnings $263.7 Ratio of earnings to fixed charges 5.2 For the purpose of computing this ratio, quot;earningsquot; consist of income before income taxes, minority interest in earnings or losses of consolidated subsidiaries and income from equity affiliates plus (a) amortization of previously capitalized interest, (b) distributed income from equity affiliates and (c) fixed charges, minus interest capitalized during the period. quot;Fixed chargesquot; consist of (a) interest incurred and amortization of debt expense plus (b) the portion of rent expense representative of the interest factor. 39
  • Exhibit 31.1 CERTIFICATIONS I, John M. Barth, Chairman and Chief Executive Officer of Johnson Controls, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Johnson Controls, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 6, 2004 /s/ John M. Barth John M. Barth Chairman and Chief Executive Officer 41
  • Exhibit 31.2 CERTIFICATIONS I, Stephen A. Roell, Senior Vice President and Chief Financial Officer of Johnson Controls, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Johnson Controls, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 6, 2004 /s/ Stephen A. Roell Stephen A. Roell Senior Vice President and Chief Financial Officer 42
  • EXHIBIT 32 CERTIFICATION OF PERIODIC FINANCIAL REPORTS We, John M. Barth, Chairman and Chief Executive Officer, and Stephen A. Roell, Senior Vice President and Chief Financial Officer, of Johnson Controls, Inc., certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Quarterly Report on Form 10-Q for the quarter ended December 31, 2003 (the “Periodic Report”) to which this statement is an exhibit fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and (2) information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of Johnson Controls, Inc. Dated: February 6, 2004 /s/ John M. Barth John M. Barth /s/ Stephen A. Roell Stephen A. Roell 43