Fitch Affirms Johnson Controls Inc.'s Debt Ratings

    CHICAGO--Nov. 8, 2001--Fitch affirms the `A' for the existing senior unsecured debt and `F1' for commercial paper debt ratings of Johnson Controls Inc. (JCI). In addition, Fitch assigns an `A' rating to the $350 million 5% notes due November 2006 and the $250 million floating-rate notes due November 2003. The Rating Outlook remains Stable.
    The ratings reflect JCI's ability to generate consistent positive cash flow through market cycles based on strong and growing global market positions in each of its businesses, diversity of business portfolio, and a proven ability to finance and integrate strategic acquisitions to grow despite some mature segments in its business portfolio. Moreover, JCI maintains a relatively conservative balance sheet, which affords good credit protection going through market cycles. The company has historically shown a prudent approach to managing its capital structure even when making strategic acquisitions.
    The new bond issuance will be used primarily to pay for JCI's recent acquisitions of Sagem SA's automotive business ($435 million in acquisition price with about $665 million of anticipated revenues for 2002) and Hoppecke, a German battery manufacturer (around $100 million in acquisition price with about $105 million of anticipated revenues for 2002). These businesses are expected to be geographically and technically complementary, adding larger customer exposure to Renault and Peugeot with Sagem SA, and extending battery presence in Europe with Hoppecke. Fitch expects that these transactions will contribute to JCI's operating profit in 2002.
    For its fiscal year (FY) ended Sept. 30, 2001, JCI's solid overall performance shows its consistency even in a declining North American automotive market where JCI derives 63% of its automotive revenues. During the fiscal year, North American OE build rate declined 11% and European build rate essentially remained flat. JCI's Automotive revenues, however, increased 7% to $13.6 billion, largely reflecting the revenues of Ikeda Bussan ($1.1 billion in FY 2001) acquired in FY 2000, but also due to JCI's good exposure to the Asian transplants in North America. Automotive operating margin slipped from 6% to 5.3%, reflecting the volatility of OE build schedules, lower volumes, and integration of lower margin Ikeda Bussan.
    The Controls group showed a strong 9% growth in FY 2001 with margin expansion from 4.5% to 5%. Fitch expects that the Controls group will continue to show decent growth and margins going into FY 2002 based on JCI's increased backlog and momentum in the fourth quarter.
    Continued stability in operating performance led to modest improvements in credit statistics for the year with debt- to-EBITDA and EBITDA coverage at 1.2 times (x) and 10.6x, respectively, at Sept. 30, 2001 versus 1.3x and 10.6x, respectively, at Sept.30, 2000. Total debt amounted to $1.8 billion with cash balances of $395 million at Sept. 30, 2001, versus $1.8 billion of debt and $276 million of cash balances at Sept. 30, 2000. Fitch anticipates that these credit statistics will deteriorate slightly in the immediate short term but will improve again as total debt is brought down with positive cash flow.
    JCI, headquartered in Milwaukee, has two principal businesses. Through its Automotive Systems group, which represented 74% of fiscal 2001 revenues, JCI is a leading producer of automotive seating and interior systems and batteries for the OE and replacement markets. The Controls group designs and manufactures controls systems and provides facilities management for nonresidential buildings.