Fitch Places Johnson Controls on Rating Watch Negative

NEW YORK--Aug. 2, 20055, 2005--Fitch Ratings has placed the senior unsecured and commercial paper ratings of Johnson Controls, Inc. (JCI) on Rating Watch Negative, following the announcement that the company has agreed to acquire York International for approximately $3.2 billion in cash and assumed debt. In its review of the acquisition, Fitch will be focused on integration and end-market risks, the diversification benefits that the acquisition provides to JCI's operating profile, and the pace of expected debt reduction. JCI's long-term debt is currently rated 'A', and its short-term debt 'F1' by Fitch.

The acquisition of York International provides further diversification to JCI's business mix by roughly doubling the size of its controls business. The acquisition expands JCI's product offerings and global reach in the industry, with potential benefits derived through product and systems integration, and leveraging product and service offerings through JCI's wide U.S. branch network. On a pro forma basis, the controls business will now account for approximately a third of operating income, reducing the automotive segment to less than half. The highly profitable battery business will represent roughly 20% of pro forma operating income.

The acquisition will take debt from approximately $2.2 billion at June 30, 2005 to approximately $5.4 billion at closing. Cash holdings are currently at $385 million. Free cash flow in 2005 at JCI is expected to be in excess of $300 million, and expected top-line growth over the near term provides ample capacity to pare down acquisition debt. JCI's metrics are currently strong for the rating, and following the acquisition, credit metrics could return to the levels appropriate for the rating category in two to three years.

Despite severe pressures in the automotive supply industry, JCI's operating and financial position continue to improve. In the automotive segment, OEM diversification, healthy top-line growth, and operating efficiencies have helped JCI offset production cuts at domestic OEMs, pricing pressures, and commodity price increases. With an incremental three-year backlog of booked new automotive business of $4.7 billion, Fitch expects revenue growth to continue despite potentially lower industry production volumes. JCI is well positioned with transplant manufacturers, providing a well-balanced customer profile. Although the traditional 'big three' represented about 35% of JCI's total customer exposure and 44% of automotive customers in 2004, foreign transplants account for more than 30% of JCI's North American automotive business. The controls and battery segments, which provide attractive balance, have also shown steady growth and enhance JCI's consolidated risk profile.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.