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Johnson Controls 'A', 'F1' Ratings Affirmed

6 July 1998

Johnson Controls 'A', 'F1' Ratings Affirmed By Fitch IBCA - Fitch IBCA -

    NEW YORK, July 6 -- Johnson Controls Inc.'s (JCI) 'A' senior
debt and 'F1' commercial paper ratings are affirmed by Fitch IBCA.  The
ratings are removed from RatingAlert, where they were placed with evolving
implications on April 28, 1998, following JCI's announcement to acquire The
Becker Group.  The total acquisition cost is $925 million, composed of
$565 million in cash and $360 million of Becker bank debt.  JCI will initially
finance the transaction, scheduled to close on July 8, 1998,   with commercial
paper and cash on hand. Becker, with sales of $1.3 billion, produces
instrument and door panels for automotive interiors, as well as other
components; approximately two-thirds of its sales are in Europe, and the rest
in North America.  Becker will contribute immediately to earnings and cash
flow.
    Fitch IBCA considers the acquisition to be an excellent strategic fit,
complementing JCI's purchase of Prince Manufacturing 18 months ago, and
strengthens JCI's interiors capability in Europe.  Going forward, JCI will be
able to offer additional customers total capability in passenger cabin
interiors, which are growing as competitive product differentiators.
    In the past 18 months, JCI fortified its position as a Tier I supplier to
vehicle passenger cabins with three major acquisitions (including Becker),
which enhanced its competitive position and contributed immediately to cash
flow.  Although initial debt financing of these temporarily weakened credit
protection measures, JCI has performed on its commitment to lower debt and
leverage in a rapid fashion to levels consistent with the current ratings.
Following the Prince acquisition, the largest, total debt peaked at
$2.3 billion at December 31, 1996, with debt/EBITDA, at 2.62 times (x).  By
March 31, 1998, JCI reduced total debt to $1.54 billion and debt/EBITDA to
1.53x with cash flow growth and $645 million cash from selling its plastics
container business; EBITDA interest coverage was 8.18x.
    The Becker purchase will raise pro forma leverage to an estimated
2.2x, less than the peak incurred with Prince, with EBITDA interest coverage
remaining above six times.  Fitch IBCA considers that JCI has the ability and
commitment to reduce acquisition debt over the next year, from its strong free
cash flow generation and sales of non-core assets.  This ability is supported
by its solid business position in the automotive systems, batteries, and
facilities management, combined with growing technical capability, reasonable
capex requirements, and diverse operations which temper cash flow exposure to
a single customer.
    Even with these strengths, JCI continues to operate in a keenly
competitive environment in each of its businesses, where sales and earnings
growth must come from productivity gains and new products and services, as
pricing flexibility is limited.  As JCI continues to follow customers as they
globalize their own operations, startup costs associated with expanding its
global footprint will continue to constrain margin expansion over the near
term.