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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(cid:1) (cid:1) (cid:1) (cid:1)
(cid:3) (cid:3) (cid:3) (cid:3)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 2011
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
(State of Incorporation)
5757 North Green Bay Avenue
Milwaukee, Wisconsin
(Address of principal executive offices)
39-0380010
(I.R.S. Employer
Identification No.)
53209
(Zip Code)
Registrant’s telephone number, including area code:
(414) 524-1200
Securities Registered Pursuant to Section 12(b) of the Exchange Act:
Title of Each Class
Common Stock
Corporate Units
Name of Each Exchange on Which Registered
New York Stock Exchange
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Exchange Act:
None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes (cid:1) No (cid:3)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes (cid:3) No (cid:1)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act 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 (cid:1) No (cid:3)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes (cid:1) No (cid:3)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:3)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:1)
Non-accelerated filer (cid:3) Smaller reporting company (cid:3)
Accelerated filer (cid:3)
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:3)
No (cid:1)
As of March 31, 2011, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant
was approximately $28.2 billion based on the closing sales price as reported on the New York Stock Exchange. As of October 31,
2011, 680,381,571 shares of the registrant’s Common Stock, par value $0.01 7 / 18 per share, were outstanding.
Portions of the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of
Shareholders to be held on January 25, 2012 are incorporated by reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
JOHNSON CONTROLS, INC.
Index to Annual Report on Form 10-K
Year Ended September 30, 2011
CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. (REMOVED AND RESERVED)
EXECUTIVE OFFICERS OF THE REGISTRANT
PART I.
PART II.
Page
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
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ITEM 6. SELECTED FINANCIAL DATA
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 24
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 105
105
ITEM 9A. CONTROLS AND PROCEDURES
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ITEM 9B. OTHER INFORMATION
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV.
SIGNATURES
INDEX TO EXHIBITS
EX-10.H
EX-10.K
EX-10.L
EX-10.Q
EX-10.U
EX-10.V
EX-12
EX-21
EX-23
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT
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CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION
Unless otherwise indicated, references to “Johnson Controls,” the “Company,” “we,” “our” and “us” in this Annual Report on Form 10-K refer
to Johnson Controls, Inc. and its consolidated subsidiaries.
Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business
plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,”
“anticipate,” “estimate,” “forecast,” “outlook,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will
likely result,” or the negative thereof or variations thereon or similar terminology generally intended to identify forward-looking statements.
Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause
actual results to differ materially from the forward-looking statements. A detailed discussion of risks and uncertainties that could cause actual
results and events to differ materially from such forward-looking statements is included in the section entitled “Risk Factors” (refer to Part I,
Item 1A, of this Annual Report on Form 10-K). We undertake no obligation, and we disclaim any obligation, to update or revise publicly any
forward-looking statements, whether as a result of new information, future events or otherwise.
PART I
ITEM 1 BUSINESS
General
Johnson Controls is a global diversified technology and industrial leader serving customers in more than 150 countries. The Company creates
quality products, services and solutions to optimize energy and operational efficiencies of buildings; lead-acid automotive batteries and
advanced batteries for hybrid and electric vehicles; and interior systems for automobiles.
Johnson Controls was originally incorporated in the state of Wisconsin in 1885 as Johnson Electric Service Company to manufacture, install
and service automatic temperature regulation systems for buildings. The Company was renamed to Johnson Controls, Inc. in 1974. In 1978, we
acquired Globe-Union, Inc., a Wisconsin-based manufacturer of automotive batteries for both the replacement and original equipment markets.
We entered the automotive seating industry in 1985 with the acquisition of Michigan-based Hoover Universal, Inc. In 2005, the Company
acquired York International, a global supplier of heating, ventilating, air-conditioning and refrigeration equipment and services.
Our building efficiency business is a global market leader in designing, producing, marketing and installing integrated heating, ventilating and
air conditioning (HVAC) systems, building management systems, controls, security and mechanical equipment. In addition, the building
efficiency business provides technical services, energy management consulting and operations of entire real estate portfolios for the non-
residential buildings market. We also provide residential air conditioning and heating systems and industrial refrigeration products.
Our automotive experience business is one of the world’s largest automotive suppliers, providing innovative interior systems through our
design and engineering expertise. Our technologies extend into virtually every area of the interior including seating and overhead systems, door
systems, floor consoles, instrument panels, cockpits and integrated electronics. Customers include most of the world’s major automakers.
Our power solutions business is a leading global supplier of lead-acid automotive batteries for virtually every type of passenger car, light truck
and utility vehicle. We serve both automotive original equipment manufacturers (OEMs) and the general vehicle battery aftermarket. We are
the leading supplier of batteries to power Start-Stop vehicles, as well as lithium-ion battery technologies to power certain hybrid and electric
vehicles.
Financial Information About Business Segments
Accounting Standards Codification (ASC) 280, “Segment Reporting,” establishes the standards for reporting information about operating
segments in financial statements. In applying the criteria set forth in ASC 280, the Company has determined that it has nine
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reportable segments for financial reporting purposes. The Company’s nine reportable segments are presented in the context of its three primary
businesses: building efficiency, automotive experience and power solutions.
Effective October 1, 2010, the building efficiency business unit reorganized its management reporting structure to reflect its current business
activities. Historical information has been revised to reflect the new building efficiency reportable segment structure.
Refer to Note 18, “Segment Information,” of the notes to consolidated financial statements for financial information about business segments.
For the purpose of the following discussion of the Company’s businesses, the five building efficiency reportable segments and the three
automotive experience reportable segments are presented together due to their similar customers and the similar nature of their products,
production processes and distribution channels.
Products/Systems and Services
Building efficiency
Building efficiency is a global leader in delivering integrated control systems, mechanical equipment, services and solutions designed to
improve the comfort, safety and energy efficiency of non-residential buildings and residential properties with operations in 56 countries.
Revenues come from facilities management, technical services and the replacement and upgrade of HVAC controls and mechanical equipment
in the existing buildings market, where the Company’s large base of current customers leads to repeat business, as well as with installing
controls and equipment during the construction of new buildings. Customer relationships often span entire building lifecycles.
Building efficiency sells its control systems, mechanical equipment and services primarily through the Company’s extensive global network of
sales and service offices. Some building controls and mechanical systems are sold to distributors of air-conditioning, refrigeration and
commercial heating systems throughout the world. Approximately 44% of building efficiency’s sales are derived from HVAC products and
installed control systems for construction and retrofit markets, of which 12% of its total sales are related to new commercial construction.
Approximately 56% of its sales originate from its service offerings. In fiscal 2011, building efficiency accounted for 37% of the Company’s
consolidated net sales.
The Company’s systems include York ® chillers, industrial refrigeration products, air handlers and other HVAC mechanical equipment that
provide heating and cooling in non-residential buildings. The Metasys ® control system monitors and integrates HVAC equipment with other
critical building systems to maximize comfort while reducing energy and operating costs. As the largest global supplier of HVAC technical
services, building efficiency staffs, optimizes and repairs building systems made by the Company and its competitors. The Company offers a
wide range of solutions such as performance contracting under which guaranteed energy savings are used by the customer to fund project costs
over a number of years. In addition, the global workplace solutions segment provides full-time on-site operations staff and real estate and
energy consulting services to help customers, especially multi-national companies, reduce costs and improve the performance of their facility
portfolios. The Company’s on-site staff typically performs tasks related to the comfort and reliability of the facility, and manages
subcontractors for functions such as foodservice, cleaning, maintenance and landscaping. The Company also produces air conditioning and
heating equipment for the residential market.
Automotive experience
Automotive experience designs and manufactures interior products and systems for passenger cars and light trucks, including vans, pick-up
trucks and sport/crossover utility vehicles. The business produces automotive interior systems for OEMs and operates approximately 230
wholly- and majority-owned manufacturing or assembly plants in 33 countries worldwide. Additionally, the business has partially-owned
affiliates in Asia, Europe, North America and South America.
Automotive experience products and systems include complete seating systems and components; cockpit systems, including instrument panels
and clusters, information displays and body controllers; overhead systems, including headliners and electronic convenience features; floor
consoles; and door systems. In fiscal 2011, automotive experience accounted for 49% of the Company’s consolidated net sales.
The business operates assembly plants that supply automotive OEMs with complete seats on a “just-in-time/in-sequence” basis. Seats are
assembled to specific order and delivered on a predetermined schedule directly to an
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automotive assembly line. Certain of the business’s other automotive interior systems are also supplied on a “just-in-time/in-sequence” basis.
Foam, metal and plastic seating components, seat covers, seat mechanisms and other components are shipped to these plants from the
business’s production facilities or outside suppliers.
Power solutions
Power solutions services both automotive OEMs and the battery aftermarket by providing advanced battery technology, coupled with systems
engineering, marketing and service expertise. The Company is the largest producer of lead-acid automotive batteries in the world, producing
approximately 130 million lead-acid batteries annually in approximately 70 wholly- and majority-owned manufacturing or assembly plants in
20 countries worldwide. Investments in new product and process technology have expanded product offerings to absorbent glass mat
(AGM) technology that powers Start-Stop vehicles, as well as lithium-ion battery technology for certain hybrid and electric vehicles.
Approximately 77% of automotive battery sales worldwide in fiscal 2011 were to the automotive replacement market, with the remaining sales
to the OEM market.
Power solutions accounted for 14% of the Company’s fiscal 2011 consolidated net sales. Batteries and plastic battery containers are
manufactured at wholly- and majority-owned plants in North America, South America, Asia and Europe.
Competition
Building efficiency
The building efficiency business conducts certain of its operations through thousands of individual contracts that are either negotiated or
awarded on a competitive basis. Key factors in the award of contracts include system and service performance, quality, price, design,
reputation, technology, application engineering capability and construction or project management expertise. Competitors for contracts in the
residential and non-residential marketplace include many regional, national and international providers; larger competitors include Honeywell
International, Inc.; Siemens Building Technologies, an operating group of Siemens AG; Schneider Electric SA; Carrier Corporation, a
subsidiary of United Technologies Corporation; Trane Incorporated, a subsidiary of Ingersoll-Rand Company Limited; Daikin Industries, Ltd.;
Lennox International, Inc.; Goodman Global, Inc; CBRE, Inc.; and Jones Lang LaSalle, Inc. The services market, including global workplace
solutions, is highly fragmented. Sales of services are largely dependent upon numerous individual contracts with commercial businesses
worldwide. The loss of any individual contract would not have a material adverse effect on the Company.
Automotive experience
The automotive experience business faces competition from other automotive suppliers and, with respect to certain products, from the
automobile OEMs who produce or have the capability to produce certain products the business supplies. The automotive supply industry
competes on the basis of technology, quality, reliability of supply and price. Design, engineering and product planning are increasingly
important factors. Independent suppliers that represent the principal automotive experience competitors include Lear Corporation, Faurecia SA
and Magna International Inc.
Power solutions
Power solutions is the principal supplier of batteries to many of the largest merchants in the battery aftermarket, including Advance Auto Parts,
AutoZone, Robert Bosch GmbH, Costco, NAPA, O’Reilly/CSK, Interstate Battery System of America, Pep Boys, Sears, Roebuck & Co. and
Wal-Mart stores. Automotive batteries are sold throughout the world under private labels and under the Company’s brand names (Optima ® ,
Varta ® , LTH ® and Heliar ® ) to automotive replacement battery retailers and distributors and to automobile manufacturers as original
equipment. The power solutions business competes with a number of major domestic and international manufacturers and distributors of lead-
acid batteries, as well as a large number of smaller, regional competitors. The power solutions business primarily competes in the battery
market with Exide Technologies, GS Yuasa Corporation, East Penn Manufacturing Company and Fiamm Group. The North American,
European and Asian lead-acid battery markets are highly competitive. The manufacturers in these markets compete on price, quality, technical
innovation, service and warranty.
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Backlog
The Company’s backlog relating to the building efficiency business is applicable to its sales of systems and services. At September 30, 2011,
the backlog was $5.1 billion, compared with $4.7 billion as of September 30, 2010. The increase in backlog was primarily due to market share
gains and conditions in all geographic markets, with the largest percentage increase in Asia. The backlog does not include amounts associated
with contracts in the global workplace solutions business because such contracts are typically multi-year service awards, nor does it include
unitary products within the other segment. The backlog amount outstanding at any given time is not necessarily indicative of the amount of
revenue to be earned in the upcoming fiscal year.
At September 30, 2011, the Company’s automotive experience backlog of net new incremental business for its consolidated and
unconsolidated subsidiaries to be executed within the next three fiscal years was approximately $4.2 billion, $1.0 billion of which relates to
fiscal 2012. The backlog as of September 30, 2010 was approximately $4.0 billion. The increase in backlog was primarily due to higher
industry production volumes in North America, Europe and Asia, and the impact of recent acquisitions. The automotive backlog is generally
subject to a number of risks and uncertainties, such as related vehicle production volumes, the timing of related production launches and
changes in customer development plans.
Raw Materials
Raw materials used by the businesses in connection with their operations, including lead, steel, urethane chemicals, copper, sulfuric acid and
polypropylene, were readily available during the year and the Company expects such availability to continue. In fiscal 2012, the Company
expects increases in steel, copper, chemicals and resin costs. Lead and other commodity costs are expected to be relatively stable.
Intellectual Property
Generally, the Company seeks statutory protection for strategic or financially important intellectual property developed in connection with its
business. Certain intellectual property, where appropriate, is protected by contracts, licenses, confidentiality or other agreements.
The Company owns numerous U.S. and non-U.S. patents (and their respective counterparts), the more important of which cover those
technologies and inventions embodied in current products, or which are used in the manufacture of those products. While the Company
believes patents are important to its business operations and in the aggregate constitute a valuable asset, no single patent, or group of patents, is
critical to the success of the business. The Company, from time to time, grants licenses under its patents and technology and receives licenses
under patents and technology of others.
The Company’s trademarks, certain of which are material to its business, are registered or otherwise legally protected in the U.S. and many
non-U.S. countries where products and services of the Company are sold. The Company, from time to time, becomes involved in trademark
licensing transactions.
Most works of authorship produced for the Company, such as computer programs, catalogs and sales literature, carry appropriate notices
indicating the Company’s claim to copyright protection under U.S. law and appropriate international treaties.
Environmental, Health and Safety Matters
Laws addressing the protection of the environment (Environmental Laws) and workers’ safety and health (Worker Safety Laws) govern the
Company’s ongoing global operations. They generally provide for civil and criminal penalties, as well as injunctive and remedial relief, for
noncompliance or require remediation of sites where Company-related materials have been released into the environment.
The Company has expended substantial resources globally, both financial and managerial, to comply with Environmental Laws and Worker
Safety Laws and maintains procedures designed to foster and ensure compliance. Certain of the Company’s businesses are, or have been,
engaged in the handling or use of substances that may impact workplace health and safety or the environment. The Company is committed to
protecting its workers and the environment against the risks associated with these substances.
The Company’s operations and facilities have been, and in the future may become, the subject of formal or informal enforcement actions or
proceedings for noncompliance with such laws or for the remediation of Company-related
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substances released into the environment. Such matters typically are resolved by negotiation with regulatory authorities that result in
commitments to compliance, abatement or remediation programs and, in some cases, payment of penalties. Historically, neither such
commitments nor such penalties have been material. (See Item 3, “Legal Proceedings,” of this report for a discussion of the Company’s
potential environmental liabilities.)
Environmental Capital Expenditures
The Company’s ongoing environmental compliance program often results in capital expenditures. Environmental considerations are a part of
all significant capital expenditure decisions; however, expenditures in fiscal 2011 related solely to environmental compliance were not
material. It is management’s opinion that the amount of any future capital expenditures related solely to environmental compliance will not
have a material adverse effect on the Company’s financial results or competitive position in any one year.
Employees
As of September 30, 2011, the Company employed approximately 162,000 employees, of whom approximately 97,000 were hourly and 65,000
were salaried.
Seasonal Factors
Certain of building efficiency’s sales are seasonal as the demand for residential air conditioning equipment generally increases in the summer
months. This seasonality is mitigated by the other products and services provided by the building efficiency business that have no material
seasonal effect.
Sales of automotive seating and interior systems and of batteries to automobile OEMs for use as original equipment are dependent upon the
demand for new automobiles. Management believes that demand for new automobiles generally reflects sensitivity to overall economic
conditions with no material seasonal effect.
The automotive replacement battery market is affected by weather patterns because batteries are more likely to fail when extremely low
temperatures place substantial additional power requirements upon a vehicle’s electrical system. Also, battery life is shortened by extremely
high temperatures, which accelerate corrosion rates. Therefore, either mild winter or moderate summer temperatures may adversely affect
automotive replacement battery sales.
Financial Information About Geographic Areas
Refer to Note 18, “Segment Information,” of the notes to consolidated financial statements for financial information about geographic areas.
Research and Development Expenditures
Refer to Note 1, “Summary of Significant Accounting Policies,” of the notes to consolidated financial statements for research and development
expenditures.
Available Information
The Company’s filings with the U.S. Securities and Exchange Commission (SEC), including annual reports on Form 10-K, quarterly reports on
Form 10-Q, definitive proxy statements on Schedule 14A, current reports on Form 8-K, and any amendments to those reports filed pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, are made available free of charge through the Investor Relations section of the
Company’s Internet website at http://www.johnsoncontrols.com as soon as reasonably practicable after the Company electronically files such
material with, or furnishes it to, the SEC. Copies of any materials the Company files with the SEC can also be obtained free of charge through
the SEC’s website at http://www.sec.gov , at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, or by calling
the SEC’s Office of Investor Education and Assistance at 1-800-732-0330. The Company also makes available, free of charge, its Ethics
Policy, Corporate Governance Guidelines, Board of Directors committee charters and other information related to the Company on the
Company’s Internet website or in printed form upon request. The Company is not including the information contained on the Company’s
website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K.
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ITEM 1A RISK FACTORS
General Risks
General economic, credit and capital market conditions could adversely affect our financial performance, and may affect our ability to
grow or sustain our businesses and could negatively affect our ability to access the capital markets.
We compete around the world in various geographic regions and product markets. Global economic conditions affect each of our three primary
businesses. As we discuss in greater detail in the specific risk factors for each of our businesses that appear below, any future financial distress
in the automotive industry or residential and commercial construction markets could negatively affect our revenues and financial performance
in future periods, result in future restructuring charges, and adversely impact our ability to grow or sustain our businesses.
The capital and credit markets provide us with liquidity to operate and grow our businesses beyond the liquidity that operating cash flows
provide. A worldwide economic downturn and disruption of the credit markets could reduce our access to capital necessary for our operations
and executing our strategic plan. If our access to capital were to become significantly constrained or costs of capital increased significantly due
to lowered credit ratings, prevailing industry conditions, the volatility of the capital markets or other factors, then our financial condition,
results of operations and cash flows could be adversely affected. The Company’s $2.5 billion four-year revolving credit facility expires in
February 2015. The Company plans to renew the facility prior to its expiration.
We are subject to pricing pressure from our automotive customers.
We face significant competitive pressures in all of our business segments. Because of their purchasing size, our automotive customers can
influence market participants to compete on price terms. If we are not able to offset pricing reductions resulting from these pressures by
improved operating efficiencies and reduced expenditures, those pricing reductions may have an adverse impact on our business.
We are subject to risks associated with our non-U.S. operations that could adversely affect our results of operations.
We have significant operations in a number of countries outside the U.S., some of which are located in emerging markets. Long-term economic
uncertainty in some of the regions of the world in which we operate, such as Asia, South America, the Middle East, Central Europe and other
emerging markets, could result in the disruption of markets and negatively affect cash flows from our operations to cover our capital needs and
debt service. The sovereign debt crisis in countries in which we operate in Europe could negatively impact our access to, and cost of, capital,
and therefore could have an adverse effect on our business, results of operations, financial condition and competitive position.
In addition, as a result of our global presence, a significant portion of our revenues and expenses is denominated in currencies other than the
U.S. dollar. We are therefore subject to foreign currency risks and foreign exchange exposure. Our primary exposures are to the euro, British
pound, Japanese yen, Czech koruna, Mexican peso, Romanian lei, Hungarian forint, Polish zloty, Canadian dollar and Chinese renminbi. While
we employ financial instruments to hedge transactional and foreign exchange exposure, these activities do not insulate us completely from
those exposures. Exchange rates can be volatile and could adversely impact our financial results and comparability of results from period to
period.
There are other risks that are inherent in our non-U.S. operations, including the potential for changes in socio-economic conditions, laws and
regulations, including import, export, labor and environmental laws, and monetary and fiscal policies, protectionist measures that may prohibit
acquisitions or joint ventures, unsettled political conditions, corruption, natural and man-made disasters, hazards and losses, violence and
possible terrorist attacks.
These and other factors may have a material adverse effect on our non-U.S. operations and therefore on our business and results of operations.
We are subject to regulation of our international operations that could adversely affect our business and results of operations.
Due to our global operations, we are subject to many laws governing international relations, including those that prohibit improper payments to
government officials and commercial customers, and restrict where we can do
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business, what information or products we can supply to certain countries and what information we can provide to a non-U.S. government,
including but not limited to the Foreign Corrupt Practices Act and the U.S. Export Administration Act. Violations of these laws, which are
complex, may result in criminal penalties or sanctions that could have a material adverse effect on our business, financial condition and results
of operations.
Increased public awareness and concern regarding global climate change may result in more regional and/or federal requirements to reduce or
mitigate the effects of greenhouse gas emissions. There continues to be a lack of consistent climate legislation, which creates economic and
regulatory uncertainty. Such uncertainty extends to future incentives for energy efficient buildings and vehicles and costs of compliance, which
may impact the demand for our products and our results of operations.
Global climate change could negatively affect our business.
There is a growing consensus that greenhouse gas emissions are linked to global climate changes. Climate changes, such as extreme weather
conditions, create financial risk to our business. For example, the demand for our products and services, such as residential air conditioning
equipment and automotive replacement batteries, may be affected by unseasonable weather conditions. Climate changes could also disrupt our
operations by impacting the availability and cost of materials needed for manufacturing and could increase insurance and other operating costs.
These factors may impact our decisions to construct new facilities or maintain existing facilities in areas most prone to physical climate risks.
The Company could also face indirect financial risks passed through the supply chain, and process disruptions due to physical climate changes
could result in price modifications for our products and the resources needed to produce them.
We are subject to requirements relating to environmental regulation and environmental remediation matters, which could adversely
affect our business and results of operations.
Because of uncertainties associated with environmental regulation and environmental remediation activities at sites where we may be liable,
future expenses that we may incur to remediate identified sites could be considerably higher than the current accrued liability on our
consolidated statement of financial position, which could have a material adverse effect on our business and results of operations.
Negative or unexpected tax consequences could adversely affect our results of operations.
Adverse changes in the underlying profitability and financial outlook of our operations in several jurisdictions could lead to changes in our
valuation allowances against deferred tax assets and other tax reserves on our statement of financial position that could materially and
adversely affect our results of operations. Additionally, changes in tax laws in the U.S. or in other countries where we have significant
operations could materially affect deferred tax assets and liabilities on our consolidated statement of financial position and tax expense.
We are also subject to tax audits by governmental authorities in the U.S. and in non-U.S. jurisdictions. Negative unexpected results from one or
more such tax audits could adversely affect our results of operations.
Legal proceedings in which we are, or may be, a party may adversely affect us.
We are currently and may in the future become subject to legal proceedings and commercial or contractual disputes. These are typically claims
that arise in the normal course of business including, without limitation, commercial or contractual disputes with our suppliers, intellectual
property matters, third party liability, including product liability claims and employment claims. There exists the possibility that such claims
may have an adverse impact on our results of operations that is greater than we anticipate.
A downgrade in the ratings of our debt could restrict our ability to access the debt capital markets and increase our interest costs.
Changes in the ratings that rating agencies assign to our debt may ultimately impact our access to the debt capital markets and the costs we
incur to borrow funds. If ratings for our debt fall below investment grade, our access to the debt capital markets would become restricted.
Tightening in the credit markets and the reduced level of liquidity in many financial markets due to turmoil in the financial and banking
industries could affect our access to the debt capital markets or the price we pay to issue debt. Historically, we have relied on our ability to
issue commercial paper rather than to draw on our credit facility to support our daily operations, which means that a downgrade in our ratings
or continued volatility in the financial markets causing limitations to the debt capital markets could have an adverse effect on our business or
our ability to meet our liquidity needs.
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Additionally, several of our credit agreements generally include an increase in interest rates if the ratings for our debt are downgraded. Further,
an increase in the level of our indebtedness may increase our vulnerability to adverse general economic and industry conditions and may affect
our ability to obtain additional financing.
We are subject to potential insolvency or financial distress of third parties.
We are exposed to the risk that third parties to various arrangements who owe us money or goods and services, or who purchase goods and
services from us, will not be able to perform their obligations or continue to place orders due to insolvency or financial distress. If third parties
fail to perform their obligations under arrangements with us, we may be forced to replace the underlying commitment at current or above
market prices or on other terms that are less favorable to us. In such events, we may incur losses, or our results of operations, financial position
or liquidity could otherwise be adversely affected.
We may be unable to complete or integrate acquisitions effectively, which may adversely affect our growth, profitability and results of
operations.
We expect acquisitions of businesses and assets to play a role in our future growth. We cannot be certain that we will be able to identify
attractive acquisition targets, obtain financing for acquisitions on satisfactory terms or successfully acquire identified targets. Additionally, we
may not be successful in integrating acquired businesses into our existing operations and achieving projected synergies. Competition for
acquisition opportunities in the various industries in which we operate may rise, thereby increasing our costs of making acquisitions or causing
us to refrain from making further acquisitions. We are also subject to applicable antitrust laws and must avoid anticompetitive behavior. These
and other acquisition-related factors may negatively and adversely impact our growth, profitability and results of operations.
We are subject to business continuity risks associated with centralization of certain administrative functions.
Certain administrative functions, primarily in North America, Europe and Asia, have been or are in the process of being regionally centralized
to improve efficiency and reduce costs. To the extent that these central locations are disrupted or disabled, key business processes, such as
invoicing, payments and general management operations, could be interrupted.
A failure of our information technology (IT) infrastructure could adversely impact our business and operations.
We rely upon the capacity, reliability and security of our information technology infrastructure and our ability to expand and continually update
this infrastructure in response to the changing needs of our business. For example, we are implementing new enterprise resource planning and
other IT systems in certain of our businesses over a period of several years. As we implement the new systems, they may not perform as
expected. We also face the challenge of supporting our older systems and implementing necessary upgrades. If we experience a problem with
the functioning of an important IT system or a security breach of our IT systems, the resulting disruptions could have an adverse effect on our
business.
We and certain of our third-party vendors receive and store personal information in connection with our human resources operations and other
aspects of our business. Despite our implementation of security measures, our IT systems are vulnerable to damages from computer viruses,
natural disasters, unauthorized access, cyber attack and other similar disruptions. Any system failure, accident or security breach could result in
disruptions to our operations. A material network breach in the security of our IT systems could include the theft of our intellectual property or
trade secrets. To the extent that any disruptions or security breach results in a loss or damage to our data, or in inappropriate disclosure of
confidential information, it could cause significant damage to our reputation, affect our relationships with our customers, lead to claims against
the Company and ultimately harm our business. In addition, we may be required to incur significant costs to protect against damage caused by
these disruptions or security breaches in the future.
Our business success depends on attracting and retaining qualified personnel.
Our ability to sustain and grow our business requires us to hire, retain and develop a highly skilled and diverse management team and
workforce. Failure to ensure that we have the leadership capacity with the necessary skill set and experience could impede our ability to deliver
our growth objectives and execute our strategic plan. Any
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unplanned turnover or inability to attract and retain key employees could have a negative effect on our results of operations.
Building Efficiency Risks
Failure to comply with regulations due to our contracts with U.S. government entities could adversely affect our business and results of
operations.
Our building efficiency business contracts with government entities and is subject to specific rules, regulations and approvals applicable to
government contractors. We are subject to routine audits by the Defense Contract Audit Agency to assure our compliance with these
requirements. Our failure to comply with these or other laws and regulations could result in contract terminations, suspension or debarment
from contracting with the U.S. federal government, civil fines and damages and criminal prosecution. In addition, changes in procurement
policies, budget considerations, unexpected U.S. developments, such as terrorist attacks, or similar political developments or events abroad that
may change the U.S. federal government’s national security defense posture may affect sales to government entities.
Volatility in commodity prices may adversely affect our results of operations.
Commodity prices were volatile in the past year, primarily steel, aluminum, copper and fuel costs. Increases in commodity costs negatively
impact the profitability of orders in backlog as prices on those orders are fixed; therefore, in the short term we cannot adjust for changes in
commodity prices. If we are not able to recover commodity cost increases through price increases to our customers on new orders, then such
increases will have an adverse effect on our results of operations. Additionally, unfavorability in our hedging programs during a period of
declining commodity prices could result in lower margins as we reduce prices to match the market on a fixed commodity cost level.
Conditions in the residential and commercial new construction markets may adversely affect our results of operations.
HVAC equipment sales in the residential and commercial new construction markets correlate to the number of new homes and buildings that
are built. The strength of the residential and commercial markets depends in part on the availability of consumer and commercial financing for
our customers, along with inventory and pricing of existing homes and buildings. If economic and credit market conditions worsen, it may
result in a decline in the residential housing construction market and construction of new commercial buildings. Such conditions could have an
adverse effect on our results of operations and result in potential liabilities or additional costs, including impairment charges.
A variety of other factors could adversely affect the results of operations of our building efficiency business.
Any of the following could materially and adversely impact the results of operations of our building efficiency business: loss of, changes in, or
failure to perform under facility management supply contracts with our major customers; cancellation of, or significant delays in, projects in
our backlog; delays or difficulties in new product development; the potential introduction of similar or superior technologies; financial
instability or market declines of our major component suppliers; the unavailability of raw materials (primarily steel, copper and electronic
components) necessary for production of HVAC equipment; price increases of limited-source components, products and services that we are
unable to pass on to the market; unseasonable weather conditions in various parts of the world; changes in energy costs or governmental
regulations that would decrease the incentive for customers to update or improve their building control systems; revisions to energy efficiency
legislation; a decline in the outsourcing of facility management services; availability of labor to support growth of our service businesses; and
natural or man-made disasters or losses that impact our ability to deliver facility management and other products and services to our customers.
Automotive Experience Risks
Conditions in the automotive industry may adversely affect our results of operations.
Our financial performance depends, in part, on conditions in the automotive industry. In fiscal 2011, our largest customers globally were
automobile manufacturers Ford Motor Company (Ford), General Motors Corporation (GM) and Daimler AG. If automakers experience a
decline in the number of new vehicle sales, we may experience reductions in orders from these customers, incur write offs of accounts
receivable, incur impairment charges or
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require additional restructuring actions beyond our current restructuring plans, particularly if any of the automakers cannot adequately fund
their operations or experience financial distress.
Financial distress of the automotive supply chain could harm our results of operations.
Automotive industry conditions could adversely affect the original equipment supplier base. Lower production levels for key customers,
increases in certain raw material, commodity and energy costs and global credit market conditions could result in financial distress among
many companies within the automotive supply base. Financial distress within the supplier base may lead to commercial disputes and possible
supply chain interruptions, which in turn could disrupt our production. In addition, an adverse industry environment may require us to provide
financial support to distressed suppliers or take other measures to ensure uninterrupted production, which could involve additional costs or
risks. If any of these risks materialize, we are likely to incur losses, or our results of operations, financial position or liquidity could otherwise
be adversely affected.
Change in consumer demand may adversely affect our results of operations.
Increases in energy costs or other factors (e.g., climate change concerns) may shift consumer demand away from motor vehicles that typically
have higher interior content that we supply, such as light trucks, cross-over vehicles, minivans and SUVs, to smaller vehicles having less
interior content. The loss of business with respect to, or a lack of commercial success of, one or more particular vehicle models for which we
are a significant supplier could reduce our sales and harm our profitability, thereby adversely affecting our results of operations.
We may not be able to successfully negotiate pricing terms with our customers in the automotive experience business, which may
adversely affect our results of operations.
We negotiate sales prices annually with our automotive customers. Cost-cutting initiatives that our customers have adopted generally result in
increased downward pressure on pricing. In some cases our customer supply agreements require reductions in component pricing over the
period of production. If we are unable to generate sufficient production cost savings in the future to offset price reductions, our results of
operations may be adversely affected. In particular, large commercial settlements with our customers may adversely affect our results of
operations or cause our financial results to vary on a quarterly basis.
Volatility in commodity prices may adversely affect our results of operations.
Commodity prices can be volatile from year to year. If commodity prices rise, and if we are not able to recover these cost increases from our
customers, these increases will have an adverse effect on our results of operations.
The cyclicality of original equipment automobile production rates may adversely affect the results of operations in our automotive
experience business.
Our automotive experience business is directly related to automotive production by our customers. Automotive production and sales are highly
cyclical and depend on general economic conditions and other factors, including consumer spending and preferences. An economic decline that
results in a reduction in automotive production by our automotive experience customers could have a material adverse impact on our results of
operations.
A variety of other factors could adversely affect the results of operations of our automotive experience business.
Any of the following could materially and adversely impact the results of operations of our automotive experience business: the loss of, or
changes in, automobile supply contracts or sourcing strategies with our major customers or suppliers; start-up expenses associated with new
vehicle programs or delays or cancellations of such programs; underutilization of our manufacturing facilities, which are generally located near,
and devoted to, a particular customer’s facility; inability to recover engineering and tooling costs; market and financial consequences of any
recalls that may be required on products that we have supplied; delays or difficulties in new product development; complexity of new program
launches, which are subject to our customers’ timing, performance, design and quality standards; interruption of supply of certain single-source
components; the potential introduction of similar or superior technologies; changing nature of our joint ventures and relationships with our
strategic business partners; and global overcapacity and vehicle platform proliferation.
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Power Solutions Risks
We face competition and pricing pressure from other companies in the power solutions business.
Our power solutions business competes with a number of major domestic and international manufacturers and distributors of lead-acid
batteries, as well as a large number of smaller, regional competitors. The North American, European and Asian lead-acid battery markets are
highly competitive. The manufacturers in these markets compete on price, quality, technical innovation, service and warranty. If we are unable
to remain competitive and maintain market share in the regions and markets we serve, our results of operations may be adversely affected.
Volatility in commodity prices may adversely affect our results of operations.
Lead is a major component of our lead-acid batteries. The price of lead has been highly volatile over the last several years. We attempt to
manage the impact of changing lead prices through the recycling of used batteries returned to us by our aftermarket customers, commercial
terms and commodity hedging programs. Our ability to mitigate the impact of lead price changes can be impacted by many factors, including
customer negotiations, inventory level fluctuations and sales volume/mix changes, any of which could have an adverse effect on our results of
operations.
Additionally, the prices of other commodities, primarily fuel, acid and resin, have been volatile. If other commodity prices rise, and if we are
not able to recover these cost increases through price increases to our customers, such increases will have an adverse effect on our results of
operations. Moreover, the implementation of any price increases to our customers could negatively impact demand for our products.
Decreased demand from our customers in the automotive industry may adversely affect our results of operations.
Our financial performance in the power solutions business depends, in part, on conditions in the automotive industry. Sales to OEMs accounted
for approximately 23% of the total sales of the power solutions business in fiscal 2011. Declines in the North American and European
automotive production levels could reduce our sales and adversely affect our results of operations. In addition, if any OEMs reach a point
where they cannot fund their operations, we may incur write offs of accounts receivable, incur impairment charges or require additional
restructuring actions beyond our current restructuring plans.
A variety of other factors could adversely affect the results of operations of our power solutions business.
Any of the following could materially and adversely impact the results of operations of our power solutions business: loss of, or changes in,
automobile battery supply contracts with our large original equipment and aftermarket customers; the increasing quality and useful life of
batteries or use of alternative battery technologies, both of which may contribute to a growth slowdown in the lead-acid battery market; delays
or cancellations of new vehicle programs; market and financial consequences of any recalls that may be required on our products; delays or
difficulties in new product development, including lithium-ion technology; financial instability or market declines of our customers or
suppliers; interruption of supply of certain single-source components; changing nature of our joint ventures and relationships with our strategic
business partners; the increasing global environmental and safety regulations related to the manufacturing and recycling of lead-acid batteries;
our ability to secure sufficient tolling capacity to recycle batteries; and the lack of the development of a market for hybrid and electric vehicles.
ITEM 1B UNRESOLVED STAFF COMMENTS
The Company has no unresolved written comments regarding its periodic or current reports from the staff of the SEC.
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ITEM 2 PROPERTIES
At September 30, 2011, the Company conducted its operations in 61 countries throughout the world, with its world headquarters located in
Milwaukee, Wisconsin. The Company’s wholly- and majority-owned facilities, which are listed in the table on the following pages by business
and location, totaled approximately 95 million square feet of floor space and are owned by the Company except as noted. The facilities
primarily consisted of manufacturing, assembly and/or warehouse space. The Company considers its facilities to be suitable and adequate for
their current uses. The majority of the facilities are operating at normal levels based on capacity.
Arizona
California
Delaware
Florida
Georgia
Illinois
Kansas
Kentucky
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
New Jersey
North Carolina
Oregon
Oklahoma
Pennsylvania
Texas
Washington
Wisconsin
Phoenix (1),(4)
Fremont (1),(4)
Roseville (1),(4)
Simi Valley (1),(4)
Whittier (4)
Newark (1),(4)
Largo (1),(3)
Atlanta (1),(4)
Arlington Heights (4)
Dixon (3)
Elmhurst (1),(4)
Wheeling (1),(4)
Lenexa (1),(4)
Wichita (2),(3)
Erlanger (1)
Louisville (1),(4)
Capitol Heights (1),(4)
Rossville (1)
Sparks (1),(4)
Lynnfield (4)
Sterling Heights (1),(3)
Plymouth (1),(4)
Hattiesburg (1)
Albany
St. Louis (1),(4)
Hainesport (1),(4)
Charlotte (1),(4)
Portland (1),(4)
Norman (3)
Audubon (1),(4)
York (1)
Waynesboro (3)
Houston (1),(4)
Irving (4)
San Antonio
Fife (1),(4)
Milwaukee (2),(4)
Waukesha (1),(4)
Building Efficiency
Austria
Brazil
Belgium
Canada
China
Denmark
France
Germany
Hong Kong
India
Italy
Japan
Mexico
Netherlands
Poland
Romania
Russia
South Africa
Spain
Switzerland
Turkey
14
Graz (4)
Vienna (4)
São Paulo (3)
Diegem (1),(4)
Ajax (1),(3)
Victoria (1),(4)
Oakville (1),(4)
Qingyuan (2),(3)
Wuxi (2),(3)
Aarhus (3)
Hornslet (2),(4)
Viby (2),(3)
Amiens Glisy (3)
Carquefou Bel Air (3)
Colombes (1),(3)
Nantes (1)
Saint Quentin Fallavier (1),(3)
Essen (2),(3)
Kempen (1),(3)
Mannheim (1),(3)
Hong Kong (1),(3)
Chakan (1),(3)
Pune (1),(3)
Milan (1),(4)
Tokyo (1),(4)
Apodaca (1),(3)
Durango (3)
Juarez (2),(3)
Monterrey (1),(3)
Reynosa (3)
Gorinchem (1),(4)
Warsaw (1),(3)
Bucharest (1),(3)
Moscow (1),(3)
Johannesburg (1),(3)
Sabadell (1),(3)
Basel (1)
Izmir (1),(3)
Buenos Aires (1)
Cordoba (1)
Rosario
Adelaide (1)
Graz (1)
Mandling
Assenede (1)
Geel (1),(3)
Gravatai
Pouso Alegre
Quatro Barras (2)
San Bernardo do Campo
Santo Andre
Sao Jose dos Campos
Sao Jose dos Pinhais (1)
Sofia (1),(4)
Milton
Mississauga (1),(3)
Saint Mary’s
Tillsonburg
Whitby (2)
Beijing (3)
Shanghai (1),(3)
Benatky (1)
Ceska Lipa (4)
Mlada Boleslav (1)
Roudnice
Rychnov (1)
Strakonice
Straz pod Ralskem
Cergy (1),(4)
Conflans-sur-Lanterne
Creutzwald
Fesches-le-Chatel (1)
La Ferte Bernard
Rosny
Strasbourg
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Alabama
Georgia
Illinois
Indiana
Kentucky
Louisiana
Michigan
Missouri
Ohio
Tennessee
Texas
Wisconsin
Clanton
Cottondale
Eastaboga
McCalla (1)
LaGrange (1)
West Point (1)
Chicago (1)
Lawrenceville
Sycamore
Kendallville
Munice (1)
Cadiz
Georgetown (2)
Harrodsburg (3)
Leitchfield
Louisville (1)
Nicholasville (1)
Owensboro (1)
Shelbyville (1)
Winchester (1)
Shreveport
Auburn Hills (1)
Battle Creek
Cascade (1)
Croswell (1)
Detroit
Fowlerville
Highland Park (1)
Holland (2),(3)
Kentwood (1)
Lansing (2)
Monroe (1)
Port Huron (1)
Plymouth (3)
Romulus (1)
Taylor (1)
Troy (1)
Warren (1)
Eldon (2)
Kansas City (1)
Riverside (1)
Bryan
Greenfield
Northwood
St. Mary’s (2)
Wauseon
Columbia (1)
Franklin
Murfreesboro (2)
Pulaski (1)
El Paso (1)
San Antonio (1)
Hudson
Automotive Experience
Argentina
Australia
Austria
Belgium
Brazil
Bulgaria
Canada
China
Czech Republic
France
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Germany
Italy
Japan
Korea
Macedonia
Malaysia
Mexico
Automotive Experience (continued)
Boblingen (1),(3)
Bochum (2)
Bremen (1)
Burscheid (2),(3)
Dautphe
Espelkamp
Grefrath
Hannover (1)
Hilchenbach (1)
Holzgerlingen (1)
Kaiserslautern
Karlsruhe (1),(4)
Luneburg
Mannweiler (1)
Markgroningen (1)
Neustadt
Rastatt (1)
Remscheid (1)
Rockenhausen
Saarlouis (1)
Solingen
Uberherrn
Waghausel (3)
Zwickau
Grugliasco (1)
Melfi
Ogliastro Cilento
Rocca D’Evandro
Ayase
Hamamatsu
Higashiomi
Yamato
Yokohama (1),(4)
Yokosuka (2)
Ansan (1),(4)
Asan
Skopje
Melaka (1)
Pekan (1)
Perak Darul Redzuan (1)
Selangor Darul Ehsan
Ecapetec Edo (1)
Juarez (2)
Matamaros (1)
Monclova
Puebla (2)
Ramos Arizpe
Reynosa (1)
Saltillo
Tlaxcala
Toluca (1)
Poland
Portugal
Republic of Slovenia
Romania
Russia
Slovak Republic
South Africa
Spain
Sweden
Thailand
Tunesia
Turkey
United Kingdom
16
Bierun
Siemianowice
Skarbimierz (1)
Swiebodzin
Zory
Palmela
Novo Mesto (1)
Slovenj Gradec
Craiova (1)
Jimbolia (1)
Mioveni (1)
Pitesti (1)
Ploesti
Timisoara (1)
St. Petersburg (1)
Togliatti (1)
Bratislava (1),(4)
Kostany nad Turcom (2)
Lozorno (1)
Lucenec (2)
Namestovo (1)
Trencin (1)
Zilina (2)
East London (1)
Pretoria
Uitenhage (1)
Abrera
Alagon
Almussafes (2)
Calatorao (1)
Pedrola
Redondela (1)
Valladolid
Goteburg (1)
Rayong
Bi’r al Bay (1)
Bursa (1)
Kocaeli
Birmingham
Burton-Upon-Trent
Ellesmere (1)
Garston (1)
Sunderland
Telford (1)
Wednesbury
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Arizona
Delaware
Florida
Illinois
Indiana
Iowa
Kentucky
Michigan
Missouri
North Carolina
Ohio
Oregon
South Carolina
Texas
Wisconsin
Yuma (3)
Middletown (3)
Tampa (3)
Geneva (3)
Ft. Wayne (3)
Red Oak (3)
Florence (1),(3)
Holland (3)
St. Joseph (2),(3)
Kernersville (3)
Toledo (3)
Portland (2),(3)
Florence (3)
Oconee (3)
San Antonio (3)
Milwaukee (4)
Wisconsin
(1) Leased facility
(2) Includes both leased and owned facilities
(3) Includes both administrative and manufacturing facilities
(4) Administrative facility only
Power Solutions
Austria
Brazil
China
Czech Republic
France
Germany
Korea
Mexico
Spain
Sweden
Corporate
Milwaukee (4)
Graz (1)
Vienna (1)
Sorocaba (3)
Changxing (3)
Chongqing (3)
Shanghai (2),(3)
Ceska Lipa (2),(3)
Rouen
Sarreguemines (3)
Hannover (3)
Krautscheid (3)
Zwickau (2),(3)
Gumi (2),(3)
Celaya
Cienega de Flores (2)
Escobedo
Flores
Garcia
San Pedro (1),(4)
Torreon
Burgos
Guadamar del Segura
Guadalajara (1)
Ibi (3)
Hultsfred
In addition to the above listing, which identifies large properties (greater than 25,000 square feet), there are approximately 644 building
efficiency branch offices and other administrative offices located in major cities throughout the world. These offices are primarily leased
facilities and vary in size in proportion to the volume of business in the particular locality.
ITEM 3 LEGAL PROCEEDINGS
As noted in Item 1, liabilities potentially arise globally under various Environmental Laws and Worker Safety Laws for activities that are not in
compliance with such laws and for the cleanup of sites where Company-related substances have been released into the environment.
Currently, the Company is responding to allegations that it is responsible for performing environmental remediation, or for the repayment of
costs spent by governmental entities or others performing remediation, at approximately 42 sites in the U.S. Many of these sites are landfills
used by the Company in the past for the disposal of waste materials; others are secondary lead smelters and lead recycling sites where the
Company returned lead-containing materials for recycling; a few involve the cleanup of Company manufacturing facilities; and the remaining
fall into miscellaneous categories. The Company may face similar claims of liability at additional sites in the future. Where potential liabilities
are alleged, the Company pursues a course of action intended to mitigate them.
The Company accrues for potential environmental liabilities in a manner consistent with accounting principles generally accepted in the United
States; that is, when it is probable a liability has been incurred and the amount of the liability is reasonably estimable. Reserves for
environmental liabilities totaled $30 million and $47 million at
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September 30, 2011 and 2010, respectively. The Company reviews the status of its environmental sites on a quarterly basis and adjusts its
reserves accordingly. Such potential liabilities accrued by the Company do not take into consideration possible recoveries of future insurance
proceeds. They do, however, take into account the likely share other parties will bear at remediation sites. It is difficult to estimate the
Company’s ultimate level of liability at many remediation sites due to the large number of other parties that may be involved, the complexity of
determining the relative liability among those parties, the uncertainty as to the nature and scope of the investigations and remediation to be
conducted, the uncertainty in the application of law and risk assessment, the various choices and costs associated with diverse technologies that
may be used in corrective actions at the sites, and the often quite lengthy periods over which eventual remediation may occur. Nevertheless, the
Company does not currently believe that any claims, penalties or costs in connection with known environmental matters will have a material
adverse effect on the Company’s financial position, results of operations or cash flows.
The Company is involved in a number of product liability and various other casualty lawsuits incident to the operation of its businesses.
Insurance coverages are maintained and estimated costs are recorded for claims and lawsuits of this nature. It is management’s opinion that
none of these will have a material adverse effect on the Company’s financial position, results of operations or cash flows. Costs related to such
matters were not material to the periods presented.
ITEM 4 (REMOVED AND RESERVED)
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the following list of executive officers of the Company as of November 16, 2011 is
included as an unnumbered Item in Part I of this report in lieu of being included in the Company’s Proxy Statement relating to the Annual
Meeting of Shareholders to be held on January 25, 2012.
Jeffrey G. Augustin , 49, was elected a Corporate Vice President in March 2005 and has served as Vice President of Finance for the
building efficiency business since December 2005. Previously, Mr. Augustin served as Corporate Controller from March 2005 to
March 2007. From 2001 to March 2005, Mr. Augustin was Vice President of Finance and Corporate Controller of Gateway, Inc.
Beda Bolzenius , 55, was elected a Corporate Vice President in November 2005 and serves as President of the automotive experience
business. He previously served as Executive Vice President and General Manager Europe, Africa and South America for automotive
experience from November 2004 to November 2005. Dr. Bolzenius joined the Company in November 2004 from Robert Bosch GmbH, a
global manufacturer of automotive and industrial technology, consumer goods and building technology, where he most recently served as
the president of Bosch’s Body Electronics division.
Colin Boyd , 52, was elected Vice President, Information Technology and Chief Information Officer in October 2008. Mr. Boyd
previously served as Chief Information Officer and Corporate Vice President of Sony Ericsson from 2002 to 2008.
Susan F. Davis , 58, was elected Executive Vice President of Human Resources in September 2006. She previously served as Vice
President of Human Resources from May 1994 to September 2006 and as Vice President of Organizational Development for automotive
experience from August 1993 to April 1994. Ms. Davis joined the Company in 1983.
Jeffrey S. Edwards , 49, was elected a Corporate Vice President in May 2004 and serves as Group Vice President and General Manager
for automotive experience Asia. He previously served as Group Vice President and General Manager for automotive experience North
America from August 2002 to May 2004 and Group Vice President and General Manager for product and business development.
Mr. Edwards joined the Company in 1984.
Charles A. Harvey , 59, was elected Corporate Vice President of Diversity and Public Affairs in November 2005. He previously served
as Vice President of Human Resources for the automotive experience business and in other human resources leadership positions.
Mr. Harvey joined the Company in 1991.
William C. Jackson, 51, was elected Executive Vice President, Operations and Innovation, in July 2011. Prior to joining Johnson
Controls, Mr. Jackson was Vice President and President of Automotive at Sears Holdings Corporation from 2009 to 2010. Prior to that, he
served as Senior Vice President and board member of Booz,
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Allen & Hamilton and Booz & Company, a strategy and consulting firm, where he led the firm’s Global Automotive, Transportation and
Industrials Practice.
Susan M. Kreh , 49, was elected a Corporate Vice President in March 2007 and has served as Vice President of Finance for the power
solutions business since November 2009. Ms. Kreh served as Corporate Controller from March 2007 to November 2009. Prior to joining the
Company, Ms. Kreh served 22 years at PPG Industries, Inc., including as Corporate Treasurer from January 2002 until March 2007.
R. Bruce McDonald , 51, was elected Executive Vice President in September 2006 and Chief Financial Officer in May 2005. He
previously served as Corporate Vice President from January 2002 to September 2006, Assistant Chief Financial Officer from October 2004
to May 2005 and Corporate Controller from November 2001 to October 2004. Mr. McDonald joined the Company in 2001.
Alex A. Molinaroli , 52, was elected a Corporate Vice President in May 2004 and has served as President of the power solutions business
since January 2007. Previously, Mr. Molinaroli served as Vice President and General Manager for North America Systems & the Middle
East for the building efficiency business and has held increasing levels of responsibility for controls systems and services sales and
operations. Mr. Molinaroli joined the Company in 1983.
C. David Myers , 48, was elected a Corporate Vice President and President of the building efficiency business in December 2005, when
he joined the Company in connection with the acquisition of York International Corporation (York). At York, Mr. Myers served as Chief
Executive Officer from February 2004 to December 2005, President from June 2003 to December 2005, Executive Vice President and Chief
Financial Officer from January 2003 to June 2003 and Vice President and Chief Financial Officer from February 2000 to January 2003.
Jerome D. Okarma , 59, was elected Vice President, Secretary and General Counsel in November 2004 and was named a Corporate Vice
President in September 2003. He previously served as Assistant Secretary from 1990 to November 2004 and as Deputy General Counsel
from June 2000 to November 2004. Mr. Okarma joined the Company in 1989.
Stephen A. Roell , 61, was elected Chief Executive Officer effective in October 2007, Chairman effective in January 2008, and President
effective in May 2009. He was first elected to the Board of Directors in October 2004 and served as Executive Vice President from
October 2004 through September 2007. Mr. Roell previously served as Chief Financial Officer between 1991 and May 2005, Senior Vice
President from September 1998 to October 2004 and Vice President from 1991 to September 1998. Mr. Roell joined the Company in 1982.
Brian J. Stief , 55, was elected Vice President and Corporate Controller in July 2010 and serves as the Company’s Principal Accounting
Officer. Prior to joining the Company, Mr. Stief was a partner with PricewaterhouseCoopers LLP, which he joined in 1979 and became
partner in 1989. He served several of the firm’s largest clients and also held various office managing partner roles.
Jacqueline F. Strayer , 57, was elected Vice President, Corporate Communication in September 2008. She previously served as Vice
President, Corporate Communications, for Arrow Electronics, Inc. from 2004 to 2008. Prior to that, she held communication leadership
positions at United Technologies Corporation and GE Capital Corporation.
Frank A. Voltolina , 51, was elected a Corporate Vice President and Corporate Treasurer in July 2003 when he joined the Company.
Prior to joining the Company, Mr. Voltolina was Vice President and Treasurer at ArvinMeritor, Inc.
There are no family relationships, as defined by the instructions to this item, among the Company’s executive officers.
All officers are elected for terms that expire on the date of the meeting of the Board of Directors following the Annual Meeting of Shareholders
or until their successors are elected and qualified.
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PART II
ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
The shares of the Company’s common stock are traded on the New York Stock Exchange under the symbol “JCI.”
Title of Class
Common Stock, $0.01 7/18 par value
Number of Record Holders
as of September 30, 2011
43,340
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year
Common Stock Price Range
2010
2011
Dividends
2011
2010
$ 29.95 - 40.15 $ 23.62 - 28.34 $
36.95 - 42.42
35.37 - 42.53
25.91 - 42.92
27.21 - 33.60
25.56 - 35.77
26.07 - 31.14
$ 25.91 - 42.92 $ 23.62 - 35.77 $
0.16 $
0.16
0.16
0.16
0.64 $
0.13
0.13
0.13
0.13
0.52
In September 2006, the Company’s Board of Directors authorized a stock repurchase program to acquire up to $200 million of the Company’s
outstanding common stock. Stock repurchases under this program may be made through open market, privately negotiated transactions or
otherwise at times and in such amounts as Company management deems appropriate. The stock repurchase program does not have an
expiration date and may be amended or terminated by the Board of Directors at any time without prior notice.
The Company entered into an Equity Swap Agreement, dated March 13, 2009, with Citibank, N.A. (Citibank). The Company selectively uses
equity swaps to reduce market risk associated with its stock-based compensation plans, such as its deferred compensation plans. These equity
compensation liabilities increase as the Company’s stock price increases and decrease as the Company’s stock price decreases. In contrast, the
value of the Equity Swap Agreement moves in the opposite direction of these liabilities, allowing the Company to fix a portion of the liabilities
at a stated amount.
In connection with the Equity Swap Agreement, Citibank may purchase unlimited shares of the Company’s stock in the market or in privately
negotiated transactions. The Company disclaims that Citibank is an “affiliated purchaser” of the Company as such term is defined in Rule 10b-
18(a)(3) under the Securities Exchange Act or that Citibank is purchasing any shares for the Company. The Equity Swap Agreement has no
stated expiration date. The net effect of the change in fair value of the Equity Swap Agreement and the change in equity compensation
liabilities was not material to the Company’s earnings for the three months ended September 30, 2011.
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The following table presents information regarding the repurchase of the Company’s common stock by the Company as part of the publicly
announced program and purchases of the Company’s common stock by Citibank in connection with the Equity Swap Agreement during the
three months ended September 30, 2011.
Period
7/1/11 - 7/31/11
Purchases by Company (1)
8/1/11 - 8/31/11
Purchases by Company (1)
9/1/11 - 9/30/11
Purchases by Company (1)
7/1/11 - 7/31/11
Purchases by Citibank
8/1/11 - 8/31/11
Purchases by Citibank
9/1/11 - 9/30/11
Purchases by Citibank
Total Number of
Shares Purchased as
Total Number of Average Price Part of the Publicly
Shares Purchased Paid per Share Announced Program
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Approximate Dollar
Value of Shares that
May Yet be
Purchased under the
Programs
$ 102,394,713
$ 102,394,713
$ 102,394,713
NA
NA
NA
(1) The repurchases of the Company’s common stock by the Company are intended to partially offset dilution related to our stock option and
restricted stock equity compensation plans and are treated as repurchases of Company common stock for purposes of this disclosure.
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The following information in Item 5 is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or
14C under the Securities Exchange Act of 1934 (Exchange Act) or to the liabilities of Section 18 of the Exchange Act, and will not be deemed
to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent the Company
specifically incorporates it by reference into such a filing.
The line graph below compares the cumulative total shareholder return on our Common Stock with the cumulative total return of companies on
the Standard & Poor’s (S&P’s) 500 Stock Index and companies in our Diversified Industrials Peer Group.* This graph assumes the investment
of $100 on September 30, 2006 and the reinvestment of all dividends since that date.
COMPANY INDEX
Johnson Controls, Inc.
Diversified Industrials Peer Group
S&P 500 Comp-Ltd.
Sep06
100
100
100
Sep07
166.42
132.87
116.83
Sep08
130.25
98.99
91.16
Sep09
113.35
101.03
84.86
Sep10
137.82
123.91
93.48
Sep11
121.27
115.49
94.55
*
The JCI Diversified Industrials Peer Group includes: Danaher Corporation, Dover Corporation, Eaton Corporation, Emerson Electric
Corporation. Honeywell International Inc., Ingersol Rand Plc., Illinois Tool Works Inc., ITT Corporation, 3M Company, Textron Inc.,
and United Technologies Corporation.
The Company’s transfer agent’s contact information is as follows:
Wells Fargo Bank, N.A.
Shareowner Services Department
P.O. Box 64856
St. Paul, MN 55164-0856
(877) 602-7397
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ITEM 6 SELECTED FINANCIAL DATA
The following selected financial data reflects the results of operations, financial position data, and common share information for the fiscal
years ended September 30, 2007 through September 30, 2011 (in millions, except per share data and number of employees and shareholders).
2011
2010
Year ended September 30,
2009
2008
2007
$ 40,833
2,285
$ 34,305
1,933
$ 28,497
262
$ 38,062
2,077
$ 34,624
1,884
OPERATING RESULTS
Net sales
Segment income (2)
Income (loss) attributable to Johnson Controls, Inc. from
continuing operations
Net income (loss) attributable to Johnson Controls, Inc.
Earnings (loss) per share from continuing operations (1)
$
Basic
Diluted
Earnings (loss) per share (1)
Basic
Diluted
$
1,624
1,624
2.40
2.36
2.40
2.36
Return on average shareholders’ equity attributable to
Johnson Controls, Inc. (3)
Capital expenditures
Depreciation and amortization
Number of employees
FINANCIAL POSITION
Working capital (4)
Total assets
Long-term debt
Total debt
Shareholders’ equity attributable to Johnson Controls,
15 %
$ 1,325
731
162,000
$ 1,589
29,676
4,533
5,146
1,491
1,491
2.22
2.19
2.22
2.19
$
$
$
16 %
777
691
137,000
$
919
25,743
2,652
3,389
(338 )
(338 )
(0.57 )
(0.57 )
(0.57 )
(0.57 )
$
$
979
979
1.65
1.63
1.65
1.63
$
$
1,295
1,252
2.19
2.16
2.12
2.09
$
$
$
-4 %
647
745
130,000
$
11 %
807
783
140,000
$
16 %
828
732
140,000
$ 1,147
24,088
3,168
3,966
$ 1,225
24,987
3,201
3,944
$ 1,441
24,105
3,255
4,418
Inc.
Total debt to total capitalization (5)
Net book value per share (1) (6)
COMMON SHARE INFORMATION (1)
Dividends per share
Market prices
High
Low
Weighted average shares (in millions)
Basic
Diluted
Number of shareholders
11,042
32 %
$ 16.23
10,071
25 %
$ 14.95
9,100
30 %
$ 13.56
9,406
30 %
$ 15.83
8,873
33 %
$ 14.94
$
0.64
$
0.52
$
0.52
$
0.52
$
0.44
$ 42.92
25.91
$ 35.77
23.62
$ 30.01
8.35
$ 44.46
26.00
$ 43.07
23.84
677.7
689.9
43,340
672.0
682.5
44,627
595.3
595.3
46,460
593.1
601.4
47,543
590.6
599.2
47,810
23
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(1) All share and per share amounts reflect a three-for-one common stock split payable October 2, 2007 to shareholders of record on
September 14, 2007.
(2) Segment income is calculated as income from continuing operations before income taxes and noncontrolling interests excluding net
financing charges, debt conversion costs and significant restructuring costs.
(3) Return on average shareholders’ equity attributable to Johnson Controls, Inc. (ROE) represents income from continuing operations
divided by average shareholders’ equity attributable to Johnson Controls, Inc. Income from continuing operations includes $230 million
and $495 million of significant restructuring costs in fiscal year 2009 and 2008, respectively.
(4) Working capital is defined as current assets less current liabilities, excluding cash, short-term debt, the current portion of long-term debt
and net assets of discontinued operations.
(5) Total debt to total capitalization represents total debt divided by the sum of total debt and shareholders’ equity attributable to Johnson
Controls, Inc.
(6) Net book value per share represents shareholders’ equity attributable to Johnson Controls, Inc. divided by the number of common shares
outstanding at the end of the period.
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company operates in three primary businesses: building efficiency, automotive experience and power solutions. Building efficiency
provides facility systems, services and workplace solutions including comfort, energy and security management for the residential and non-
residential buildings markets. Automotive experience designs and manufactures interior systems and products for passenger cars and light
trucks, including vans, pick-up trucks and sport/crossover utility vehicles. Power solutions designs and manufactures automotive batteries for
the replacement and original equipment markets.
This discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity of the
Company for the three-year period ended September 30, 2011. This discussion should be read in conjunction with Item 8, the consolidated
financial statements and the notes to consolidated financial statements.
Executive Overview
In fiscal 2011, the Company recorded net sales of $40.8 billion, a 19% increase from the prior year. Net income attributable to Johnson
Controls, Inc. was $1.6 billion, a 9% increase from the prior year. The increase is primarily the result of increased industry production volumes
in the automotive markets and the impact of acquisitions. The Company experienced market share gains and higher segment income in all three
businesses. The Company continues to introduce new and enhanced technology applications in all businesses and markets served, while at the
same time improving the quality of its products.
Building efficiency business net sales and segment income increased 16% and 6%, respectively, compared to the prior year primarily due to
higher sales volumes in all segments, strong emerging market growth and the favorable impact of foreign currency translation.
The automotive experience business net sales and segment income increased 21% and 29%, respectively, compared to the prior year primarily
due to higher automobile production in all segments, the impact of acquisitions and the favorable impact of foreign currency translation.
Net sales and segment income for the power solutions business increased by 20% and 21%, respectively, compared to the prior year primarily
due to increased demand and higher unit prices resulting from increases in the cost of lead.
Compared to September 30, 2010, the Company’s overall debt increased by $1.8 billion, increasing the total debt to capitalization ratio to 32%
at September 30, 2011 from 25% at September 30, 2010.
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Outlook
In fiscal 2012, the Company anticipates that net sales will grow to approximately $44.2 billion, an increase of 8% from fiscal 2011 net sales,
and that earnings will increase to approximately $2.85 - $3.00 per diluted share. Sales and margin improvements are expected in all three
businesses in fiscal 2012. The Company expects higher 2012 automotive production in North America and China, with relatively flat European
production versus fiscal 2011. The Company forecasts that the global building efficiency market will improve slightly in fiscal 2012 as strong
growth in the emerging markets, especially China and the Middle East, offset softness in mature geographic markets.
The Company expects building efficiency revenues to increase by 9% — 11% in fiscal 2012 due to strong backlogs, a moderate improvement
in service revenues, and the continued growth of its energy solutions and global workplace solutions businesses. Segment margins are expected
to increase to 5.6% — 5.8% led by the benefits of global volume growth and improvements in the service business. The Company expects that
the higher margins will be partially offset by investments in growth initiatives including a sales force expansion, information technology
investments and costs associated with the introduction of new products. The Company recently introduced Panoptix, a suite of cloud-hosted
building efficiency applications that make it easy to collect and manage data from disparate building systems and other data sources.
The Company forecasts approximately 6% revenue growth in fiscal 2012 by its automotive experience business, reflecting higher global
production volumes and approximately $1.4 billion in new program launches, partially offset by the negative impact of a weaker euro.
Excluding currency, revenues are expected to increase 9%. In China, inclusive of non-consolidated joint ventures, the Company expects total
revenues to increase by 21% to approximately $4.8 billion. Segment margins are expected to improve to 5.3% — 5.5% in fiscal 2012 as a
result of the higher volumes and the full year benefit of acquisitions completed in fiscal 2011. In Europe, margins are expected to improve
significantly as the Company continues to reduce operational and launch related inefficiencies.
Power solutions fiscal 2012 revenues are expected to increase 11% — 13% due to higher volumes across all regions resulting from market
share gains and the full year impact of production at the Changxing plant in China. Segment margins are expected to increase to 13.5% —
13.9% reflecting the benefits of vertical integration for the recycling of lead and the start of a product mix shift toward absorbent glass mat
(AGM) battery technology. The higher segment margin from these factors will be partially offset by expenses associated with the consolidation
of its hybrid battery business.
Segment Analysis
Management evaluates the performance of its business units based primarily on segment income, which is defined as income from continuing
operations before income taxes and noncontrolling interests excluding net financing charges, debt conversion costs and significant restructuring
costs.
Effective October 1, 2010, the building efficiency business unit reorganized its management reporting structure to reflect its current business
activities. Historical information has been revised to reflect the new building efficiency reportable segment structure and certain building
efficiency cost allocation methodology changes. Refer to Note 18, “Segment Information,” of the notes to consolidated financial statements for
further information.
FISCAL YEAR 2011 COMPARED TO FISCAL YEAR 2010
Summary
(in millions)
Net sales
Segment income
Year Ended
September 30,
2011
$ 40,833
2,285
2010
$ 34,305
1,933
Change
19 %
18 %
•
The $6.5 billion increase in consolidated net sales was primarily due to higher sales in the automotive experience business
($3.1 billion) as a result of increased industry production levels in all segments and incremental sales due to business acquisitions;
higher sales in the building efficiency business ($1.7 billion) as a result of higher sales in all segments; higher sales in the power
solutions business ($0.9 billion)
25
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reflecting higher sales volumes, the impact of higher lead costs on pricing and sales associated with a prior year business acquisition;
and the favorable impact of foreign currency translation ($0.8 billion).
•
Excluding the favorable impact of foreign currency translation, consolidated net sales increased 17% as compared to the prior year.
•
The $352 million increase in segment income was primarily due to higher volumes in the automotive experience, building efficiency
and power solutions businesses; favorable pricing and product mix net of lead and other commodity costs in the power solutions
business; operating income of current year acquisitions in the automotive experience Europe segment; and the favorable impact of
foreign currency translation ($45 million). These factors were partially offset by higher selling, general and administrative expenses
net of an automotive experience legal settlement award; unfavorable margin rates in the building efficiency business; and the negative
impact of the earthquake in Japan and related events. Fiscal 2011 segment income includes a gain on acquisition of a partially-owned
affiliate net of acquisition costs, related purchase accounting adjustments and a partially-owned affiliate’s restatement of prior period
income in the power solutions business ($37 million); costs related to business acquisitions in the automotive experience Europe
segment ($64 million); and restructuring costs ($43 million). Fiscal 2010 segment income includes fixed asset impairment charges
recorded in the automotive experience Asia segment ($22 million) and a gain on acquisition of a power solutions Korean partially-
owned affiliate net of acquisition costs and related purchase accounting adjustments ($37 million).
•
Excluding the favorable impact of foreign currency translation, consolidated segment income increased 16% as compared to the prior
year.
Building Efficiency
(in millions)
North America systems
North America service
Global workplace solutions
Asia
Other
Net Sales:
Net Sales
for the Year Ended
September 30,
2011
$ 2,343
2,305
4,153
1,840
4,252
$ 14,893
2010
$ 2,142
2,127
3,288
1,422
3,823
$ 12,802
Segment Income
for the Year Ended
September 30,
Change
2011
2010
Change
9 %
8 %
26 %
29 %
11 %
16 %
$
$
239
113
16
249
99
716
$
$
206
117
40
178
132
673
16 %
-3 %
-60 %
40 %
-25 %
6 %
•
The increase in North America systems was primarily due to higher volumes of equipment and controls systems in the commercial
construction and replacement markets ($191 million) and the favorable impact from foreign currency translation ($10 million).
•
The increase in North America service was primarily due to higher volumes, mainly driven by energy solutions and truck-based
business ($120 million), incremental sales due to a prior year business acquisition ($46 million) and the favorable impact of foreign
currency translation ($12 million).
•
The increase in global workplace solutions was primarily due to a net increase in services to new and existing customers
($709 million) and the favorable impact of foreign currency translation ($156 million).
•
The increase in Asia was primarily due to higher volumes of equipment and controls systems ($255 million), the favorable impact of
foreign currency translation ($98 million) and higher service volumes including the negative impact of the Japan earthquake and
related events ($65 million).
•
The increase in other was primarily due to higher volumes in the Middle East ($198 million), Latin America ($107 million) and
Europe ($39 million), and the favorable impact of foreign currency translation ($85 million).
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Segment Income:
•
The increase in North America systems was primarily due to higher volumes ($38 million), favorable margin rates ($24 million), prior
year reserves for existing customers ($13 million) and the favorable impact of foreign currency translation ($1 million), partially offset
by higher selling, general and administrative expenses ($43 million).
•
The decrease in North America service was primarily due to unfavorable mix and margin rates ($79 million) and higher selling,
general and administrative expenses ($4 million), partially offset by prior year inventory adjustments and information technology
implementation costs ($55 million), higher volumes ($25 million) and the favorable impact of foreign currency translation
($1 million).
•
The decrease in global workplace solutions was primarily due to unfavorable margin rates ($41 million) and higher selling, general
and administrative expenses ($37 million), partially offset by higher volumes ($49 million) and the favorable impact of foreign
currency translation ($5 million).
•
The increase in Asia was primarily due to higher volumes ($82 million) and the favorable impact of foreign currency translation
($15 million), partially offset by higher selling, general and administrative expenses ($27 million).
•
The decrease in other was primarily due to higher selling, general and administrative expenses ($43 million), restructuring costs
($35 million), non-recurring charges related to South America indirect taxes ($24 million), unfavorable margin rates ($16 million) and
distribution business costs ($11 million), partially offset by higher volumes ($75 million), higher equity income ($18 million) and the
favorable impact of foreign currency translation ($2 million).
Automotive Experience
(in millions)
North America
Europe
Asia
Net Sales:
Net Sales
for the Year Ended
September 30,
2011
$ 7,431
10,267
2,367
$ 20,065
2010
$ 6,765
8,019
1,826
$ 16,610
Segment Income
for the Year Ended
September 30,
Change
2011
2010
Change
10 %
28 %
30 %
21 %
$
$
404
114
243
761
$
$
379
105
107
591
7 %
9 %
127 %
29 %
•
The increase in North America was primarily due to higher volumes to the Company’s major OEM customers ($779 million),
incremental sales due to business acquisitions ($129 million) and net favorable commercial settlements and pricing ($21 million),
partially offset by the negative impact of the Japan earthquake and related events ($263 million).
•
The increase in Europe was primarily due to higher volumes and new customer awards including the negative impact of the Japan
earthquake and related events ($1.1 billion), incremental sales due to business acquisitions ($855 million) and the favorable impact of
foreign currency translation ($295 million), partially offset by net unfavorable commercial settlements and pricing ($37 million).
•
The increase in Asia was primarily due to higher volumes and new customer awards including the negative impact of the Japan
earthquake and related events ($455 million), the favorable impact of foreign currency translation ($88 million) and incremental sales
due to business acquisitions ($13 million), partially offset by unfavorable commercial settlements and pricing ($15 million).
Segment Income:
•
The increase in North America was primarily due to higher volumes ($160 million), higher equity income ($6 million) and net
favorable commercial settlements and pricing ($5 million), partially offset by the negative impact of the earthquake in Japan and
related events ($61 million), higher selling, general and administrative expenses net of a legal settlement award ($48 million), higher
engineering expenses ($27 million) and higher purchasing costs ($8 million).
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•
The increase in Europe was primarily due to higher volumes including the negative impact of the earthquake in Japan and related
events ($95 million), operating income of current year acquisitions ($75 million), lower selling, general and administrative expenses
($14 million) and the favorable impact of foreign currency translation ($9 million), partially offset by costs related to business
acquisitions ($64 million), higher operating costs ($58 million), unfavorable commercial settlements and pricing ($34 million), higher
engineering expenses ($22 million) and higher purchasing costs ($9 million).
•
The increase in Asia was primarily due to higher volumes including the negative impact of the earthquake in Japan and related events
($84 million), higher equity income mainly in China ($55 million), prior year asset impairment charges in Japan ($22 million), lower
purchasing costs ($19 million), lower operating costs ($13 million) and the favorable impact of foreign currency translation
($4 million), partially offset by higher selling, general and administrative expenses ($34 million), unfavorable pricing ($16 million)
and higher engineering expenses ($12 million).
Power Solutions
(in millions)
Net sales
Segment income
Year Ended
September 30,
2011
$ 5,875
808
2010
$ 4,893
669
Change
20 %
21 %
•
Net sales increased primarily due to the impact of higher lead costs on pricing ($287 million), higher sales volumes including the
negative impact of the earthquake in Japan and related events ($283 million), sales associated with a prior year business acquisition
($261 million), favorable price/product mix ($81 million) and the favorable impact of foreign currency translation ($70 million).
•
Segment income increased primarily due to favorable pricing and product mix net of lead and other commodity costs ($145 million);
higher sales volumes ($56 million); gain on acquisition of a partially-owned affiliate net of acquisition costs, related purchase
accounting adjustments and a partially-owned equity affiliate’s restatement of prior period income ($37 million); income associated
with a prior year business acquisition ($30 million); and the favorable impact of foreign currency translation ($8 million); partially
offset by higher operating and transportation costs ($47 million); higher selling, general and administrative expenses ($44 million);
prior year net gain on acquisition of a Korean partially-owned affiliate ($37 million); and lower equity income ($8 million).
Net Financing Charges
(in millions)
Net financing charges
Year Ended
September 30,
2011
$ 174
2010
$ 170
Change
2 %
•
The increase in net financing charges was primarily due to higher debt levels partially offset by lower interest rates in fiscal 2011.
Provision for Income Taxes
The effective rate is below the U.S. statutory rate due to continuing global tax planning initiatives, income in certain non-U.S. jurisdictions
with a rate of tax lower than the U.S. statutory tax rate and certain discrete period items.
Valuation Allowances
The Company reviews its deferred tax asset valuation allowances on a quarterly basis, or whenever events or changes in circumstances indicate
that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal
entity or consolidated group recording the net deferred tax asset are considered, along with any other positive or negative evidence. Since
future financial results may differ from previous estimates, periodic adjustments to the Company’s valuation allowances may be necessary.
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In fiscal 2011, the Company recorded an overall decrease to its valuation allowances of $20 million primarily due to a $30 million discrete
period income tax adjustment in the fourth quarter. In the fourth quarter of fiscal 2011, the Company performed an analysis related to the
realizability of its worldwide deferred tax assets. As a result, and after considering tax planning initiatives and other positive and negative
evidence, the Company determined that it was more likely than not that the deferred tax assets primarily within Denmark, Italy, automotive
experience in Korea and automotive experience in the United Kingdom would be utilized. Therefore, the Company released a net $30 million
of valuation allowances in the three month period ended September 30, 2011.
In fiscal 2010, the Company recorded an overall decrease to its valuation allowances of $87 million primarily due to a $111 million discrete
period income tax adjustment. In the fourth quarter of fiscal 2010, the Company performed an analysis related to the realizability of its
worldwide deferred tax assets. As a result, and after considering tax planning initiatives and other positive and negative evidence, the Company
determined that it was more likely than not that the deferred tax assets primarily within Mexico would be utilized. Therefore, the Company
released $39 million of valuation allowances in the three month period ended September 30, 2010. Further, the Company determined that it
was more likely than not that the deferred tax assets would not be utilized in selected entities in Europe. Therefore, the Company recorded
$14 million of valuation allowances in the three month period ended September 30, 2010. To the extent the Company improves its underlying
operating results in these entities, these valuation allowances, or a portion thereof, could be reversed in future periods.
In the third quarter of fiscal 2010, the Company determined that it was more likely than not that a portion of the deferred tax assets within the
Slovakia automotive entity would be utilized. Therefore, the Company released $13 million of valuation allowances in the three month period
ended June 30, 2010.
In the first quarter of fiscal 2010, the Company determined that it was more likely than not that a portion of the deferred tax assets within the
Brazil automotive entity would be utilized. Therefore, the Company released $69 million of valuation allowances. This was comprised of a $93
million decrease in income tax expense offset by a $24 million reduction in cumulative translation adjustments.
In the fourth quarter of fiscal 2010, the Company increased the valuation allowances by $20 million, which was substantially offset by a
decrease in its reserves for uncertain tax positions in a similar amount. These adjustments were based on a review of tax return filing positions
taken in these jurisdictions and the established reserves.
It is reasonably possible that over the next 12 months, valuation allowances recorded against deferred tax assets in certain jurisdictions of up to
$50 million may be adjusted.
Uncertain Tax Positions
The Company is subject to income taxes in the U.S. and numerous non-U.S. jurisdictions. Judgment is required in determining its worldwide
provision for income taxes and recording the related assets and liabilities. In the ordinary course of the Company’s business, there are many
transactions and calculations where the ultimate tax determination is uncertain. The Company is regularly under audit by tax authorities.
Based on published case law in a non-U.S. jurisdiction and the settlement of a tax audit during the third quarter of fiscal 2010, the Company
released net $38 million of reserves for uncertain tax positions, including interest and penalties.
As a result of certain events related to prior year tax planning initiatives during the first quarter of fiscal 2010, the Company increased the
reserve for uncertain tax positions by $31 million, including $26 million of interest and penalties.
In the fourth quarter of fiscal 2010, the Company decreased its reserves for uncertain tax positions by $20 million, which was substantially
offset by an increase in its valuation allowances in a similar amount. These adjustments were based on a review of tax filing positions taken in
jurisdictions with valuation allowances as indicated above.
The Company’s federal income tax returns and certain non-U.S. income tax returns for various fiscal years remain under various stages of audit
by the Internal Revenue Service and respective non-U.S. tax authorities. Although the outcome of tax audits is always uncertain, management
believes that it has appropriate support for the positions taken on its tax returns and that its annual tax provisions included amounts sufficient to
pay assessments, if any, which may be proposed by the taxing authorities. At September 30, 2011, the Company had recorded a liability for its
best estimate of the probable loss on certain of its tax positions, the majority of which is included in other
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noncurrent liabilities in the consolidated statements of financial position. Nonetheless, the amounts ultimately paid, if any, upon resolution of
the issues raised by the taxing authorities, may differ materially from the amounts accrued for each year.
It is reasonably possible that certain tax examinations, appellate proceedings and/or tax litigation will conclude within the next 12 months, the
impact of which could be up to a $100 million adjustment to tax expense.
Impacts of Tax Legislation and Change in Statutory Tax Rates
During the fiscal year ended September 30, 2011, tax legislation was adopted in various jurisdictions. None of these changes are expected to
have a material impact on the Company’s consolidated financial condition, results of operations or cash flows.
On March 23, 2010, the U.S. President signed into law comprehensive health care reform legislation under the Patient Protection and
Affordable Care Act (HR3590). Included among the major provisions of the law is a change in the tax treatment of a portion of Medicare
Part D medical payments. The Company recorded a noncash tax charge of approximately $18 million in the second quarter of fiscal year 2010
to reflect the impact of this change. In the fourth quarter of fiscal 2010, the amount decreased by $2 million resulting in an overall impact of
$16 million.
Income Attributable to Noncontrolling Interests
(in millions)
Income attributable to noncontrolling interests
Year Ended
September 30,
2011
$ 117
2010
$ 75
Change
56 %
•
The increase in income attributable to noncontrolling interests was primarily due to higher earnings at certain automotive experience
partially-owned affiliates in North America and Asia and a power solutions partially-owned affiliate.
Net Income Attributable to Johnson Controls, Inc.
(in millions)
Net income attributable to Johnson Controls, Inc.
Year Ended
September 30,
2011
$ 1,624
2010
$ 1,491
Change
9 %
•
The increase in net income attributable to Johnson Controls, Inc. was primarily due to higher volumes in the automotive experience,
building efficiency and power solutions businesses; favorable pricing and product mix net of lead and other commodity costs in the
power solutions business; operating income of current year acquisitions in the automotive experience Europe segment; and the favorable
impact of foreign currency translation. These factors were partially offset by higher selling, general and administrative expenses net of an
automotive experience legal settlement award; unfavorable margin rates in the building efficiency business; the negative impact of the
earthquake in Japan and related events; an increase in the provision for income taxes; and higher income attributable to noncontrolling
interests. Fiscal 2011 net income attributable to Johnson Controls, Inc. includes a gain on acquisition of a partially-owned affiliate net of
acquisition costs, related purchase accounting adjustments and a partially-owned affiliate’s restatement of prior period income in the
power solutions business; costs related to business acquisitions in the automotive experience Europe segment; and restructuring costs.
Fiscal 2010 net income attributable to Johnson Controls, Inc. includes fixed asset impairment charges recorded in the automotive
experience Asia segment and a gain on acquisition of a power solutions Korean partially-owned affiliate net of acquisition costs and
related purchase accounting adjustments. Fiscal 2011 diluted earnings per share was $2.36 compared to the prior year’s diluted earnings
per share of $2.19.
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FISCAL YEAR 2010 COMPARED TO FISCAL YEAR 2009
Summary
(in millions)
Net sales
Segment income
* Measure not meaningful
Year Ended
September 30,
2010
$ 34,305
1,933
2009
$ 28,497
262
Change
20 %
*
•
•
•
The $5.8 billion increase in consolidated net sales was primarily due to higher sales in the automotive experience business ($4.5 billion)
as a result of increased industry production levels in all segments, higher sales in the power solutions business ($0.8 billion) reflecting
higher sales volumes and the impact of higher lead costs on pricing, the favorable impact of foreign currency translation ($0.5 billion)
and a slight increase in building efficiency net sales.
Excluding the favorable impact of foreign currency translation, consolidated net sales increased 19% as compared to the prior year.
The $1.7 billion increase in consolidated segment income was primarily due to higher volumes in the automotive experience and power
solutions businesses, favorable operating costs in the automotive experience North America segment, favorable overall margin rates in
the building efficiency business, impairment charges recorded in the prior year on an equity investment in the building efficiency other
segment ($152 million), incremental warranty charges recorded in the prior year in the building efficiency other segment ($105 million),
fixed asset impairment charges recorded in the prior year in the automotive experience North America and Europe segments
($77 million and $33 million, respectively), gain on acquisition of a Korean partially-owned affiliate net of acquisition costs and related
purchase accounting adjustments in the power solutions business ($37 million) and higher equity income in the automotive experience
and power solutions businesses, partially offset by higher selling, general and administrative expenses, fixed asset impairment charges
recorded in the automotive experience Asia segment ($22 million) and the unfavorable impact of foreign currency translation
($6 million).
Building Efficiency
(in millions)
North America systems
North America service
Global workplace solutions
Asia
Other
* Measure not meaningful
Net Sales:
Net Sales
for the Year Ended
September 30,
2010
$ 2,142
2,127
3,288
1,422
3,823
$ 12,802
2009
$ 2,222
2,168
2,832
1,293
3,978
$ 12,493
Segment Income
for the Year Ended
September 30,
Change
2010
2009
Change
-4 %
-2 %
16 %
10 %
-4 %
2 %
$
$
206
117
40
178
132
673
$
$
259
188
58
170
(278 )
397
-20 %
-38 %
-31 %
5 %
*
70 %
•
The decrease in North America systems was primarily due to lower volumes of equipment in the commercial construction and
replacement markets ($101 million) partially offset by the favorable impact from foreign currency translation ($21 million).
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•
The decrease in North America service was primarily due to lower truck-based business ($155 million) partially offset by higher
volumes in energy solutions ($72 million), the favorable impact of foreign currency translation ($22 million) and incremental sales due
to a business acquisition ($20 million).
•
The increase in global workplace solutions was primarily due to a net increase in services to existing customers ($208 million), new
business ($151 million) and the favorable impact of foreign currency translation ($97 million).
•
The increase in Asia was primarily due to favorable impact of foreign currency translation ($56 million), higher volumes of equipment
and controls systems ($39 million) and higher service volumes ($34 million).
•
The decrease in other was primarily due to lower volumes in Europe ($290 million), the Middle East ($33 million) and other business
areas ($11 million), partially offset by improvement in the U.S. residential replacement markets for unitary products ($96 million) and
the favorable impact of foreign currency translation ($83 million).
Segment Income:
•
The decrease in North America systems was primarily due to lower volumes ($17 million), unfavorable margin rates ($15 million),
reserves for existing customers ($13 million) and higher selling, general and administrative expenses ($8 million), partially offset by the
favorable impact of foreign currency translation ($3 million).
•
The decrease in North America service was primarily due to information technology implementation costs and inventory adjustments
($55 million), lower volumes in truck-based services ($18 million), higher selling, general and administrative expenses ($6 million),
partially offset by favorable margin rates ($6 million) and the favorable impact of foreign currency translation ($2 million).
•
The decrease in global workplace solutions was primarily due to higher selling, general, and administrative expenses ($27 million)
primarily related to business development investments and unfavorable margin rates ($24 million), partially offset by higher volumes
($24 million), prior year bad debt expense associated with a customer bankruptcy ($8 million) and the favorable impact of foreign
currency translation ($1 million).
•
The increase in Asia was primarily due to higher sales volumes ($19 million), favorable margin rates ($14 million) and the favorable
impact of foreign currency translation ($4 million), partially offset by higher selling, general and administrative expenses ($29 million).
•
The increase in other was primarily due to favorable margin rates ($218 million), prior year impairment charges recorded on an equity
investment ($152 million), prior year incremental warranty charges ($105 million) and prior year inventory related charges ($20
million), partially offset by higher selling, general and administrative expenses ($66 million) primarily related to investments in
emerging markets and increased engineering spending, and lower volumes ($19 million).
Automotive Experience
(in millions)
North America
Europe
Asia
* Measure not meaningful
Net Sales:
Net Sales
for the Year Ended
September 30,
2010
$ 6,765
8,019
1,826
$ 16,610
2009
$ 4,631
6,287
1,098
$ 12,016
Segment Income
for the Year Ended
September 30,
Change
2010
46 %
28 %
66 %
38 %
$
$
379
105
107
591
2009
$
$
(333 )
(212 )
4
(541 )
Change
*
*
*
*
•
The increase in North America was primarily due to higher industry production volumes by the Company’s major OEM customers
($2.1 billion) and incremental sales from a business acquisition ($58 million), partially offset by unfavorable commercial settlements
and pricing ($36 million).
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•
The increase in Europe was primarily due to higher production volumes and new customer awards ($1.8 billion) partially offset by
unfavorable commercial settlements and pricing ($32 million) and the unfavorable impact of foreign currency translation ($20 million).
•
The increase in Asia was primarily due to higher production volumes and new customer awards ($603 million) and the favorable impact
of foreign currency translation ($125 million).
Segment Income:
•
The increase in North America was primarily due to higher industry production volumes ($478 million), lower operating and selling,
general and administration costs ($152 million), an impairment charge on fixed assets recorded in the prior year ($77 million) and
higher equity income ($28 million), partially offset by higher engineering expenses ($22 million).
•
The increase in Europe was primarily due to higher production volumes ($350 million), favorable purchasing costs ($64 million), an
impairment charge on fixed assets recorded in the prior year ($33 million), higher equity income ($10 million) and favorable operating
costs ($8 million), partially offset by higher prior year commercial recoveries ($45 million), higher engineering expenses ($44 million),
higher selling, general and administrative costs ($39 million) and the unfavorable impact of foreign currency translation ($19 million).
•
The increase in Asia was primarily due to higher production volumes ($90 million), higher equity income at our joint ventures mainly in
China ($62 million) and the favorable impact of foreign currency translation ($1 million), partially offset by asset impairment charges in
Japan ($22 million), higher engineering expenses ($10 million) and higher selling, general and administrative costs ($17 million).
Power Solutions
(in millions)
Net sales
Segment income
Year Ended
September 30,
2010
$ 4,893
669
2009
$ 3,988
406
Change
23 %
65 %
•
Net sales increased primarily due to higher sales volumes ($454 million), the impact of higher lead costs on pricing ($316 million), the
favorable impact of foreign currency translation ($69 million), incremental sales due to a business acquisition ($43 million) and
favorable price/product mix ($23 million).
•
Segment income increased primarily due to higher sales volumes ($164 million), gain on acquisition of a Korean partially-owned
affiliate net of acquisition costs and related purchase accounting adjustments ($37 million) as discussed in Note 2, “Acquisitions,” of the
notes to consolidated financial statements, higher equity income ($27 million), prior year disposal of a former manufacturing facility in
Europe and other assets ($20 million), the favorable impact of foreign currency translation ($3 million) and favorable net lead and other
commodity costs and pricing ($56 million), which includes a prior year $62 million out of period adjustment as discussed in Note 1,
“Summary of Significant Accounting Policies,” of the notes to consolidated financial statements. Partially offsetting these factors were
higher selling, general and administrative costs ($46 million).
Restructuring Costs
To better align the Company’s cost structure with global automotive market conditions, the Company committed to a restructuring plan (2009
Plan) in the second quarter of fiscal 2009 and recorded a $230 million restructuring charge. The restructuring charge related to cost reduction
initiatives in the Company’s automotive experience, building efficiency and power solutions businesses and included workforce reductions and
plant consolidations. The Company expects to substantially complete the 2009 Plan by the end of 2011. The automotive-related restructuring
actions targeted excess manufacturing capacity resulting from lower industry production in the European, North American and Japanese
automotive markets. The restructuring actions in building efficiency were primarily in Europe where the Company is centralizing certain
functions and rebalancing its resources to target the geographic markets with the greatest potential growth. Power solutions actions focused on
optimizing its manufacturing capacity as a result of lower overall demand for original equipment batteries resulting from lower vehicle
production levels.
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Since the announcement of the 2009 Plan in March 2009, the Company has experienced lower employee severance and termination benefit
cash payouts than previously calculated for automotive experience in Europe of approximately $70 million, of which $42 million was
identified in fiscal year 2010, due to favorable severance negotiations and the decision to not close previously planned plants in response to
increased customer demand. The underspend of the initial 2009 Plan reserves has been committed for additional costs incurred as part of power
solutions and automotive experience Europe and North America’s additional cost reduction initiatives.
Refer to Note 15, “Restructuring Costs,” of the notes to consolidated financial statements for further disclosure related to the Company’s
restructuring plans.
Net Financing Charges
(in millions)
Net financing charges
Year Ended
September 30,
2010
$ 170
2009
$ 239
Change
-29 %
•
The decrease in net financing charges was primarily due to lower debt levels, including the conversion of the Company’s convertible
senior notes and Equity Units in September 2009, and lower interest rates in fiscal 2010.
Provision for Income Taxes
The effective rate is below the U.S. statutory rate due to continuing global tax planning initiatives, income in certain non-U.S. jurisdictions
with a rate of tax lower than the U.S. statutory tax rate and certain discrete period items.
Valuation Allowances
The Company reviews its deferred tax asset valuation allowances on a quarterly basis, or whenever events or changes in circumstances indicate
that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal
entity or consolidated group recording the net deferred tax asset are considered, along with any other positive or negative evidence. Since
future financial results may differ from previous estimates, periodic adjustments to the Company’s valuation allowances may be necessary.
In fiscal 2010, the Company recorded an overall decrease to its valuation allowances of $87 million primarily due to a $111 million discrete
period tax adjustment. In the fourth quarter of fiscal 2010, the Company performed an analysis related to the realizability of its worldwide
deferred tax assets. As a result, and after considering tax planning initiatives and other positive and negative evidence, the Company
determined that it was more likely than not that the deferred tax assets primarily within Mexico would be utilized. Therefore, the Company
released $39 million of valuation allowances in the three month period ended September 30, 2010. Further, the Company determined that it
was more likely than not that the deferred tax assets would not be utilized in selected entities in Europe. Therefore, the Company recorded
$14 million of valuation allowances in the three month period ended September 30, 2010. To the extent the Company improves its underlying
operating results in these entities, these valuation allowances, or a portion thereof, could be reversed in future periods.
In the third quarter of fiscal 2010, the Company determined that it was more likely than not that a portion of the deferred tax assets within the
Slovakia automotive entity would be utilized. Therefore, the Company released $13 million of valuation allowances in the three month period
ended June 30, 2010.
In the first quarter of fiscal 2010, the Company determined that it was more likely than not that a portion of the deferred tax assets within the
Brazil automotive entity would be utilized. Therefore, the Company released $69 million of valuation allowances. This was comprised of a $93
million decrease in income tax expense offset by a $24 million reduction in cumulative translation adjustments.
In the fourth quarter of fiscal 2010, the Company increased the valuation allowances by $20 million, which was substantially offset by a
decrease in its reserves for uncertain tax positions in a similar amount. These adjustments were based on a review of tax return filing positions
taken in these jurisdictions and the established reserves.
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In fiscal 2009, the Company recorded an overall increase to its valuation allowances by $245 million. This was comprised of a $252 million
increase in income tax expense with the remaining amount impacting the consolidated statement of financial position.
In the third quarter of fiscal 2009, the Company determined that it was more likely than not that a portion of the deferred tax assets within the
Brazil power solutions entity would be utilized. Therefore, the Company released $10 million of valuation allowances in the three month
period ended June 30, 2009. This was comprised of a $3 million decrease in income tax expense with the remaining amount impacting the
consolidated statement of financial position because it related to acquired net operating losses.
In the second quarter of fiscal 2009, the Company determined that it was more likely than not that the deferred tax asset associated with a
capital loss would be utilized. Therefore, the Company released $45 million of valuation allowances in the three month period ended March 31,
2009.
In the first quarter of fiscal 2009, as a result of the rapid deterioration in the economic environment, several jurisdictions incurred unexpected
losses in the first quarter that resulted in cumulative losses over the prior three years. As a result, and after considering tax planning initiatives
and other positive and negative evidence, the Company determined that it was more likely than not that the deferred tax assets would not be
utilized in several jurisdictions including France, Mexico, Spain and the United Kingdom. Therefore, the Company recorded $300 million of
valuation allowances in the three month period ended December 31, 2008. To the extent the Company improves its underlying operating results
in these jurisdictions, these valuation allowances, or a portion thereof, could be reversed in future periods.
Uncertain Tax Positions
The Company is subject to income taxes in the U.S. and numerous non-U.S. jurisdictions. Judgment is required in determining its worldwide
provision for income taxes and recording the related assets and liabilities. In the ordinary course of the Company’s business, there are many
transactions and calculations where the ultimate tax determination is uncertain. The Company is regularly under audit by tax authorities. In
June 2006, the Financial Accounting Standards Board (FASB) issued guidance prescribing a comprehensive model for how a company should
recognize, measure, present, and disclose in its financial statements uncertain tax positions that a company has taken or expects to take on a tax
return. The Company adopted this guidance, which is included in ASC 740, “Income Taxes,” as of October 1, 2007. As such, accruals for tax
contingencies are provided for in accordance with the requirements of ASC 740.
Based on recently published case law in a non-U.S. jurisdiction and the settlement of a tax audit during the third quarter of fiscal 2010, the
Company released net $38 million of reserves for uncertain tax positions, including interest and penalties.
As a result of certain events related to prior year tax planning initiatives during the first quarter of fiscal 2010, the Company increased the
reserve for uncertain tax positions by $31 million, including $26 million of interest and penalties.
In the fourth quarter of fiscal 2010, the Company decreased its reserves for uncertain tax positions by $20 million, which was substantially
offset by an increase in its valuation allowances in a similar amount. These adjustments were based on a review of tax filing positions taken in
jurisdictions with valuation allowances as indicated above.
As a result of certain events in various jurisdictions during the fourth quarter of fiscal year 2009, including the settlement of the fiscal 2002
through fiscal 2003 U.S. federal tax examinations, the Company decreased its total reserve for uncertain tax positions by $32 million. This was
comprised of a $55 million decrease to tax expense and a $23 million increase to goodwill.
As a result of various entities exiting business in certain jurisdictions and certain events related to prior tax planning initiatives during the third
quarter of fiscal 2009, the Company reduced the reserve for uncertain tax positions by $33 million. This was comprised of a $17 million
decrease to tax expense and a $16 million decrease to goodwill.
The Company’s federal income tax returns and certain non-U.S. income tax returns for various fiscal years remain under various stages of audit
by the Internal Revenue Service and respective non-U.S. tax authorities. Although the outcome of tax audits is always uncertain, management
believes that it has appropriate support for the positions taken on its tax returns and that its annual tax provisions included amounts sufficient to
pay assessments, if any, which may be proposed by the taxing authorities. At September 30, 2010, the Company had recorded a liability for
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its best estimate of the probable loss on certain of its tax positions, the majority of which is included in other noncurrent liabilities in the
consolidated statements of financial position. Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the
taxing authorities, may differ materially from the amounts accrued for each year.
Change in Tax Status
In the fourth quarter of fiscal 2009, the Company recorded $84 million in discrete period tax benefits related to a change in tax status of a U.S.
and a U.K. subsidiary. This is comprised of a $59 million tax expense benefit and a $25 million decrease to goodwill. In the second quarter of
fiscal 2009, the Company recorded a $30 million discrete period tax benefit related to a change in tax status of a French subsidiary.
The changes in tax status resulted from voluntary tax elections that produced deemed liquidations for U.S. federal income tax purposes. The
Company received tax benefits in the U.S. for the losses from the decrease in value as compared to the original tax basis of its investments.
These elections changed, for U.S. federal income tax purposes, the tax status of these entities and are reported as a discrete period tax benefit in
accordance with the provision of ASC 740.
Impacts of Tax Legislation and Change in Statutory Tax Rates
On March 23, 2010, the U.S. President signed into law comprehensive health care reform legislation under the Patient Protection and
Affordable Care Act (HR3590). Included among the major provisions of the law is a change in the tax treatment of a portion of Medicare
Part D medical payments. The Company recorded a noncash tax charge of approximately $18 million in the second quarter of fiscal year 2010
to reflect the impact of this change. In the fourth quarter of fiscal 2010, the amount decreased by $2 million resulting in an overall impact of
$16 million.
During the fiscal year ended September 30, 2010, tax legislation was adopted in various jurisdictions. None of these changes are expected to
have a material impact on the Company’s consolidated financial condition, results of operations or cash flows.
In fiscal 2009, the Company obtained High Tech Enterprise status from the Chinese Tax Bureaus for various Chinese subsidiaries. This status
allows the entities to benefit from a 15% tax rate.
In February 2009, Wisconsin enacted numerous changes to Wisconsin income tax law as part of the Budget Stimulus and Repair Bill,
Wisconsin Act 2. These changes are effective in the Company’s tax year ended September 30, 2010. The major changes included an adoption
of corporate unitary combined reporting and an expansion of the related entity expense add back provisions. These Wisconsin tax law changes
did not have a material impact on the Company’s consolidated financial condition, results of operations or cash flows.
Income Attributable to Noncontrolling Interests
(in millions)
Income (loss) attributable to noncontrolling interests
Year Ended
September 30,
2010
$ 75
2009
$ (12 )
Change
*
*
•
Measure not meaningful
The increase in income attributable to noncontrolling interests was primarily due to improved earnings at certain automotive experience
partially-owned affiliates in North America and Asia and a power solutions partially-owned affiliate.
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Net Income Attributable to Johnson Controls, Inc.
(in millions)
Net income (loss) attributable to Johnson Controls, Inc.
Year Ended
September 30,
2010
$ 1,491
2009
$ (338 )
Change
*
*
•
Measure not meaningful
The increase in net income attributable to Johnson Controls, Inc. was primarily due to higher volumes in the automotive experience and
power solutions businesses, favorable operating costs in the automotive experience North America segment, favorable overall margin
rates in the building efficiency business, impairment charges recorded in the prior year on an equity investment in the building efficiency
other segment, incremental warranty charges recorded in the prior year in the building efficiency other segment, fixed asset impairment
charges recorded in the prior year in the automotive experience North America and Europe segments, gain on acquisition of a Korean
partially-owned affiliate in the power solutions business, restructuring charges recorded in the prior year, higher equity income in the
automotive experience and power solutions businesses, debt conversion costs incurred in the prior year and lower net financing charges,
partially offset by higher selling, general and administrative expenses, fixed asset impairment charges recorded in the automotive
experience Asia segment, an increase in the provision for income taxes and higher income attributable to noncontrolling interests. Fiscal
2010 diluted earnings per share was $2.19 compared to fiscal 2009 diluted loss per share of $0.57.
GOODWILL, LONG-LIVED ASSETS AND OTHER INVESTMENTS
Goodwill at September 30, 2011 was $7.0 billion, $515 million higher than the prior year. The increase was primarily due to the impact of
current year acquisitions.
Goodwill reflects the cost of an acquisition in excess of the fair values assigned to identifiable net assets acquired. The Company reviews
goodwill for impairment during the fourth fiscal quarter or more frequently if events or changes in circumstances indicate the asset might be
impaired. The Company performs impairment reviews for its reporting units, which have been determined to be the Company’s reportable
segments or one level below the reportable segments in certain instances, using a fair-value method based on management’s judgments and
assumptions or third party valuations. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in
an orderly transaction between market participants at the measurement date. In estimating the fair value, the Company uses multiples of
earnings based on the average of historical, published multiples of earnings of comparable entities with similar operations and economic
characteristics. In certain instances, the Company uses discounted cash flow analyses to further support the fair value estimates. The inputs
utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, “Fair Value Measurements and
Disclosures.” The estimated fair value is then compared with the carrying amount of the reporting unit, including recorded goodwill. The
Company is subject to financial statement risk to the extent that the carrying amount exceeds the estimated fair value. The impairment testing
performed by the Company in the fourth quarter of fiscal year 2011, 2010 and 2009 indicated that the estimated fair value of each reporting
unit substantially exceeded its corresponding carrying amount including recorded goodwill, and as such, no impairment existed at
September 30, 2011, 2010 and 2009. No reporting unit was determined to be at risk of failing step one of the goodwill impairment test.
At December 31, 2010, in conjunction with the preparation of its financial statements, the Company assessed goodwill for impairment in the
building efficiency business due to the change in reportable segments as described in Note 18, “Segment Information,” of the notes to
consolidated financial statements. As a result, the Company performed impairment testing for goodwill under the new segment structure and
determined that the estimated fair value of each reporting unit substantially exceeded its corresponding carrying amount including recorded
goodwill, and as such, no impairment existed at December 31, 2010. No reporting unit was determined to be at risk of failing step one of the
goodwill impairment test.
At March 31, 2009, in conjunction with the preparation of its financial statements, the Company concluded it had a triggering event requiring
the assessment of impairment of goodwill in the automotive experience Europe segment due to the continued decline in the automotive market.
As a result, the Company performed impairment testing for
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goodwill and determined that fair value of the reporting unit exceeded its carrying value and no impairment existed at March 31, 2009.
At December 31, 2008, in conjunction with the preparation of its financial statements, the Company concluded it had a triggering event
requiring the assessment of impairment of goodwill in the automotive experience North America and Europe segments and the building
efficiency other segment (formerly unitary products group segment) due to the rapid declines in the automotive and construction markets. As a
result, the Company performed impairment testing for goodwill and determined that fair values of the reporting units exceed their carrying
values and no impairment existed at December 31, 2008. To further support the fair value estimates of the automotive experience North
America and building efficiency other segments, the Company prepared a discounted cash flow analysis that also indicated the fair value
exceeded the carrying value for each reporting unit. The assumptions supporting the estimated future cash flows of the reporting units,
including profit margins, long-term sales forecasts and growth rates, reflect the Company’s best estimates. The assumptions related to
automotive experience sales volumes reflected the expected continued automotive industry decline with a return to fiscal 2008 volume
production levels by fiscal 2013. The assumptions related to the construction market sales volumes reflected steady growth beginning in fiscal
2010.
Indefinite lived other intangible assets are also subject to at least annual impairment testing. Other intangible assets with definite lives continue
to be amortized over their estimated useful lives and are subject to impairment testing if events or changes in circumstances indicate that the
asset might be impaired. A considerable amount of management judgment and assumptions are required in performing the impairment tests.
While the Company believes the judgments and assumptions used in the impairment tests are reasonable and no impairment existed at
September 30, 2011, 2010 and 2009, different assumptions could change the estimated fair values and, therefore, impairment charges could be
required.
The Company reviews the realizability of its deferred tax assets on a quarterly basis, or whenever events or changes in circumstances indicate
that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal
entity or consolidated group recording the net deferred tax asset are considered, along with any other positive or negative evidence. Since
future financial results may differ from previous estimates, periodic adjustments to the Company’s valuation allowances may be necessary.
The Company has certain subsidiaries, mainly located in France and Spain, which have generated operating and/or capital losses and, in certain
circumstances, have limited loss carryforward periods. In accordance with ASC 740, “Income Taxes,” the Company is required to record a
valuation allowance when it is more likely than not the Company will not utilize deductible amounts or net operating losses for each legal
entity or consolidated group based on the tax rules in the applicable jurisdiction, evaluating both positive and negative historical evidences as
well as expected future events and tax planning strategies.
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount
may not be recoverable. The Company conducts its long-lived asset impairment analyses in accordance with ASC 360-10-15, “Impairment or
Disposal of Long-Lived Assets.” ASC 360-10-15 requires the Company to group assets and liabilities at the lowest level for which identifiable
cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the
undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset group is recoverable, an
impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash
flow analysis or appraisals.
At September 30, 2011, the Company concluded it did not have any triggering events requiring assessment of impairment of its long-lived
assets.
In the fourth quarter of fiscal 2010, the Company concluded it had a triggering event requiring assessment of impairment of its long-lived
assets due to the planned relocation of a plant in Japan in the automotive experience Asia segment. As a result, the Company reviewed its long-
lived assets for impairment and recorded an $11 million impairment charge within cost of sales in the fourth quarter of fiscal 2010 related to the
automotive experience Asia segment. The impairment was measured under a market approach utilizing an appraisal. The inputs utilized in the
analysis are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, “Fair Value Measurements and Disclosures.”
In the third quarter of fiscal 2010, the Company concluded it had a triggering event requiring assessment of impairment of its long-lived assets
due to the planned relocation of its headquarters building in Japan in the automotive experience Asia segment. As a result, the Company
reviewed its long-lived assets for impairment and
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recorded an $11 million impairment charge within selling, general and administrative expenses in the third quarter of fiscal 2010 related to the
automotive experience Asia segment. The impairment was measured under a market approach utilizing an appraisal. The inputs utilized in the
analysis are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, “Fair Value Measurements and Disclosures.”
In the second quarter of fiscal 2010, the Company concluded it had a triggering event requiring assessment of impairment of its long-lived
assets due to planned plant closures for the automotive experience North America segment. These closures are a result of the Company’s
revised restructuring actions to the 2008 Plan. Refer to Note 15, “Restructuring Costs,” of the notes to consolidated financial statements for
further information regarding the 2008 Plan. As a result, the Company reviewed its long-lived assets for impairment and recorded a $19 million
impairment charge in the second quarter of fiscal 2010 related to the automotive experience North America segment. This impairment charge
was offset by a decrease in the Company’s restructuring reserve related to the 2008 Plan due to lower employee severance and termination
benefit cash payments than previously expected, as discussed further in Note 15. The impairment was measured under an income approach
utilizing forecasted discounted cash flows for fiscal 2010 through 2014 to determine the fair value of the impaired assets. This method is
consistent with the method the Company has employed in prior periods to value other long-lived assets. The inputs utilized in the discounted
cash flow analysis are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, “Fair Value Measurements and
Disclosures.”
In the third quarter of fiscal 2009, the Company concluded it had a triggering event requiring assessment of impairment of its long-lived assets
in light of the restructuring plans in North America announced by Chrysler LLC (Chrysler) and General Motors Corporation (GM) during the
quarter as part of their bankruptcy reorganization plans. As a result, the Company reviewed its long-lived assets relating to the Chrysler and
GM platforms within the automotive experience North America segment and determined no impairment existed.
In the second quarter of fiscal 2009, the Company concluded it had a triggering event requiring assessment of impairment of its long-lived
assets in conjunction with its restructuring plan announced in March 2009. As a result, the Company reviewed its long-lived assets associated
with the plant closures for impairment and recorded a $46 million impairment charge in the second quarter of fiscal 2009, of which $25 million
related to the automotive experience North America segment, $16 million related to the automotive experience Asia segment and $5 million
related to the automotive experience Europe segment. Refer to Note 15, “Restructuring Costs,” of the notes to consolidated financial statements
for further information regarding the 2009 Plan. Additionally, at March 31, 2009, in conjunction with the preparation of its financial
statements, the Company concluded it had a triggering event requiring assessment of its other long-lived assets within the automotive
experience Europe segment due to significant declines in European automotive sales volume. As a result, the Company reviewed its other long-
lived assets within the automotive experience Europe segment for impairment and determined no additional impairment existed.
At December 31, 2008, in conjunction with the preparation of its financial statements, the Company concluded it had a triggering event
requiring assessment of impairment of its long-lived assets due to the significant declines in North American and European automotive sales
volumes. As a result, the Company reviewed its long-lived assets for impairment and recorded a $110 million impairment charge within cost of
sales in the first quarter of fiscal 2009, of which $77 million related to the automotive experience North America segment and $33 million
related to the automotive experience Europe segment.
Investments in partially-owned affiliates (“affiliates”) at September 30, 2011 were $811 million, $83 million higher than the prior year. The
increase was primarily due to positive earnings by certain automotive experience affiliates primarily in Asia, an initial investment in a power
solutions affiliate and affiliates acquired as part of current year business acquisitions, partially offset by dividends paid by affiliates and the
acquisition of the controlling interest in a formerly unconsolidated power solutions affiliate.
The Company reviews its equity investments for impairment whenever there is a loss in value of an investment which is other than a temporary
decline. The Company conducts its equity investment impairment analyses in accordance with ASC 323, “Investments-Equity Method and
Joint Ventures.” ASC 323 requires the Company to record an impairment charge for a decrease in value of an investment when the decline in
the investment is considered to be other than temporary.
At December 31, 2008, in conjunction with the preparation of its financial statements, the Company concluded it had a triggering event
requiring assessment of impairment of its equity investment in a 48%-owned joint venture with U.S. Airconditioning Distributors, Inc. (U.S.
Air) due to the significant decline in North American residential housing construction starts, which had significantly impacted the financial
results of the equity investment. The
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Company reviewed its equity investment in U.S. Air for impairment and as a result, recorded a $152 million impairment charge within equity
income (loss) for the building efficiency other segment in the first quarter of fiscal 2009. The U.S. Air investment balance included in the
consolidated statement of financial position at September 30, 2011 was $53 million. The Company does not anticipate future impairment of
this investment as, based on its current forecasts, a further decline in value that is other than temporary is not considered reasonably likely to
occur.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
(in millions)
Working capital
Accounts receivable
Inventories
Accounts payable
September 30,
2011
$ 1,589
7,151
2,316
6,159
September 30,
2010
$ 919
6,095
1,786
5,426
Change
73 %
17 %
30 %
14 %
•
The Company defines working capital as current assets less current liabilities, excluding cash, short-term debt, the current portion of
long-term debt and net assets of discontinued operations. Management believes that this measure of working capital, which excludes
financing-related items and discontinued activities, provides a more useful measurement of the Company’s operating performance.
•
The increase in working capital at September 30, 2011 as compared to September 30, 2010 was primarily due to current year acquisitions,
higher accounts receivable from higher sales volumes and higher inventory levels to support higher sales, partially offset by higher
accounts payable primarily due to increased purchasing activity.
•
The Company’s days sales in accounts receivable decreased to 52 at September 30, 2011 from 55 for the prior year primarily due to
improved collections. The increase in accounts receivable compared to September 30, 2010 was primarily due to increased sales in the
fourth quarter of fiscal 2011 compared to the same quarter in the prior year. There has been no significant adverse change in the level of
overdue receivables or changes in revenue recognition methods.
•
•
The Company’s inventory turns during fiscal 2011 were slightly lower compared to the prior year primarily due to increased inventory
build to meet increased demand.
Days in accounts payable at September 30, 2011 decreased to 71 days from 74 days at September 30, 2010 primarily due to the timing of
supplier payments.
Cash Flows
(in millions)
Cash provided by operating activities
Cash used by investing activities
Cash provided (used) by financing activities
Capital expenditures
Year Ended September 30,
2011
$ 1,076
(2,637 )
1,239
(1,325 )
2010
$ 1,438
(892 )
(895 )
(777 )
•
•
•
•
The decrease in cash provided by operating activities was primarily due to unfavorable changes in accounts receivable, inventory, other
assets and accounts payable, partially offset by higher net income and favorable changes in accrued income taxes.
The increase in cash used by investing activities was primarily due to higher capital expenditures and acquisitions of businesses.
The increase in cash provided by financing activities was primarily due to an increase in overall debt levels. Refer to Note 8, “Debt and
Financing Arrangements,” of the notes to consolidated financial statements for further discussion.
The increase in capital expenditures in the current year primarily related to capacity increases and vertical integration efforts in the power
solutions business, increased investments to support customer growth and
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enhance the Company’s strategic footprint primarily in Mexico and Southeast Asia, and information technology infrastructure
investments.
Capitalization
(in millions)
Total debt
Shareholders’ equity attributable to Johnson Controls, Inc.
Total capitalization
September 30,
2011
$
$
5,146
11,042
16,188
September 30,
2010
$
$
3,389
10,071
13,460
Change
52 %
10 %
20 %
Total debt as a % of total capitalization
32 %
25 %
•
•
•
•
•
•
•
•
•
•
•
•
•
The Company believes the percentage of total debt to total capitalization is useful to understanding the Company’s financial condition as
it provides a review of the extent to which the Company relies on external debt financing for its funding and is a measure of risk to its
shareholders.
In fiscal 2008, the Company entered into new committed revolving credit facilities totaling 350 million euro with 100 million euro
expiring in May 2009, 150 million euro expiring in May 2011 and 100 million euro expiring in August 2011. In May 2009, the
100 million euro revolving facility expired and the Company entered into a new one year committed revolving credit facility in the
amount of 50 million euro expiring in May 2010. In May 2010, the 50 million euro revolving facility expired and the Company entered
into a new one year committed revolving facility in the amount of 50 million euro expiring in May 2011. In July 2011, the Company
entered into a new 50 million euro committed revolving facility scheduled to mature in July 2012. In August 2011, the Company entered
into a new 100 million euro committed revolving facility scheduled to mature in August 2014. In September 2011, the Company entered
into three new committed revolving facilities, totaling 73 million euro and an additional $50 million, scheduled to mature in
September 2012. As of September 30, 2011 there were no draws on any of the revolving facilities.
In December 2009, the Company retired its 7 billion yen, three-year, floating rate loan agreement that was scheduled to mature on
January 18, 2011. The Company used cash to repay the note.
In December 2009, the Company retired its 12 billion yen, three-year, floating rate loan agreement that matured. The Company used cash
to repay the note.
In December 2009, the Company retired approximately $13 million in principal amount of its fixed rate notes that was scheduled to
mature on January 15, 2011. The Company used cash to fund the repurchase.
In February 2010, the Company retired approximately $30 million in principal amount of its fixed rate notes that was scheduled to mature
on January 15, 2011. The Company used cash to fund the repurchase.
In February 2010, the Company retired its 18 billion yen, three-year, floating rate loan agreement that was scheduled to mature on
January 18, 2011. The Company used cash to repay the note.
In March 2010, the Company issued $500 million aggregate principal amount of 5.0% senior unsecured fixed rate notes due in fiscal
2020. Net proceeds from the issue were used for general corporate purposes including the retirement of short-term debt.
In March 2010, the Company retired approximately $31 million in principal amount of its fixed rate notes that was scheduled to mature
on January 15, 2011. The Company used cash to fund the repurchase.
In May 2010, the Company retired approximately $18 million in principal amount of its fixed rate notes scheduled to mature on
January 15, 2011. The Company used cash to fund the repurchases.
In September 2010, the Company entered into a new, $100 million committed revolving facility scheduled to mature in December 2011.
In February 2011, the Company retired the committed facility. There were no draws on the facility.
In November 2010, the Company repaid debt of $82 million which was acquired as part of an acquisition in the first quarter of fiscal
2011. The Company used cash to repay the debt.
In January 2011, the Company retired $654 million in principal amount, plus accrued interest, of its 5.25% fixed rate notes that matured
on January 15, 2011. The Company used cash to fund the payment.
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•
•
•
•
•
•
In February 2011, the Company issued $350 million aggregate principal amount of floating rate senior unsecured notes due in fiscal
2014, $450 million aggregate principal amount of 1.75% senior unsecured fixed rate notes due in fiscal 2014, $500 million aggregate
principal amount of 4.25% senior unsecured fixed rate notes due in fiscal 2021 and $300 million aggregate principal amount of 5.7%
senior unsecured fixed rate notes due in fiscal 2041. Aggregate net proceeds of $1.6 billion from the issues were used for general
corporate purposes including the retirement of short-term debt.
In February 2011, the Company entered into a six-year, 100 million euro, floating rate loan scheduled to mature in February 2017.
Proceeds from the facility were used for general corporate purposes.
In February 2011, the Company replaced its $2.05 billion committed five-year credit facility, scheduled to mature in December 2011,
with a $2.5 billion committed four-year credit facility scheduled to mature in February 2015. The facility is used to support the
Company’s outstanding commercial paper. At September 30, 2011, there were no draws on the facility.
In April 2011, a total of 157,820 equity units, which had a purchase contract settlement date of March 31, 2012, were early exercised. As
a result, the Company issued 766,673 shares of Johnson Controls, Inc. common stock and approximately $8 million of 11.5% notes due
2042.
The Company also selectively makes use of short-term credit lines. The Company estimates that, as of September 30, 2011, it could
borrow up to $2.4 billion at its current debt ratings on committed credit lines.
The Company believes its capital resources and liquidity position at September 30, 2011 are adequate to meet projected needs. The
Company believes requirements for working capital, capital expenditures, dividends, minimum pension contributions, debt maturities,
announced acquisitions and any other potential acquisitions in fiscal 2012 will continue to be funded from operations, supplemented by
short- and long-term borrowings, if required. The Company currently manages its short-term debt position in the U.S. and euro
commercial paper markets and bank loan markets. In the event the Company is unable to issue commercial paper, it would have the
ability to draw on its $2.5 billion revolving credit facility, which matures in February 2015. There were no draws on the revolving credit
facility as of September 30, 2011. As such, the Company believes it has sufficient financial resources to fund operations and meet its
obligations for the foreseeable future.
•
The Company earns a significant amount of its operating income outside the U.S., which is deemed to be permanently reinvested in
foreign jurisdictions. We currently do not intend nor foresee a need to repatriate these funds. The Company expects existing domestic
cash and liquidity to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing
activities for at least the next twelve months and thereafter for the foreseeable future. In addition, the Company expects existing foreign
cash, cash equivalents, short term investments and cash flows from operations to continue to be sufficient to fund our foreign operating
activities and cash commitments for investing activities, such as material capital expenditures, for at least the next twelve months and
thereafter for the foreseeable future. Should the Company require more capital in the U.S. than is generated by our operations
domestically, we could elect to raise capital in the U.S. through debt or equity issuances. This alternative could result in increased interest
expense or other dilution of our earnings. We have borrowed funds domestically and continue to have the ability to borrow funds
domestically at reasonable interest rates.
•
The Company’s debt financial covenants require a minimum consolidated shareholders’ equity attributable to Johnson Controls, Inc. of at
least $3.5 billion at all times and allow a maximum aggregated amount of 10% of consolidated shareholders’ equity attributable to
Johnson Controls, Inc. for liens and pledges. For purposes of calculating the Company’s covenants, consolidated shareholders’ equity
attributable to Johnson Controls, Inc. is calculated without giving effect to (i) the application of ASC 715-60, “Defined Benefit Plans —
Other Postretirement,” or (ii) the cumulative foreign currency translation adjustment. As of September 30, 2011, consolidated
shareholders’ equity attributable to Johnson Controls, Inc. as defined per the Company’s debt financial covenants was $10.5 billion and
there were no outstanding amounts for liens and pledges. The Company expects to remain in compliance with all covenants and other
requirements set forth in its credit agreements and indentures for the foreseeable future. None of the Company’s debt agreements limit
access to stated borrowing levels or require accelerated repayment in the event of a decrease in the Company’s credit rating.
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A summary of the Company’s significant contractual obligations as of September 30, 2011 is as follows (in millions):
Contractual Obligations
Long-term debt
(including capital lease obligations)*
Interest on long-term debt
(including capital lease obligations)*
Operating leases
Purchase obligations
Pension and postretirement contributions
Total contractual cash obligations
Total
2012
2013-2014
2015-2016
2017
and Beyond
$ 4,550
$
17
$ 1,367
$
937
$ 2,229
2,383
992
2,390
424
$ 10,739
213
289
1,772
89
$ 2,380
390
401
514
49
$ 2,721
304
202
95
71
$ 1,609
1,476
100
9
215
$ 4,029
*
See “Capitalization” for additional information related to the Company’s long-term debt.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of
America (U.S. GAAP). This requires management to make estimates and assumptions that affect reported amounts and related disclosures.
Actual results could differ from those estimates. The following policies are considered by management to be the most critical in understanding
the judgments that are involved in the preparation of the Company’s consolidated financial statements and the uncertainties that could impact
the Company’s results of operations, financial position and cash flows.
Revenue Recognition
The Company’s building efficiency business recognizes revenue from certain long-term contracts over the contractual period under the
percentage-of-completion (POC) method of accounting. This method of accounting recognizes sales and gross profit as work is performed
based on the relationship between actual costs incurred and total estimated costs at completion. Recognized revenues that will not be billed
under the terms of the contract until a later date are recorded in unbilled accounts receivable. Likewise, contracts where billings to date have
exceeded recognized revenues are recorded in other current liabilities. Changes to the original estimates may be required during the life of the
contract and such estimates are reviewed monthly. Sales and gross profit are adjusted using the cumulative catch-up method for revisions in
estimated total contract costs and contract values. Estimated losses are recorded when identified. Claims against customers are recognized as
revenue upon settlement. The amount of accounts receivable due after one year is not significant. The use of the POC method of accounting
involves considerable use of estimates in determining revenues, costs and profits and in assigning the amounts to accounting periods. The
periodic reviews have not resulted in adjustments that were significant to the Company’s results of operations. The Company continually
evaluates all of the assumptions, risks and uncertainties inherent with the application of the POC method of accounting.
The building efficiency business enters into extended warranties and long-term service and maintenance agreements with certain customers.
For these arrangements, revenue is recognized on a straight-line basis over the respective contract term.
The Company’s building efficiency business also sells certain heating, ventilating and air conditioning (HVAC) and refrigeration products and
services in bundled arrangements, where multiple products and/or services are involved. In accordance with ASU No. 2009-13, “Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements — A Consensus of the FASB Emerging Issues Task Force,” the
Company divides bundled arrangements into separate deliverables and revenue is allocated to each deliverable based on the relative selling
price method. Significant deliverables within these arrangements include equipment, commissioning, service labor and extended warranties. In
order to estimate relative selling price, market data and transfer price studies are utilized. Approximately four to twelve months separate the
timing of the first deliverable until the last piece of
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equipment is delivered, and there may be extended warranty arrangements with duration of one to five years commencing upon the end of the
standard warranty period.
In all other cases, the Company recognizes revenue at the time title passes to the customer or as services are performed.
Goodwill and Other Intangible Assets
Goodwill reflects the cost of an acquisition in excess of the fair values assigned to identifiable net assets acquired. The Company reviews
goodwill for impairment during the fourth fiscal quarter or more frequently if events or changes in circumstances indicate the asset might be
impaired. The Company performs impairment reviews for its reporting units, which have been determined to be the Company’s reportable
segments or one level below the reportable segments in certain instances, using a fair-value method based on management’s judgments and
assumptions or third party valuations. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in
an orderly transaction between market participants at the measurement date. In estimating the fair value, the Company uses multiples of
earnings based on the average of historical, published multiples of earnings of comparable entities with similar operations and economic
characteristics. In certain instances, the Company uses discounted cash flow analyses to further support the fair value estimates. The inputs
utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, “Fair Value Measurements and
Disclosures.” The estimated fair value is then compared with the carrying amount of the reporting unit, including recorded goodwill. The
Company is subject to financial statement risk to the extent that the carrying amount exceeds the estimated fair value. The impairment testing
performed by the Company in the fourth quarter of fiscal year 2011, 2010 and 2009 indicated that the estimated fair value of each reporting
unit substantially exceeded its corresponding carrying amount including recorded goodwill, and as such, no impairment existed at
September 30, 2011, 2010 and 2009. No reporting unit was determined to be at risk of failing step one of the goodwill impairment test.
Indefinite lived other intangible assets are also subject to at least annual impairment testing. Other intangible assets with definite lives continue
to be amortized over their estimated useful lives and are subject to impairment testing if events or changes in circumstances indicate that the
asset might be impaired. A considerable amount of management judgment and assumptions are required in performing the impairment tests.
While the Company believes the judgments and assumptions used in the impairment tests are reasonable and no impairment existed at
September 30, 2011, 2010 and 2009, different assumptions could change the estimated fair values and, therefore, impairment charges could be
required.
Employee Benefit Plans
The Company provides a range of benefits to its employees and retired employees, including pensions and postretirement health and other
benefits. Plan assets and obligations are measured annually, or more frequently if there is a remeasurement event, based on the Company’s
measurement date utilizing various actuarial assumptions such as discount rates, assumed rates of return, compensation increases, turnover
rates and health care cost trend rates as of that date. Measurements of net periodic benefit cost are based on the assumptions used for the
previous year-end measurements of assets and obligations. The Company reviews its actuarial assumptions on an annual basis and makes
modifications to the assumptions based on current rates and trends when appropriate. As required by U.S. GAAP, the effects of the
modifications are recorded currently or amortized over future periods.
U.S. GAAP requires that companies recognize in its statement of financial position a liability for defined benefit pension and postretirement
plans that are underfunded or unfunded, or an asset for defined benefit pension and postretirement benefit plans that are overfunded. U.S.
GAAP also requires that companies measure the benefit obligations and fair value of plan assets that determine a benefit plan’s funded status as
of the date of the employer’s fiscal year-end.
The Company considers the expected benefit payments on a plan-by-plan basis when setting assumed discount rates. As a result, the Company
uses different discount rates for each plan depending on the plan jurisdiction, the demographics of participants and the expected timing of
benefit payments. For the U.S. pension and postretirement health and other benefit plans, the Company uses a discount rate provided by an
independent third party calculated based on an appropriate mix of high quality bonds. For the non-U.S. pension and postretirement health and
other benefit plans, the Company consistently uses the relevant country specific benchmark indices for determining the various discount rates.
The Company’s discount rate on U.S. plans was 5.25% and 5.50% at September 30, 2011 and 2010, respectively. The Company’s weighted
average discount rate on non-U.S. plans was 4.00% at September 30, 2011 and 2010.
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In estimating the expected return on plan assets, the Company considers the historical returns on plan assets, adjusted for forward-looking
considerations, inflation assumptions and the impact of the active management of the plans’ invested assets. Reflecting the relatively long-term
nature of the plans’ obligations, approximately 50% of the plans’ assets are invested in equities, with the remainder primarily invested in fixed
income and alternative investments. For the years ending September 30, 2011 and 2010, the Company’s expected long-term return on U.S.
pension plan assets used to determine net periodic benefit cost was 8.50%. The actual rate of return on U.S. pension plans was below 8.50% in
fiscal 2011 and 2010. For the years ending September 30, 2011 and 2010, the Company’s weighted average expected long-term return on non-
U.S. pension plan assets was 5.50% and 6.00%, respectively. Plan assets for the Company’s postretirement health and other benefit plans were
contributed at the end of fiscal 2011 and not contemplated in fiscal 2011 net periodic benefit cost.
Beginning in fiscal 2012 the Company believes the long-term rate of return will approximate 8.50%, 5.25% and 6.30% for U.S. pension, non-
U.S. pension, and postretirement health and other benefit plans, respectively. Any differences between actual results and the expected long-
term asset returns will be reflected in other comprehensive income and amortized to expense in future years. If the Company’s actual returns on
plan assets are less than the Company’s expectations, additional contributions may be required.
For purposes of expense recognition, the Company uses a market-related value of assets that recognizes the difference between the expected
return and the actual return on plan assets over a three-year period. As of September 30, 2011, the Company had approximately $119 million of
unrecognized asset losses associated with its U.S. pension plans, which will be recognized in the calculation of the market-related value of
assets and subject to amortization in future periods.
In fiscal 2011, total employer and employee contributions to the defined benefit pension plans were $280 million, of which $183 million were
voluntary contributions made by the Company. The Company expects to contribute approximately $350 million in cash to its defined benefit
pension plans in fiscal year 2012. In fiscal 2011, total employer and employee contributions to the postretirement health and other benefit plans
were $183 million, of which $156 million were voluntary contributions made by the Company. The Company expects to contribute
approximately $60 million in cash to its postretirement health and other benefit plans in fiscal year 2012.
Based on information provided by its independent actuaries and other relevant sources, the Company believes that the assumptions used are
reasonable; however, changes in these assumptions could impact the Company’s financial position, results of operations or cash flows.
Product Warranties
The Company offers warranties to its customers depending upon the specific product and terms of the customer purchase agreement. A typical
warranty program requires that the Company replace defective products within a specified time period from the date of sale. The Company
records an estimate of future warranty-related costs based on actual historical return rates and other known factors. Based on analysis of return
rates and other factors, the adequacy of the Company’s warranty provisions are adjusted as necessary. At September 30, 2011, the Company
had recorded $301 million of warranty reserves. The Company monitors its warranty activity and adjusts its reserve estimates when it is
probable that future warranty costs will be different than those estimates.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and other loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company
records a valuation allowance that primarily represents non-U.S. operating and other loss carryforwards for which utilization is uncertain.
Management judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities and the
valuation allowance recorded against the Company’s net deferred tax assets. In calculating the provision for income taxes on an interim basis,
the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances known at each interim period. On a
quarterly basis, the actual effective tax rate is adjusted as appropriate based upon the actual results as compared to those forecasted at the
beginning of the fiscal year. In determining the need for a valuation allowance, the historical and projected financial results of the legal entity
or consolidated group recording the net deferred tax asset are considered, along with any other positive or negative evidence. Since future
financial results may differ from previous estimates,
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periodic adjustments to the Company’s valuation allowance may be necessary. At September 30, 2011, the Company had a valuation allowance
of $719 million, of which $559 million relates to net operating loss carryforwards primarily in France and Spain, for which sustainable taxable
income has not been demonstrated; and $160 million for other deferred tax assets.
The Company is subject to income taxes in the U.S. and numerous non-U.S. jurisdictions. Judgment is required in determining its worldwide
provision for income taxes and recording the related assets and liabilities. In the ordinary course of the Company’s business, there are many
transactions and calculations where the ultimate tax determination is uncertain. The Company is regularly under audit by tax authorities. At
September 30, 2011, the Company had unrecognized tax benefits of $1,357 million.
The Company does not provide additional U.S. income taxes on undistributed earnings of non-U.S. consolidated subsidiaries included in
shareholders’ equity attributable to Johnson Controls, Inc. Such earnings could become taxable upon the sale or liquidation of these non-U.S.
subsidiaries or upon dividend repatriation. The Company’s intent is for such earnings to be reinvested by the subsidiaries or to be repatriated
only when it would be tax effective through the utilization of foreign tax credits. Refer to “Capitalization” within the “Liquidity and Capital
Resources” section for discussion of domestic and foreign cash projections.
NEW ACCOUNTING PRONOUNCEMENTS
In September 2011, the FASB issued ASU No. 2011-09, “Compensation — Retirement Benefits — Multiemployer Plans (Subtopic 715-80):
Disclosures about an Employer’s Participation in a Multiemployer Plan.” ASU No. 2011-09 requires additional quantitative and qualitative
disclosures about an employer’s participation in multiemployer pension plans, including disclosure of the name and identifying number of the
significant multiemployer plans in which the employer participates, the level of the employer’s participation in the plans, the financial health of
the plans and the nature of the employer commitments to the plans. ASU No. 2011-09 will be effective for the Company for the fiscal year
ending September 30, 2012. The adoption of this guidance will have no impact on the Company’s consolidated financial condition and results
of operations.
In September 2011, the FASB issued ASU No. 2011-08, “Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment.”
ASU No. 2011-08 provides companies an option to perform a qualitative assessment to determine whether further goodwill impairment testing
is necessary. If, as a result of the qualitative assessment, it is determined that it is more likely than not that a reporting unit’s fair value is less
than its carrying amount, the two-step quantitative impairment test is required. Otherwise, no further testing is required. ASU No. 2011-08 will
be effective for the Company for goodwill impairment tests performed in the fiscal year ending September 30, 2013, with early adoption
permitted. The adoption of this guidance is expected to have no impact on the Company’s consolidated financial condition and results of
operations.
In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU
No. 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of shareholders’ equity. All
non-owner changes in shareholders’ equity instead must be presented either in a single continuous statement of comprehensive income or in
two separate but consecutive statements. Also, reclassification adjustments for items that are reclassified from other comprehensive income to
net income must be presented on the face of the financial statements. ASU No. 2011-05 will be effective for the Company for the quarter
ending December 31, 2012. The adoption of this guidance will have no impact on the Company’s consolidated financial condition and results
of operations.
In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU No. 2011-04 clarifies and changes the application of various fair
value measurement principles and disclosure requirements, and will be effective for the Company in the second quarter of fiscal 2012
(January 1, 2012). The Company has assessed the updated guidance and expects adoption to have no impact on the Company’s consolidated
financial condition and results of operations. Refer to Note 10, “Fair Value Measurements,” of the notes to consolidated financial statements
for disclosures surrounding the Company’s fair value measurements.
In December 2009, the FASB issued ASU No. 2009-17, “Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities.” ASU No. 2009-17 changes how a company determines when an entity that is insufficiently
capitalized or is not controlled through voting should be consolidated. The determination of whether a company is required to consolidate an
entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most
significantly impact the entity’s economic performance. This statement was effective for the Company beginning in
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Table of Contents
the first quarter of fiscal 2011 (October 1, 2010). The adoption of this guidance had no impact on the Company’s consolidated financial
condition and results of operations. Refer to the “Principles of Consolidation” section of Note 1, “Summary of Significant Accounting
Policies,” of the notes to consolidated financial statements for further discussion.
In October 2009, the FASB issued ASU No. 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements — A
Consensus of the FASB Emerging Issues Task Force.” ASU No. 2009-13 provides application guidance on whether multiple deliverables exist,
how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This guidance
eliminates the use of the residual method allocation and requires that arrangement consideration be allocated at the inception of the
arrangement to all deliverables using the relative selling price method. The selling price used for each deliverable will be based on vendor-
specific objective evidence if available, third party evidence if vendor-specific objective evidence is not available, or estimated selling price if
neither vendor-specific or third party evidence is available. The amendments in this ASU also expand the disclosures related to a vendor’s
multiple-deliverable revenue arrangements. The Company adopted ASU No. 2009-13 on October 1, 2010 and appropriate disclosures have
been included herein. As each deliverable had a determinable relative selling price and the residual method was not previously utilized by the
Company, there were no changes in units of accounting, the allocation process, or the pattern and timing of revenue recognition upon adoption
of ASU No. 2009-13. Furthermore, adoption of this ASU is not expected to have a material effect on the consolidated financial condition or
results of operations in subsequent periods.
RISK MANAGEMENT
The Company selectively uses derivative instruments to reduce market risk associated with changes in foreign currency, commodities, interest
rates and stock-based compensation. All hedging transactions are authorized and executed pursuant to clearly defined policies and procedures,
which strictly prohibit the use of financial instruments for speculative purposes. At the inception of the hedge, the Company assesses the
effectiveness of the hedge instrument and designates the hedge instrument as either (1) a hedge of a recognized asset or liability or of a
recognized firm commitment (a fair value hedge), (2) a hedge of a forecasted transaction or of the variability of cash flows to be received or
paid related to an unrecognized asset or liability (a cash flow hedge) or (3) a hedge of a net investment in a non-U.S. operation (a net
investment hedge). The Company performs hedge effectiveness testing on an ongoing basis depending on the type of hedging instrument used.
For all foreign currency derivative instruments designated as cash flow hedges, retrospective effectiveness is tested on a monthly basis using a
cumulative dollar offset test. The fair value of the hedged exposures and the fair value of the hedge instruments are revalued and the ratio of the
cumulative sum of the periodic changes in the value of the hedge instruments to the cumulative sum of the periodic changes in the value of the
hedge is calculated. The hedge is deemed as highly effective if the ratio is between 80% and 125%. For commodity derivative contracts
designated as cash flow hedges, effectiveness is tested using a regression calculation. Ineffectiveness is minimal as the Company aligns most of
the critical terms of its derivatives with the supply contracts.
For net investment hedges, the Company assesses its net investment positions in the non-U.S. operations and compares it with the outstanding
net investment hedges on a quarterly basis. The hedge is deemed effective if the aggregate outstanding principal of the hedge instruments
designated as the net investment hedge in a non-U.S. operation does not exceed the Company’s net investment positions in the respective non-
U.S. operation.
The Company selectively uses interest rate swaps to reduce market risk associated with changes in interest rates for its fixed-rate bonds. For the
five fixed to floating interest rate swaps totaling $450 million to hedge the coupon of its 1.75% notes maturing March 2014, the Company
elected the short cut method as the criteria to apply the short cut method as defined in ASC 815 was met and the critical terms for both the
hedge and underlying hedged item are identical at inception of the hedge and the presented reporting periods. In applying the short cut method,
the Company is allowed to assume zero ineffectiveness without performing detailed effectiveness assessments and does not record any
ineffectiveness related to the hedge relationship. For remaining interest rate swaps, the long-haul method is used. The Company therefore
assesses retrospective and prospective effectiveness on a quarterly basis and records any measured ineffectiveness in the consolidated
statements of income.
For equity swaps, these derivative instruments are not designated as hedging instruments under ASC 815, “Derivatives and Hedging,” and
require no assessment of effectiveness on a quarterly basis.
A discussion of the Company’s accounting policies for derivative financial instruments is included in Note 1, “Summary of Significant
Accounting Policies,” of the notes to consolidated financial statements, and further
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disclosure relating to derivatives and hedging activities is included in Note 9, “Derivative Instruments and Hedging Activities,” and Note 10,
“Fair Value Measurements,” of the notes to consolidated financial statements.
Foreign Exchange
The Company has manufacturing, sales and distribution facilities around the world and thus makes investments and enters into transactions
denominated in various foreign currencies. In order to maintain strict control and achieve the benefits of the Company’s global diversification,
foreign exchange exposures for each currency are netted internally so that only its net foreign exchange exposures are, as appropriate, hedged
with financial instruments.
The Company hedges 70% to 90% of the nominal amount of each of its known foreign exchange transactional exposures. The Company
primarily enters into foreign currency exchange contracts to reduce the earnings and cash flow impact of the variation of non-functional
currency denominated receivables and payables. Gains and losses resulting from hedging instruments offset the foreign exchange gains or
losses on the underlying assets and liabilities being hedged. The maturities of the forward exchange contracts generally coincide with the
settlement dates of the related transactions. Realized and unrealized gains and losses on these contracts are recognized in the same period as
gains and losses on the hedged items. The Company also selectively hedges anticipated transactions that are subject to foreign exchange
exposure, primarily with foreign currency exchange contracts, which are designated as cash flow hedges in accordance with ASC 815. At
September 30, 2011 and 2010, the Company estimates that an unfavorable 10% change in the exchange rates would have decreased net
unrealized gains by approximately $54 million and $107 million, respectively.
The Company has entered into cross-currency interest rate swaps to selectively hedge portions of its net investment in Japan. The currency
effects of the cross-currency interest rate swaps are reflected in the accumulated other comprehensive income (AOCI) account within
shareholders’ equity attributable to Johnson Controls, Inc. where they offset gains and losses recorded on the Company’s net investment in
Japan.
Interest Rates
The Company uses interest rate swaps to offset its exposure to interest rate movements. In accordance with ASC 815, these outstanding swaps
qualify and are designated as fair value hedges. As of September 30, 2011, the Company had eight interest rate swaps totaling $850 million
outstanding. A 10% increase in the average cost of the Company’s variable rate debt would result in an unfavorable change in pre-tax interest
expense of approximately $5 million and $1 million at September 30, 2011 and 2010, respectively.
Commodities
The Company uses commodity contracts in the financial derivatives market in cases where commodity price risk cannot be naturally offset or
hedged through supply base fixed price contracts. Commodity risks are systematically managed pursuant to policy guidelines. As a cash flow
hedge, gains and losses resulting from the hedging instruments offset the gains or losses on purchases of the underlying commodities that will
be used in the business. The maturities of the commodity contracts coincide with the expected purchase of the commodities.
ENVIRONMENTAL, HEALTH AND SAFETY AND OTHER MATTERS
The Company’s global operations are governed by Environmental Laws and Worker Safety Laws. Under various circumstances, these laws
impose civil and criminal penalties and fines, as well as injunctive and remedial relief, for noncompliance and require remediation at sites
where Company-related substances have been released into the environment.
The Company has expended substantial resources globally, both financial and managerial, to comply with applicable Environmental Laws and
Worker Safety Laws, and to protect the environment and workers. The Company believes it is in substantial compliance with such laws and
maintains procedures designed to foster and ensure compliance. However, the Company has been, and in the future may become, the subject of
formal or informal enforcement actions or proceedings regarding noncompliance with such laws or the remediation of Company-related
substances released into the environment. Such matters typically are resolved by negotiation with regulatory authorities resulting in
commitments to compliance, abatement or remediation programs and in some cases payment of penalties. Historically, neither such
commitments nor penalties imposed on the Company have been material.
Environmental considerations are a part of all significant capital expenditure decisions; however, expenditures in fiscal 2011 related solely to
environmental compliance were not material. At September 30, 2011 and 2010, the
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Company recorded environmental liabilities of $30 million and $47 million, respectively. A charge to income is recorded when it is probable
that a liability has been incurred and the amount of the liability is reasonably estimable. The Company’s environmental liabilities do not take
into consideration any possible recoveries of future insurance proceeds. Because of the uncertainties associated with environmental remediation
activities at sites where the Company may be potentially liable, future expenses to remediate identified sites could be considerably higher than
the accrued liability. However, while neither the timing nor the amount of ultimate costs associated with known environmental remediation
matters can be determined at this time, the Company does not expect that these matters will have a material adverse effect on its financial
position, results of operations or cash flows. In addition, the Company has identified asset retirement obligations for environmental matters that
are expected to be addressed at the retirement, disposal, removal or abandonment of existing owned facilities, primarily in the power solutions
business. At September 30, 2011 and 2010, the Company recorded conditional asset retirement obligations of $91 million and $84 million,
respectively.
Additionally, the Company is involved in a number of product liability and various other casualty lawsuits incident to the operation of its
businesses. Insurance coverages are maintained and estimated costs are recorded for claims and suits of this nature. It is management’s opinion
that none of these will have a materially adverse effect on the Company’s financial position, results of operations or cash flows (see Note 19,
“Commitments and Contingencies,” of the notes to consolidated financial statements). Costs related to such matters were not material to the
periods presented.
QUARTERLY FINANCIAL DATA
(in millions, except per share data)
(unaudited)
2011
Net sales
Gross profit
Net income attributable to Johnson Controls, Inc. (1)
Earnings per share
Basic (3)
Diluted (3)
2010
Net sales
Gross profit
Net income attributable to Johnson Controls, Inc. (2)
Earnings per share
Basic (3)
Diluted (3)
First
Quarter
$ 9,537
1,414
375
0.56
0.55
$ 8,408
1,236
350
0.52
0.52
Second
Quarter
$ 10,144
1,474
354
0.52
0.51
$ 8,317
1,223
274
0.41
0.40
Third
Quarter
$ 10,364
1,550
357
0.53
0.52
$ 8,540
1,339
418
0.62
0.61
Fourth
Quarter
$ 10,788
1,732
538
0.79
0.78
$ 9,040
1,491
449
0.67
0.66
Full
Year
$ 40,833
6,170
1,624
2.40
2.36
$ 34,305
5,289
1,491
2.22
2.19
(1) The fiscal 2011 second quarter net income includes $36 million of costs related to business acquisitions recorded in the automotive
experience Europe segment. The fiscal 2011 third quarter net income includes $28 million of costs related to business acquisitions
recorded in the automotive experience Europe segment. The fiscal 2011 fourth quarter net income includes a $37 million gain on
acquisition of a power solutions partially-owned affiliate net of acquisition costs, related purchase accounting adjustments and a power
solutions partially-owned affiliate’s restatement of prior period income, and $43 million of restructuring costs recorded in the building
efficiency and automotive experience businesses. The preceding amounts are stated on a pre-tax basis.
(2) The fiscal 2010 third quarter net income includes $11 million of fixed asset impairment charges recorded in the automotive experience
Asia segment. The fiscal 2010 fourth quarter net income includes $11 million of fixed asset impairment charges recorded in the
automotive experience Asia segment, an $8 million charge related to the divestiture of a partially-owned affiliate recorded in the
automotive experience North America segment and a $37 million gain on acquisition of a Korean partially-owned affiliate net of
acquisition costs and related purchase accounting adjustments recorded in the power solutions segment. The preceding amounts are stated
on a pre-tax basis.
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(3) Due to the use of the weighted-average shares outstanding for each quarter for computing earnings per share, the sum of the quarterly per
share amounts may not equal the per share amount for the year.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See “Risk Management” included in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income for the years ended September 30, 2011, 2010 and 2009
Consolidated Statements of Financial Position as of September 30, 2011 and 2010
Consolidated Statements of Cash Flows for the years ended September 30, 2011, 2010 and 2009
Consolidated Statements of Shareholders’ Equity Attributable to Johnson Controls, Inc. for the years ended September 30,
2011, 2010 and 2009
Notes to Consolidated Financial Statements
Schedule II – Valuation and Qualifying Accounts
51
Page
52
54
55
56
57
58
105
Table of Contents
To the Board of Directors and Shareholders of Johnson Controls, Inc.
Report of Independent Registered Public Accounting Firm
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial
position of Johnson Controls, Inc. and its subsidiaries at September 30, 2011 and 2010, and the results of their operations and their cash flows
for each of the three years in the period ended September 30, 2011 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material
respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2011, based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on
these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our
integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits
of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
PricewaterhouseCoopers LLP, 100 East Wisconsin Avenue, Milwaukee, WI 53202
T: (414)212- 1600, F: (414) 212- 1880, www.pwc.com/us
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
November 22, 2011
53
Johnson Controls, Inc.
Consolidated Statements of Income
Table of Contents
(in millions, except per share data)
Net sales
Products and systems*
Services*
Cost of sales
Products and systems*
Services*
Gross profit
Selling, general and administrative expenses
Restructuring costs
Debt conversion costs
Net financing charges
Equity income (loss)
Income (loss) before income taxes
Provision for income taxes
Net income (loss)
Income (loss) attributable to noncontrolling interests
2011
Year ended September 30,
2010
2009
$ 32,420
8,413
40,833
27,631
7,032
34,663
$ 27,204
7,101
34,305
23,226
5,790
29,016
$ 21,837
6,660
28,497
19,618
5,330
24,948
6,170
5,289
3,549
(4,183 )
—
—
(174 )
298
(3,610 )
—
—
(170 )
254
(3,210 )
(230 )
(111 )
(239 )
(77 )
2,111
1,763
370
197
1,741
1,566
117
75
(318 )
32
(350 )
(12 )
Net income (loss) attributable to Johnson Controls, Inc.
$ 1,624
$ 1,491
$
(338 )
Earnings (loss) per share
Basic
Diluted
$ 2.40
$ 2.36
$ 2.22
$ 2.19
$ (0.57 )
$ (0.57 )
*
Products and systems consist of automotive experience and power solutions products and systems and building efficiency installed
systems. Services are building efficiency technical and global workplace solutions.
The accompanying notes are an integral part of the financial statements.
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Table of Contents
Johnson Controls, Inc.
Consolidated Statements of Financial Position
(in millions, except par value and share data)
Assets
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $89 and $96, respectively
Inventories
Other current assets
Current assets
Property, plant and equipment — net
Goodwill
Other intangible assets — net
Investments in partially-owned affiliates
Other noncurrent assets
Total assets
Liabilities and Equity
Short-term debt
Current portion of long-term debt
Accounts payable
Accrued compensation and benefits
Other current liabilities
Current liabilities
Long-term debt
Pension, postretirement health and other benefits
Other noncurrent liabilities
Long-term liabilities
Commitments and contingencies (Note 19)
Redeemable noncontrolling interests
Common Stock, $.01 7/18 par value
shares authorized: 1,800,000,000
shares issued: 2011 - 682,634,236; 2010 - 676,197,237
Capital in excess of par value
Retained earnings
Treasury stock, at cost (2011 - 2,470,168; 2010 - 2,470,565 shares)
Accumulated other comprehensive income (loss)
Shareholders’ equity attributable to Johnson Controls, Inc.
Noncontrolling interests
Total equity
Total liabilities and equity
The accompanying notes are an integral part of the financial statements.
55
September 30,
2011
2010
257
$
7,151
2,316
2,291
12,015
5,616
7,016
945
811
3,273
$ 29,676
$
596
17
6,159
1,315
2,695
10,782
4,533
1,102
1,819
7,454
560
$
6,095
1,786
2,211
10,652
4,096
6,501
741
728
3,025
$ 25,743
$
75
662
5,426
1,122
2,625
9,910
2,652
993
1,815
5,460
260
196
9
2,620
8,922
(74 )
(435 )
11,042
138
11,180
$ 29,676
9
2,448
7,765
(74 )
(77 )
10,071
106
10,177
$ 25,743
Table of Contents
Johnson Controls, Inc.
Consolidated Statements of Cash Flows
(in millions)
Operating Activities
Net income (loss) attributable to Johnson Controls, Inc.
Income (loss) attributable to noncontrolling interests
Net income (loss)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation
Amortization of intangibles
Equity in earnings of partially-owned affiliates, net of dividends received
Deferred income taxes
Impairment charges
Fair value adjustment of equity investment
Debt conversion costs
Equity-based compensation
Other
Changes in assets and liabilities, excluding acquisitions:
Receivables
Inventories
Other assets
Restructuring reserves
Accounts payable and accrued liabilities
Accrued income taxes
Cash provided by operating activities
Investing Activities
Capital expenditures
Sale of property, plant and equipment
Acquisition of businesses, net of cash acquired
Settlement of cross-currency interest rate swaps
Changes in long-term investments
Cash used by investing activities
Financing Activities
Increase (decrease) in short-term debt — net
Increase in long-term debt
Repayment of long-term debt
Payment of cash dividends
Debt conversion costs
Proceeds from the exercise of stock options
Settlement of interest rate swaps
Cash paid to acquire a noncontrolling interest
Other
Cash provided (used) by financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
The accompanying notes are an integral part of the financial statements.
56
2011
Year Ended September 30,
2010
2009
$ 1,624
117
1,741
$ 1,491
75
1,566
$
(338 )
(12 )
(350 )
678
53
(15 )
(144 )
—
(89 )
—
59
37
(721 )
(387 )
(118 )
(94 )
(55 )
131
1,076
(1,325 )
54
(1,226 )
—
(140 )
(2,637 )
510
1,852
(787 )
(413 )
—
105
24
(23 )
(29 )
1,239
19
(303 )
560
257
$
648
43
5
(85 )
41
(47 )
—
49
36
(608 )
(260 )
274
(195 )
218
(247 )
1,438
(777 )
47
(61 )
—
(101 )
(892 )
(575 )
515
(526 )
(339 )
—
52
—
—
(22 )
(895 )
148
(201 )
761
560
$
707
38
237
6
156
—
101
60
18
796
557
(483 )
(83 )
(635 )
(300 )
825
(647 )
28
(38 )
31
(110 )
(736 )
213
883
(391 )
(309 )
(101 )
8
—
—
(25 )
278
10
377
384
761
$
Table of Contents
Consolidated Statements of Shareholders’ Equity Attributable to Johnson Controls, Inc.
Johnson Controls, Inc.
(in millions, except per share data)
At September 30, 2008
Comprehensive loss:
Net loss attributable to Johnson Controls, Inc.
Foreign currency translation adjustments
Realized and unrealized gains on derivatives
Employee retirement plans
Other comprehensive loss
Comprehensive loss
Cash dividends
Common ($0.52 per share)
Debt conversion (Note 8)
Redemption value adjustment attributable to
redeemable noncontrolling interests
Other, including options exercised
At September 30, 2009
Comprehensive income:
Net income attributable to Johnson Controls, Inc.
Foreign currency translation adjustments
Realized and unrealized gains on derivatives
Unrealized gains on marketable common stock
Employee retirement plans
Other comprehensive loss
Comprehensive income
Cash dividends
Common ($0.52 per share)
Redemption value adjustment attributable to
redeemable noncontrolling interests
Other, including options exercised
At September 30, 2010
Comprehensive income:
Net income attributable to Johnson Controls, Inc.
Foreign currency translation adjustments
Realized and unrealized losses on derivatives
Unrealized gains on marketable common stock
Employee retirement plans
Other comprehensive loss
Comprehensive income
Cash dividends
Common ($0.64 per share)
Redemption value adjustment attributable to
redeemable noncontrolling interests
Other, including options exercised
At September 30, 2011
Accumulated
Other
Comprehensive
Income (Loss)
671
$
Common
Stock
8
$
—
—
—
—
Capital in
Excess of
Par Value
1,547
—
—
—
—
Retained
Earnings
$ 7,282
(338 )
—
—
—
Treasury
Stock,
at Cost
$ (102 )
—
—
—
—
—
1
—
803
(309 )
—
—
—
—
—
9
—
—
—
—
—
—
4
2,354
—
—
—
—
—
(20 )
—
6,615
1,491
—
—
—
—
—
32
(70 )
—
—
—
—
—
Total
$ 9,406
(338 )
(194 )
41
(326 )
(479 )
(817 )
(309 )
804
(20 )
36
9,100
1,491
(115 )
13
3
(170 )
(269 )
1,222
(350 )
—
—
(350 )
—
—
—
9
—
—
—
—
—
—
94
2,448
—
—
—
—
—
9
—
7,765
1,624
—
—
—
—
—
(4 )
(74 )
—
—
—
—
—
9
90
10,071
1,624
(109 )
(47 )
3
(205 )
(358 )
1,266
(435 )
—
—
(435 )
—
(32 )
172
$ 11,042
—
—
9
$
—
172
$ 2,620
(32 )
—
$ 8,922
—
—
(74 )
$
$
—
(194 )
41
(326 )
—
—
—
—
192
—
(115 )
13
3
(170 )
—
—
—
(77 )
—
(109 )
(47 )
3
(205 )
—
—
—
(435 )
The accompanying notes are an integral part of the financial statements.
57
Table of Contents
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Johnson Controls, Inc.
Notes to Consolidated Financial Statements
The consolidated financial statements include the accounts of Johnson Controls, Inc. and its domestic and non-U.S. subsidiaries that are
consolidated in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). All significant
intercompany transactions have been eliminated. Investments in partially-owned affiliates are accounted for by the equity method when
the Company’s interest exceeds 20% and the Company does not have a controlling interest. The financial results for the year ended
September 30, 2009 include an out of period adjustment of $62 million made in the first and second quarters of fiscal 2009 to correct an
error related to the power solutions segment. The correction of the error, which reduces segment income, primarily originated in fiscal
2007 and 2008 and resulted in the overstatement of inventory and understatement of cost of sales in prior periods. The Company
determined that the impact of the error on the originating periods was immaterial, and accordingly a restatement of prior period amounts
was not considered necessary. The Company also determined the impact of correcting the error in fiscal 2009 was not material.
On October 1, 2010, the Company adopted Accounting Standards Update (ASU) No. 2009-17, “Consolidations (Topic 810):
Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.” ASU No. 2009-17 amends the
consolidation guidance applicable to variable interest entities (“VIEs”) and requires additional disclosures concerning an enterprise’s
continuing involvement with VIEs. Under certain criteria as provided for in Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) 810, “Consolidation,” the Company may consolidate a partially-owned affiliate. To determine whether to
consolidate a partially-owned affiliate, the Company first determines if the entity is a VIE. An entity is considered to be a VIE if it has
one of the following characteristics: 1) the entity is thinly capitalized; 2) residual equity holders do not control the entity; 3) equity
holders are shielded from economic losses or do not participate fully in the entity’s residual economics; or 4) the entity was established
with non-substantive voting. If the entity meets one of these characteristics, the Company then determines if it is the primary beneficiary
of the VIE. The party with the power to direct activities of the VIE that most significantly impact the VIE’s economic performance and
the potential to absorb benefits or losses that could be significant to the VIE is considered the primary beneficiary and consolidates the
VIE. The Company evaluated the impact of this guidance and determined that the adoption did not result in consolidation of additional
entities or deconsolidation of existing VIEs. As such, the adoption of this guidance had no impact on the Company’s consolidated
financial condition and results of operations, and appropriate disclosures have been included herein.
Consolidated VIEs
Based upon the criteria set forth in ASC 810, the Company has determined that for the reporting periods ended September 30, 2011 and
2010 it was the primary beneficiary in two VIEs in which it holds less than 50% ownership as the Company absorbs significant
economics of the entities and has the power to direct the activities that are considered most significant to the entities. The Company funds
the entities’ short term liquidity needs through revolving credit facilities and has the power to direct the activities that are considered most
significant to the entities through its key customer supply relationships. These two VIEs manufacture products in North America for the
automotive industry. The carrying amounts and classification of assets (none of which are restricted) and liabilities included in the
Company’s consolidated statements of financial position for the consolidated VIEs are as follows (in millions):
Current assets
Noncurrent assets
Total assets
Current liabilities
Noncurrent liabilities
Total liabilities
58
September 30,
2011
2010
$
$
207
55
262
$
144
—
144
$
$
$
215
69
284
$
174
—
174
$
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Nonconsolidated VIEs
During the three month period ended June 30, 2011, the Company acquired a 40% interest in an equity method investee. The investee
produces and sells lead-acid batteries of which the Company will both purchase and supply certain batteries to complement each
investment partners’ portfolio. Commencing on the third anniversary of the closing date, the Company has a contractual right to purchase
the remaining 60% equity interest in the investee (the “call option”). If the Company does not exercise the call option on or before the
fifth anniversary of the closing date and for a period of six months thereafter, the Company is subject to a contractual obligation at the
counterparty’s option to sell the Company’s equity investment in the investee to the counterparty (the “repurchase option”). The purchase
price is fixed under both the call option and the repurchase option. Based upon the criteria set forth in ASC 810, the Company has
determined that the investee is a VIE as the equity holders, through their equity investments, may not participate fully in the entity’s
residual economics. The Company is not the primary beneficiary as the Company does not have the power to make key operating
decisions considered to be most significant to the VIE. Therefore, the investee is accounted for under the equity method of accounting as
the Company’s interest exceeds 20% and the Company does not have a controlling interest. The investment balance included within
investments in partially-owned affiliates in the consolidated statement of financial position at September 30, 2011 was $49 million, which
represents the Company’s maximum exposure to loss. Current assets and liabilities related to the VIE are immaterial and represent
normal course of business trade receivables and payables for all presented periods.
Based upon the criteria set forth in ASC 810, the Company has determined that it holds a variable interest in an equity method investee
that was considered thinly capitalized at the time of its initial investment. The entity has been primarily financed with third party debt.
During the three month period ended March 31, 2011, the owners of the remaining interest exercised their option to put their interest to
the Company. The Company has twelve months from the date the notice was received to set the date of the put closing, reorganize the
ownership structure or secure a third party buyer. The value of the put will be at a price that approximates fair value. The Company is not
the primary beneficiary as the Company cannot make key operating decisions considered to be most significant to the VIE prior to the put
closing. Therefore, the entity is accounted for under the equity method of accounting as the Company’s interest exceeds 20% and the
Company does not have a controlling interest. The Company’s maximum exposure to loss, which includes the partially-owned affiliate
investment balance and a note receivable, approximates $43 million at September 30, 2011 and $41 million at September 30, 2010.
Current liabilities due to the VIE are immaterial and represent normal course of business trade payables for all presented periods.
Additionally, the Company consumes a significant amount of the investee’s manufacturing output.
The Company did not have a significant variable interest in any other nonconsolidated VIEs for the presented reporting periods.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates.
Fair Value of Financial Instruments
The fair values of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying
values. See Note 9, “Derivative Instruments and Hedging Activities,” and Note 10, “Fair Value Measurements,” of the notes to
consolidated financial statements for fair value of financial instruments, including derivative instruments, hedging activities and long-
term debt.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Receivables
Receivables consist of amounts billed and currently due from customers and unbilled costs and accrued profits related to revenues on
long-term contracts that have been recognized for accounting purposes but not yet billed to customers. The Company extends credit to
customers in the normal course of business and maintains an allowance for doubtful accounts resulting from the inability or unwillingness
of customers to make required payments. The
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allowance for doubtful accounts is based on historical experience, existing economic conditions and any specific customer collection
issues the Company has identified.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using either the last-in, first-out (LIFO) method or the first-in,
first-out (FIFO) method. Finished goods and work-in-process inventories include material, labor and manufacturing overhead costs.
Pre-Production Costs Related to Long-Term Supply Arrangements
The Company’s policy for engineering, research and development, and other design and development costs related to products that will
be sold under long-term supply arrangements requires such costs to be expensed as incurred or capitalized if reimbursement from the
customer is assured. Customer reimbursements are recorded as an increase in cash and a reduction of selling, general and administrative
expense when reimbursement from the customer is received if reimbursement from the customer is not assured. At September 30, 2011
and 2010, the Company recorded within the consolidated statements of financial position approximately $215 million and $304 million,
respectively, of engineering and research and development costs for which customer reimbursement is assured. The reimbursable costs
are recorded in other current assets if reimbursement will occur in less than one year and in other noncurrent assets if reimbursement will
occur beyond one year.
Costs for molds, dies and other tools used to make products that will be sold under long-term supply arrangements are capitalized within
property, plant and equipment if the Company has title to the assets or has the non-cancelable right to use the assets during the term of the
supply arrangement. Capitalized items, if specifically designed for a supply arrangement, are amortized over the term of the arrangement;
otherwise, amounts are amortized over the estimated useful lives of the assets. The carrying values of assets capitalized in accordance
with the foregoing policy are periodically reviewed for impairment whenever events or changes in circumstances indicate that its carrying
amount may not be recoverable. At September 30, 2011 and 2010, approximately $109 million and $72 million, respectively, of costs for
molds, dies and other tools were capitalized within property, plant and equipment which represented assets to which the Company had
title. In addition, at September 30, 2011 and 2010, the Company recorded within the consolidated statements of financial position in other
current assets approximately $254 million and $212 million, respectively, of costs for molds, dies and other tools for which customer
reimbursement is assured.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the respective assets using
the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. The estimated useful lives
range from 10 to 40 years for buildings and improvements and from 3 to 15 years for machinery and equipment.
The Company capitalizes interest on borrowings during the active construction period of major capital projects. Capitalized interest is
added to the cost of the underlying assets and is amortized over the useful lives of the assets.
Goodwill and Other Intangible Assets
Goodwill reflects the cost of an acquisition in excess of the fair values assigned to identifiable net assets acquired. The Company reviews
goodwill for impairment during the fourth fiscal quarter or more frequently if events or changes in circumstances indicate the asset might
be impaired. The Company performs impairment reviews for its reporting units, which have been determined to be the Company’s
reportable segments or one level below the reportable segments in certain instances, using a fair-value method based on management’s
judgments and assumptions or third party valuations. The fair value of a reporting unit refers to the price that would be received to sell the
unit as a whole in an orderly transaction between market participants at the measurement date. In estimating the fair value, the Company
uses multiples of earnings based on the average of historical, published multiples of earnings of comparable entities with similar
operations and economic characteristics. In certain instances, the Company uses discounted cash flow analyses to further support the fair
value estimates. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820,
“Fair Value Measurements and Disclosures.” The estimated fair value is then compared with the carrying amount of the reporting unit,
including recorded goodwill. The Company is subject to financial statement risk to the extent that the carrying amount exceeds the
estimated fair value. The impairment testing performed by the Company in the fourth quarter of fiscal year 2011, 2010 and 2009
indicated that the estimated fair value of each reporting unit substantially
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exceeded its corresponding carrying amount including recorded goodwill, and as such, no impairment existed at September 30, 2011,
2010 and 2009. No reporting unit was determined to be at risk of failing step one of the goodwill impairment test.
At December 31, 2010, in conjunction with the preparation of its financial statements, the Company assessed goodwill for impairment in
the building efficiency business due to the change in reportable segments as described in Note 18, “Segment Information,” of the notes to
consolidated financial statements. As a result, the Company performed impairment testing for goodwill under the new segment structure
and determined that the estimated fair value of each reporting unit substantially exceeded its corresponding carrying amount including
recorded goodwill, and as such, no impairment existed at December 31, 2010. No reporting unit was determined to be at risk of failing
step one of the goodwill impairment test.
At March 31, 2009, in conjunction with the preparation of its financial statements, the Company concluded it had a triggering event
requiring the assessment of impairment of goodwill in the automotive experience Europe segment due to the continued decline in the
automotive market. As a result, the Company performed impairment testing for goodwill and determined that fair value of the reporting
unit exceeded its carrying value and no impairment existed at March 31, 2009.
At December 31, 2008, in conjunction with the preparation of its financial statements, the Company concluded it had a triggering event
requiring the assessment of impairment of goodwill in the automotive experience North America and Europe segments and the building
efficiency other segment (formerly unitary products group segment) due to the rapid declines in the automotive and construction markets.
As a result, the Company performed impairment testing for goodwill and determined that fair values of the reporting units exceed their
carrying values and no impairment existed at December 31, 2008. To further support the fair value estimates of the automotive
experience North America and building efficiency other segments, the Company prepared a discounted cash flow analysis that also
indicated the fair value exceeded the carrying value for each reporting unit. The assumptions supporting the estimated future cash flows
of the reporting units, including profit margins, long-term sales forecasts and growth rates, reflect the Company’s best estimates. The
assumptions related to automotive experience sales volumes reflected the expected continued automotive industry decline with a return to
fiscal 2008 volume production levels by fiscal 2013. The assumptions related to the construction market sales volumes reflected steady
growth beginning in fiscal 2010.
Indefinite lived other intangible assets are also subject to at least annual impairment testing. Other intangible assets with definite lives
continue to be amortized over their estimated useful lives and are subject to impairment testing if events or changes in circumstances
indicate that the asset might be impaired. A considerable amount of management judgment and assumptions are required in performing
the impairment tests. While the Company believes the judgments and assumptions used in the impairment tests are reasonable and no
impairment existed at September 30, 2011, 2010 and 2009, different assumptions could change the estimated fair values and, therefore,
impairment charges could be required.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property, plant and equipment and other intangible assets with definite lives, for
impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. The Company
conducts its long-lived asset impairment analyses in accordance with ASC 360-10-15, “Impairment or Disposal of Long-Lived Assets.”
ASC 360-10-15 requires the Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely
independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash
flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured
as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or
appraisals. See Note 16, “Impairment of Long-Lived Assets,” for disclosure of the impairment analyses performed by the Company
during fiscal 2011, 2010 and 2009.
Percentage-of-Completion Contracts
The building efficiency business records certain long-term contracts under the percentage-of-completion method of accounting. Under
this method, sales and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total
estimated costs at completion. The Company records costs and earnings in excess of billings on uncompleted contracts within accounts
receivable – net and billings in excess of costs and earnings on uncompleted contracts within other current liabilities in the consolidated
statements of financial position. Amounts included within accounts receivable – net related to these contracts were $773 million and $683
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million at September 30, 2011 and 2010, respectively. Amounts included within other current liabilities were $730 million and
$639 million at September 30, 2011 and 2010, respectively.
Revenue Recognition
The Company’s building efficiency business recognizes revenue from certain long-term contracts over the contractual period under the
percentage-of-completion (POC) method of accounting. This method of accounting recognizes sales and gross profit as work is
performed based on the relationship between actual costs incurred and total estimated costs at completion. Recognized revenues that will
not be billed under the terms of the contract until a later date are recorded in unbilled accounts receivable. Likewise, contracts where
billings to date have exceeded recognized revenues are recorded in other current liabilities. Changes to the original estimates may be
required during the life of the contract and such estimates are reviewed monthly. Sales and gross profit are adjusted using the cumulative
catch-up method for revisions in estimated total contract costs and contract values. Estimated losses are recorded when identified. Claims
against customers are recognized as revenue upon settlement. The amount of accounts receivable due after one year is not significant. The
use of the POC method of accounting involves considerable use of estimates in determining revenues, costs and profits and in assigning
the amounts to accounting periods. The periodic reviews have not resulted in adjustments that were significant to the Company’s results
of operations. The Company continually evaluates all of the assumptions, risks and uncertainties inherent with the application of the POC
method of accounting.
The building efficiency business enters into extended warranties and long-term service and maintenance agreements with certain
customers. For these arrangements, revenue is recognized on a straight-line basis over the respective contract term.
The Company’s building efficiency business also sells certain heating, ventilating and air conditioning (HVAC) and refrigeration
products and services in bundled arrangements, where multiple products and/or services are involved. In accordance with ASU No. 2009-
13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements – A Consensus of the FASB Emerging Issues Task
Force,” the Company divides bundled arrangements into separate deliverables and revenue is allocated to each deliverable based on the
relative selling price method. Significant deliverables within these arrangements include equipment, commissioning, service labor and
extended warranties. In order to estimate relative selling price, market data and transfer price studies are utilized. Approximately four to
twelve months separate the timing of the first deliverable until the last piece of equipment is delivered, and there may be extended
warranty arrangements with duration of one to five years commencing upon the end of the standard warranty period.
In all other cases, the Company recognizes revenue at the time title passes to the customer or as services are performed.
Research and Development Costs
Expenditures for research activities relating to product development and improvement are charged against income as incurred and
included within selling, general and administrative expenses in the consolidated statement of income. Such expenditures for the years
ended September 30, 2011, 2010 and 2009 were $876 million, $723 million and $767 million, respectively.
A portion of the costs associated with these activities is reimbursed by customers and, for the fiscal years ended September 30, 2011,
2010 and 2009 were $366 million, $315 million and $431 million, respectively.
Earnings Per Share
Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding. Diluted
earnings per share are computed by dividing net income by diluted weighted average shares outstanding. Diluted weighted average shares
include the dilutive effect of common stock equivalents which would arise from the exercise of stock options and any outstanding Equity
Units and convertible senior notes as of the beginning of the period, for the years ended September 30, 2011 and 2010. However, dilutive
shares due to stock options, Equity Units and convertible senior notes were not included in the computation of diluted net loss per
common share for the year ended September 30, 2009, since to do so would decrease the loss per share. See Note 12, “Earnings per
Share,” of the notes to consolidated financial statements for the calculation of earnings per share.
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Foreign Currency Translation
Substantially all of the Company’s international operations use the respective local currency as the functional currency. Assets and
liabilities of international entities have been translated at period-end exchange rates, and income and expenses have been translated using
average exchange rates for the period. Monetary assets and liabilities denominated in non-functional currencies are adjusted to reflect
period-end exchange rates. The aggregate transaction gains (losses) included in net income for the years ended September 30, 2011, 2010
and 2009 were ($30) million, $50 million and ($18) million, respectively.
Derivative Financial Instruments
The Company has written policies and procedures that place all financial instruments under the direction of corporate treasury and restrict
all derivative transactions to those intended for hedging purposes. The use of financial instruments for speculative purposes is strictly
prohibited. The Company uses financial instruments to manage the market risk from changes in foreign exchange rates, commodity
prices, stock-based compensation liabilities and interest rates.
The fair values of all derivatives are recorded in the consolidated statements of financial position. The change in a derivative’s fair value
is recorded each period in current earnings or accumulated other comprehensive income, depending on whether the derivative is
designated as part of a hedge transaction and if so, the type of hedge transaction. See Note 9, “Derivative Instruments and Hedging
Activities,” and Note 10, “Fair Value Measurements,” of the notes to consolidated financial statements for disclosure of the Company’s
derivative instruments and hedging activities.
Reclassification
Certain prior year amounts have been revised to conform to the current year’s presentation. Recoverable customer engineering
expenditures are included in the changes in other assets line within the operating activities section of the consolidated statements of cash
flows. In prior years, these cash flows were included in the investing activities section. Also, the long-term portion of pension liabilities is
now included in the pension, postretirement health and other benefits line within the long-term liabilities section of the consolidated
statements of financial position. In prior years, these liabilities were included in the other noncurrent liabilities line. Also, effective
October 1, 2010, the building efficiency business reorganized its management reporting structure to reflect its current business activities.
Historical information has been revised to reflect the new building efficiency reportable segment structure. Refer to Note 18, “Segment
Information,” of the notes to consolidated financial statements for further information.
New Accounting Pronouncements
In September 2011, the FASB issued ASU No. 2011-09, “Compensation – Retirement Benefits – Multiemployer Plans (Subtopic 715-
80): Disclosures about an Employer’s Participation in a Multiemployer Plan.” ASU No. 2011-09 requires additional quantitative and
qualitative disclosures about an employer’s participation in multiemployer pension plans, including disclosure of the name and
identifying number of the significant multiemployer plans in which the employer participates, the level of the employer’s participation in
the plans, the financial health of the plans and the nature of the employer commitments to the plans. ASU No. 2011-09 will be effective
for the Company for the fiscal year ending September 30, 2012. The adoption of this guidance will have no impact on the Company’s
consolidated financial condition and results of operations.
In September 2011, the FASB issued ASU No. 2011-08, “Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for
Impairment.” ASU No. 2011-08 provides companies an option to perform a qualitative assessment to determine whether further goodwill
impairment testing is necessary. If, as a result of the qualitative assessment, it is determined that it is more likely than not that a reporting
unit’s fair value is less than its carrying amount, the two-step quantitative impairment test is required. Otherwise, no further testing is
required. ASU No. 2011-08 will be effective for the Company for goodwill impairment tests performed in the fiscal year ending
September 30, 2013, with early adoption permitted. The adoption of this guidance is expected to have no impact on the Company’s
consolidated financial condition and results of operations.
In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU
No. 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of shareholders’ equity.
All non-owner changes in shareholders’ equity instead must be presented either in a single continuous statement of comprehensive
income or in two separate but consecutive statements. Also, reclassification adjustments for items that are reclassified from other
comprehensive income to net
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income must be presented on the face of the financial statements. ASU No. 2011-05 will be effective for the Company for the quarter
ending December 31, 2012. The adoption of this guidance will have no impact on the Company’s consolidated financial condition and
results of operations.
In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU No. 2011-04 clarifies and changes the application of various
fair value measurement principles and disclosure requirements, and will be effective for the Company in the second quarter of fiscal 2012
(January 1, 2012). The Company has assessed the updated guidance and expects adoption to have no impact on the Company’s
consolidated financial condition and results of operations. Refer to Note 10, “Fair Value Measurements,” of the notes to consolidated
financial statements for disclosures surrounding the Company’s fair value measurements.
In December 2009, the FASB issued ASU No. 2009-17, “Consolidations (Topic 810): Improvements to Financial Reporting by
Enterprises Involved with Variable Interest Entities.” ASU No. 2009-17 changes how a company determines when an entity that is
insufficiently capitalized or is not controlled through voting should be consolidated. The determination of whether a company is required
to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of
the entity that most significantly impact the entity’s economic performance. This statement was effective for the Company beginning in
the first quarter of fiscal 2011 (October 1, 2010). The adoption of this guidance had no impact on the Company’s consolidated financial
condition and results of operations. Refer to the “Principles of Consolidation” section of Note 1, “Summary of Significant Accounting
Policies,” of the notes to consolidated financial statements for further discussion.
In October 2009, the FASB issued ASU No. 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements
– A Consensus of the FASB Emerging Issues Task Force.” ASU No. 2009-13 provides application guidance on whether multiple
deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of
accounting. This guidance eliminates the use of the residual method allocation and requires that arrangement consideration be allocated at
the inception of the arrangement to all deliverables using the relative selling price method. The selling price used for each deliverable will
be based on vendor-specific objective evidence if available, third party evidence if vendor-specific objective evidence is not available, or
estimated selling price if neither vendor-specific or third party evidence is available. The amendments in this ASU also expand the
disclosures related to a vendor’s multiple-deliverable revenue arrangements. The Company adopted ASU No. 2009-13 on October 1,
2010 and appropriate disclosures have been included herein. As each deliverable had a determinable relative selling price and the residual
method was not previously utilized by the Company, there were no changes in units of accounting, the allocation process, or the pattern
and timing of revenue recognition upon adoption of ASU No. 2009-13. Furthermore, adoption of this ASU is not expected to have a
material effect on the consolidated financial condition or results of operations in subsequent periods.
2.
ACQUISITIONS
During the fourth quarter of fiscal 2011, the Company acquired an additional 49% of a power solutions partially-owned affiliate. The
acquisition increased the Company’s ownership percentage to 100%. The Company paid approximately $143 million (excluding cash
acquired of $11 million) for the additional ownership percentage and incurred approximately $15 million of acquisition costs and related
purchase accounting adjustments. As a result of the acquisition, the Company recorded a non-cash gain of $75 million within power
solutions equity income to adjust the Company’s existing equity investment in the partially-owned affiliate to fair value. Goodwill of
$94 million was recorded as part of the transaction. The purchase price allocation may be subsequently adjusted to reflect final valuation
studies.
During the third quarter of fiscal 2011, the Company completed its acquisition of Keiper/Recaro Automotive, a leader in recliner system
technology with engineering and manufacturing expertise in metals and mechanisms for automobile seats, based in Kaiserslautern,
Germany. The total purchase price, net of cash acquired, was approximately $450 million, all of which was paid as of September 30,
2011. In connection with the Keiper/Recaro Automotive acquisition, the Company recorded goodwill of $126 million in the automotive
experience Europe segment. The purchase price allocation may be subsequently adjusted to reflect final valuation studies.
The Keiper/Recaro Automotive acquisition strengthens the Company’s metal components and mechanisms business. Keiper/Recaro’s
expertise includes the complete engineering process and technologies used to produce metal seat components, structures and mechanisms.
The product range encompasses mechanisms which adjust the seat’s length and height, recliners that adjust the backrest position of
vehicle seats, and rear seat latches. The acquisition
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strengthens the Company’s competitive position in key seating components with expanded opportunities to develop new differentiating
products and technologies. Increasing vertical integration and enhancing the Company’s seating components technologies are expected to
accelerate future growth of the Company’s automotive seating business.
During the second quarter of fiscal 2011, the Company completed its acquisition of the C. Rob. Hammerstein Group (Hammerstein), a
leading global supplier of high-quality metal seat structures, components and mechanisms based in Solingen, Germany. The total
purchase price, net of cash acquired, was approximately $529 million, all of which was paid as of September 30, 2011. In connection with
the Hammerstein acquisition, the Company recorded goodwill of $193 million primarily in the automotive experience Europe segment.
The purchase price allocation may be subsequently adjusted to reflect final valuation studies.
The Hammerstein acquisition enables the Company’s automotive experience business to enhance its expertise in metal seat structures and
expand into premium vehicle segments. Hammerstein’s strong product portfolio and customer base in the premium segment complements
the Company’s product portfolio, which is primarily comprised of vehicle segments with high production volumes. Hammerstein’s
product capabilities include front seat structures, seat tracks and height adjusters, multi-way adjusters, power gear boxes, as well as
special applications such as steering column adjusters. Hammerstein’s expertise includes the complete product development process,
from design and engineering to the manufacture of individual components and complete seat systems.
Also during fiscal 2011, the Company completed five additional acquisitions for a combined purchase price, net of cash acquired, of
$115 million, all of which was paid as of September 30, 2011. The acquisitions in the aggregate were not material to the Company’s
consolidated financial statements. As a result of one of these acquisitions, which increased the Company’s ownership from a
noncontrolling to controlling interest, the Company recorded a non-cash gain of $14 million within automotive experience Asia equity
income to adjust the Company’s existing equity investment in the partially-owned affiliate to fair value. In connection with the
acquisitions, the Company recorded goodwill of $105 million. The purchase price allocations may be subsequently adjusted to reflect
final valuation studies.
In July 2010, the Company acquired an additional 40% of a power solutions Korean partially-owned affiliate. The acquisition increased
the Company’s ownership percentage to 90%. The remaining 10% was acquired by the local management team. The Company paid
approximately $86 million (excluding cash acquired of $57 million) for the additional ownership percentage and incurred approximately
$10 million of acquisition costs and related purchase accounting adjustments. As a result of the acquisition, the Company recorded a non-
cash gain of $47 million within power solutions equity income to adjust the Company’s existing equity investment in the Korean
partially-owned affiliate to fair value. Goodwill of $51 million was recorded as part of the transaction.
Also during fiscal 2010, the Company completed three acquisitions for a combined purchase price of $35 million, of which $32 million
was paid as of September 30, 2010. The acquisitions in the aggregate were not material to the Company’s consolidated financial
statements. In connection with the acquisitions, the Company recorded goodwill of $9 million.
During fiscal 2009, the Company completed four acquisitions for a combined purchase price of $43 million, of which $38 million was
paid as of September 30, 2009. The acquisitions in the aggregate were not material to the Company’s consolidated financial statements.
In connection with these acquisitions, the Company recorded goodwill of $30 million, of which $26 million was recorded during fiscal
2009.
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3.
INVENTORIES
Inventories consisted of the following (in millions):
Raw materials and supplies
Work-in-process
Finished goods
FIFO inventories
LIFO reserve
Inventories
September 30,
2011
$ 1,136
434
867
2,437
(121 )
$ 2,316
2010
$
899
278
743
1,920
(134 )
$ 1,786
Inventories valued using the LIFO method of accounting were approximately 18% and 22% of total inventories at September 30, 2011
and 2010, respectively.
4.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in millions):
Buildings and improvements
Machinery and equipment
Construction in progress
Land
Total property, plant and equipment
Less accumulated depreciation
Property, plant and equipment — net
September 30,
2011
$ 2,488
7,205
1,419
360
11,472
(5,856 )
$ 5,616
2010
$ 2,161
6,342
752
366
9,621
(5,525 )
$ 4,096
Interest costs capitalized during the fiscal years ended September 30, 2011, 2010 and 2009 were $34 million, $21 million and
$16 million, respectively. Accumulated depreciation related to capital leases at September 30, 2011 and 2010 was $44 million and
$48 million, respectively.
5.
GOODWILL AND OTHER INTANGIBLE ASSETS
Effective October 1, 2010, the building efficiency business reorganized its management reporting structure to reflect its current business
activities. Historical information has been revised to reflect the new building efficiency reportable segment structure. Refer to Note 18,
“Segment Information,” of the notes to consolidated financial statements for further information.
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Table of Contents
The changes in the carrying amount of goodwill in each of the Company’s reporting segments for the fiscal years ended September 30,
2011 and 2010 were as follows (in millions):
Building efficiency
North America systems
North America service
Global workplace solutions
Asia
Other
Automotive experience
North America
Europe
Asia
Power solutions
Total
Building efficiency
North America systems
North America service
Global workplace solutions
Asia
Other
Automotive experience
North America
Europe
Asia
Power solutions
Total
September 30,
2009
Business
Acquisitions
Currency
Translation and
Other
September 30,
2010
$
$
525
668
174
369
1,116
1,376
1,211
223
880
6,542
$
$
—
8
—
—
—
—
5
—
51
64
$
$
(3 )
—
3
10
(31 )
2
(76 )
10
(20 )
(105 )
$
$
522
676
177
379
1,085
1,378
1,140
233
911
6,501
September 30,
2010
Business
Acquisitions
Currency
Translation and
Other
September 30,
2011
$
$
522
676
177
379
1,085
1,378
1,140
233
911
6,501
$
$
—
33
—
—
—
2
371
16
96
518
$
$
(3 )
1
7
12
(20 )
(1 )
(8 )
12
(3 )
(3 )
$
$
519
710
184
391
1,065
1,379
1,503
261
1,004
7,016
The Company’s other intangible assets, primarily from business acquisitions, are valued based on independent appraisals and consisted of
(in millions):
Amortized intangible assets
Patented technology
Customer relationships
Miscellaneous
Total amortized intangible assets
Unamortized intangible assets
Trademarks
Total intangible assets
Gross
Carrying
Amount
$ 298
487
184
969
314
$ 1,283
September 30, 2011
Accumulated
Amortization
$ (209 )
(91 )
(38 )
(338 )
—
$ (338 )
Net
$ 89
396
146
631
314
$ 945
Gross
Carrying
Amount
$ 277
373
68
718
315
$ 1,033
September 30, 2010
Accumulated
Amortization
$ (191 )
(70 )
(31 )
(292 )
—
$ (292 )
Net
$ 86
303
37
426
315
$ 741
Amortization of other intangible assets for the fiscal years ended September 30, 2011, 2010 and 2009 was $53 million, $43 million and
$38 million, respectively. Excluding the impact of any future acquisitions, the Company anticipates amortization for fiscal 2012, 2013,
2014, 2015 and 2016 will be approximately $61 million, $54 million, $54 million, $51 million and $46 million, respectively.
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6.
PRODUCT WARRANTIES
The Company offers warranties to its customers depending upon the specific product and terms of the customer purchase agreement. A
typical warranty program requires that the Company replace defective products within a specified time period from the date of sale. The
Company records an estimate for future warranty-related costs based on actual historical return rates and other known factors. Based on
analysis of return rates and other factors, the adequacy of the Company’s warranty provisions are adjusted as necessary. The Company
monitors its warranty activity and adjusts its reserve estimates when it is probable that future warranty costs will be different than those
estimates.
The Company’s product warranty liability is recorded in the consolidated statement of financial position in other current liabilities if the
warranty is less than one year and in other noncurrent liabilities if the warranty extends longer than one year.
The changes in the carrying amount of the Company’s total product warranty liability for the fiscal years ended September 30, 2011 and
2010 were as follows (in millions):
Balance at beginning of period
Accruals for warranties issued during the period
Accruals from acquisitions
Accruals related to pre-existing warranties (including changes in estimates)
Settlements made (in cash or in kind) during the period
Currency translation
Balance at end of period
7.
LEASES
Year Ended
September 30,
2011
$
337
217
12
(32 )
(233 )
—
301
$
2010
$
$
344
260
1
(18 )
(245 )
(5 )
337
Certain administrative and production facilities and equipment are leased under long-term agreements. Most leases contain renewal
options for varying periods, and certain leases include options to purchase the leased property during or at the end of the lease term.
Leases generally require the Company to pay for insurance, taxes and maintenance of the property. Leased capital assets included in net
property, plant and equipment, primarily buildings and improvements, were $68 million and $41 million at September 30, 2011 and 2010,
respectively.
Other facilities and equipment are leased under arrangements that are accounted for as operating leases. Total rental expense for the fiscal
years ended September 30, 2011, 2010 and 2009 was $424 million, $389 million and $403 million, respectively.
Future minimum capital and operating lease payments and the related present value of capital lease payments at September 30, 2011 were
as follows (in millions):
2012
2013
2014
2015
2016
After 2016
Total minimum lease payments
Interest
Present value of net minimum lease payments
68
Capital
Leases
Operating
Leases
$
$
289
231
170
122
80
100
992
$
$
13
11
11
9
6
36
86
(16 )
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Table of Contents
8.
DEBT AND FINANCING ARRANGEMENTS
Short-term debt consisted of the following (in millions):
Bank borrowings and commercial paper
Weighted average interest rate on short-term debt outstanding
September 30,
2011
$ 596
2010
$ 75
2.4 %
6.2 %
During the quarter ended March 31, 2011, the Company replaced its $2.05 billion committed five-year credit facility, scheduled to
maturity in December 2011, with a $2.5 billion committed four-year credit facility scheduled to mature in February 2015. The facility is
used to support the Company’s outstanding commercial paper. There were no draws against the committed credit facilities during the
fiscal years ended September 30, 2011 and 2010. Average outstanding commercial paper for the fiscal year ended September 30, 2011
was $955 million and $409 million was outstanding at September 30, 2011. Average outstanding commercial paper for the fiscal year
ended September 30, 2010 was $342 million and none was outstanding at September 30, 2010.
Long-term debt consisted of the following (in millions; due dates by fiscal year):
Unsecured notes
5.25% due in 2011 ($654 million 2010 par value)
5.8% due in 2013 ($100 million par value)
4.875% due in 2013 ($300 million par value)
Floating rate notes due in 2014 ($350 million par value)
1.75% due in 2014 ($450 million par value)
7.7% due in 2015 ($125 million par value)
5.5% due in 2016 ($800 million par value)
7.125% due in 2017 ($150 million par value)
5.0% due in 2020 ($500 million par value)
4.25% due 2021 ($500 million par value)
6.0% due in 2036 ($400 million par value)
5.7% due in 2041 ($300 million par value)
11.5% due in 2042 (760,100 and 917,915 equity units in 2011 and 2010, respectively)
11.5% notes due in 2042 ($8 million par value)
6.95% due in 2046 ($125 million par value)
Capital lease obligations
Foreign-denominated debt
Euro
Other
Gross long-term debt
Less: current portion
Net long-term debt
September 30,
2011
2010
$ —
101
321
350
462
125
800
164
498
497
395
299
38
8
125
70
286
11
4,550
17
$ 4,533
$
655
102
327
—
—
125
800
167
498
—
395
—
46
—
125
34
27
13
3,314
662
$ 2,652
At September 30, 2011, the Company’s euro-denominated long-term debt was at fixed rates with a weighted-average interest rate of
4.7%. At September 30, 2010, the Company’s euro-denominated long-term debt was at fixed rates with a weighted-average interest rate
of 5.0%.
The installments of long-term debt maturing in subsequent fiscal years are: 2012 — $17 million; 2013 — $437 million; 2014 —
$930 million; 2015 — $132 million; 2016 — $805 million; 2017 and thereafter — $2,229 million. The Company’s long-term debt
includes various financial covenants, none of which are expected to restrict future operations.
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Table of Contents
Total interest paid on both short and long-term debt for the fiscal years ended September 30, 2011, 2010 and 2009 was $216 million,
$181 million and $358 million, respectively. The Company uses financial instruments to manage its interest rate exposure (see Note 9,
“Derivative Instruments and Hedging Activities,” and Note 10, “Fair Value Measurements”). These instruments affect the weighted
average interest rate of the Company’s debt and interest expense.
Financing Arrangements
During the quarter ended September 30, 2011, the Company had four euro-denominated revolving credit facilities totaling 223 million
euro with 50 million euro expiring in July 2012, two 36.5 million euro facilities expiring in September 2012 and 100 million euro
expiring in August 2014. Additionally, the Company had a $50 million revolving credit facility expiring in September 2012. At
September 30, 2011, there were no draws on the revolving credit facilities.
During the quarter ended June 30, 2011, a 150 million euro revolving credit facility and a 50 million euro revolving credit facility
matured. There were no draws outstanding on either facility.
During the quarter ended June 30, 2011, a total of 157,820 equity units, which had a purchase contract settlement date of March 31, 2012,
were early exercised. As a result, the Company issued 766,673 shares of Johnson Controls, Inc. common stock and approximately
$8 million of 11.5% notes due 2042.
During the quarter ended March 31, 2011, the Company issued $350 million aggregate principal amount of floating rate senior unsecured
notes due in fiscal 2014, $450 million aggregate principal amount of 1.75% senior unsecured fixed rate notes due in fiscal 2014,
$500 million aggregate principal amount of 4.25% senior unsecured fixed rate notes due in fiscal 2021 and $300 million aggregate
principal amount of 5.7% senior unsecured fixed rate notes due in fiscal 2041. Aggregate net proceeds of $1.6 billion from the issues
were used for general corporate purposes including the retirement of short-term debt.
During the quarter ended March 31, 2011, the Company entered into a six-year, 100 million euro, floating rate loan scheduled to mature
in February 2017. Proceeds from the facility were used for general corporate purposes.
During the quarter ended March 31, 2011, the Company retired $654 million in principal amount, plus accrued interest, of its 5.25% fixed
rate notes that matured on January 15, 2011. The Company used cash to fund the payment.
During the quarter ended December 31, 2010, the Company repaid debt of $82 million which was acquired as part of an acquisition in the
same quarter. The Company used cash to repay the debt.
During the quarter ended September 30, 2010, the Company entered into a new $100 million committed revolving credit facility
scheduled to mature in December 2011. During the quarter ended March 31, 2011, the Company retired the committed facility. There
were no draws on the facility.
During the quarter ended June 30, 2010, the Company retired approximately $18 million in principal amount of its fixed rate notes
scheduled to mature on January 15, 2011. The Company used cash to fund the repurchases.
During the quarter ended June 30, 2010, a total of 200 bonds ($200,000 par value) of the Company’s 6.5% convertible senior notes
scheduled to mature on September 30, 2012, were redeemed for Johnson Controls, Inc. common stock.
During the quarter ended June 30, 2010, a 50 million euro revolving credit facility expired and the Company entered into a new one-year
committed, revolving credit facility in the amount of 50 million euro that expired in May 2011.
During the quarter ended March 31, 2010, the Company issued $500 million aggregate principal amount of 5.0% senior unsecured fixed
rate notes due in fiscal 2020. Net proceeds from the issue were used for general corporate purposes including the retirement of short-term
debt.
During the quarter ended March 31, 2010, the Company retired approximately $61 million in principal amount of its fixed rate notes
scheduled to mature on January 15, 2011. The Company used cash to fund the repurchases.
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During the quarter ended March 31, 2010, the Company retired its 18 billion yen, three-year, floating rate loan agreement scheduled to
mature on January 18, 2011. The Company used cash to repay the note.
During the quarter ended December 31, 2009, the Company retired its 12 billion yen, three-year, floating rate loan agreement that
matured. Additionally, the Company retired its 7 billion yen, three-year, floating rate loan agreement scheduled to mature on January 18,
2011. The Company used cash to repay the notes.
During the quarter ended December 31, 2009, the Company retired approximately $13 million in principal amount of its fixed rate notes
scheduled to mature on January 15, 2011. Additionally, the Company repurchased 1,685 notes ($1,685,000 par value) of its 6.5%
convertible senior notes scheduled to mature on September 30, 2012. The Company used cash to fund the repurchases.
In September 2009, the Company settled the results of its previously announced offer to exchange (a) any and all of its outstanding 6.5%
convertible senior notes due 2012 for the following consideration per $1,000 principal amount of convertible senior notes: (i) 89.3855
shares of the Company’s common stock, (ii) a cash payment of $120 and (iii) accrued and unpaid interest on the convertible senior notes
to, but excluding, the settlement date, payable in cash. Upon settlement of the exchange offer, approximately $400 million aggregate
principal amount of convertible senior notes were exchanged for approximately 36 million shares of common stock and approximately
$61 million in cash ($48 million of debt conversion payments and $13 million of accrued interest payments on the convertible senior
notes). As a result of the exchange, the Company recognized approximately $57 million of debt conversion costs within its consolidated
statement of income which is comprised of $48 million of debt conversion costs on the exchange and a $9 million charge related to the
write-off of unamortized debt issuance costs.
In September 2009, the Company settled the results of its previously announced offer to exchange up to 8,550,000 of its outstanding nine
million Equity Units in the form of Corporate Units (the “Corporate Units”) comprised of a forward purchase contract obligating the
holder to purchase from the Company shares of its common stock and a 1/20, or 5%, undivided beneficial ownership interest in $1,000
principal amount of the Company’s 11.50% subordinated notes due 2042, for the following consideration per Corporate Unit: (i) 4.8579
shares of the Company’s common stock, (ii) a cash payment of $6.50 and (iii) a distribution consisting of the pro rata share of accrued
and unpaid interest on the subordinated notes to, but excluding, the settlement date, payable in cash. Upon settlement of the exchange
offer 8,082,085 Corporate Units (consisting of $404 million aggregate principal amount of outstanding 11.50% subordinated notes due
2042) were exchanged for approximately 39 million shares of common stock and approximately $65 million in cash ($52 million of debt
conversion payments and $13 million of accrued interest payments on the subordinated notes). As a result of the exchange, the Company
recognized approximately $54 million of debt conversion costs within its consolidated statement of income which is comprised of
$53 million of debt conversion costs on the exchange and a $1 million charge related to the write-off of unamortized debt issuance costs.
9.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company selectively uses derivative instruments to reduce market risk associated with changes in foreign currency, commodities,
stock-based compensation liabilities and interest rates. Under Company policy, the use of derivatives is restricted to those intended for
hedging purposes; the use of any derivative instrument for speculative purposes is strictly prohibited. A description of each type of
derivative utilized by the Company to manage risk is included in the following paragraphs. In addition, refer to Note 10, “Fair Value
Measurements,” of the notes to consolidated financial statements for information related to the fair value measurements and valuation
methods utilized by the Company for each derivative type.
The Company has global operations and participates in the foreign exchange markets to minimize its risk of loss from fluctuations in
foreign currency exchange rates. The Company primarily uses foreign currency exchange contracts to hedge certain of its foreign
exchange rate exposures. The Company hedges 70% to 90% of the nominal amount of each of its known foreign exchange transactional
exposures.
The Company has entered into cross-currency interest rate swaps to selectively hedge portions of its net investment in Japan. The
currency effects of the cross-currency interest rate swaps are reflected in the accumulated other comprehensive income (AOCI) account
within shareholders’ equity attributable to Johnson Controls, Inc. where they offset gains and losses recorded on the Company’s net
investment in Japan. In the second quarter of fiscal 2010, the Company entered into three cross-currency interest rate swaps totaling
20 billion yen. In the fourth quarter of fiscal 2010, a 5 billion yen cross-currency swap matured. In the first quarter of fiscal 2011, another
5 billion yen cross-currency swap matured. In the second quarter of fiscal 2011, a 10 billion yen cross-currency swap matured.
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Table of Contents
All three of these cross-currency interest rate swaps were renewed for one year in their respective periods. These swaps are designated as
hedges of the Company’s net investment in Japan.
The Company uses commodity contracts in the financial derivatives market in cases where commodity price risk cannot be naturally
offset or hedged through supply base fixed price contracts. Commodity risks are systematically managed pursuant to policy guidelines.
As cash flow hedges, the effective portion of the hedge gains or losses due to changes in fair value are initially recorded as a component
of AOCI and are subsequently reclassified into earnings when the hedged transactions, typically sales or costs related to sales, occur and
affect earnings. Any ineffective portion of the hedge is reflected in the consolidated statement of income. The maturities of the
commodity contracts coincide with the expected purchase of the commodities. The Company had the following outstanding commodity
hedge contracts that hedge forecasted purchases:
Commodity
Copper
Lead
Aluminum
Tin
Volume Outstanding as of
Units
Pounds
Metric Tons
Metric Tons
Metric Tons
September 30, 2011
18,760,000
25,600
5,398
260
September 30, 2010
24,550,000
18,450
8,276
—
In addition, the Company selectively uses equity swaps to reduce market risk associated with certain of its stock-based compensation
plans, such as its deferred compensation plans. These equity compensation liabilities increase as the Company’s stock price increases and
decrease as the Company’s stock price decreases. In contrast, the value of the swap agreement moves in the opposite direction of these
liabilities, allowing the Company to fix a portion of the liabilities at a stated amount. As of September 30, 2011 and 2010, the Company
had hedged approximately 4.3 million and 3.4 million shares of its common stock, respectively.
The Company selectively uses interest rate swaps to reduce market risk associated with changes in interest rates for its fixed-rate notes.
As fair value hedges, the interest rate swaps and related debt balances are valued under a market approach using publicized swap curves.
Changes in the fair value of the swap and hedged portion of the debt are recorded in the consolidated statement of income. During the
second quarter of fiscal 2010, the Company entered into a fixed to floating interest rate swap totaling $100 million to hedge the coupon of
its 5.8% notes maturing November 15, 2012 and two fixed to floating swaps totaling $300 million to hedge the coupon of its 4.875%
notes maturing September 15, 2013. In the fourth quarter of fiscal 2010, the Company terminated all of its interest rate swaps. In the
second quarter of fiscal 2011 the Company entered into a fixed to floating interest rate swap totaling $100 million to hedge the coupon of
its 5.8% notes maturing November 15, 2012, two fixed to floating interest rate swaps totaling $300 million to hedge the coupon of its
4.875% notes maturing September 15, 2013 and five fixed to floating interest rate swaps totaling $450 million to hedge the coupon of its
1.75% notes maturing March 1, 2014.
In September 2005, the Company entered into three forward treasury lock agreements to reduce the market risk associated with changes
in interest rates associated with the Company’s anticipated fixed-rate note issuance to finance the acquisition of York International (cash
flow hedge). The three forward treasury lock agreements, which had a combined notional amount of $1.3 billion, fixed a portion of the
future interest cost for 5-year, 10-year and 30-year bonds. The fair value of each treasury lock agreement, or the difference between the
treasury lock reference rate and the fixed rate at time of note issuance, is amortized to interest expense over the life of the respective note
issuance. In January 2006, in connection with the Company’s debt refinancing, the three forward lock treasury agreements were
terminated.
72
Table of Contents
The following table presents the location and fair values of derivative instruments and hedging activities included in the Company’s
consolidated statements of financial position (in millions):
Other current assets
Foreign currency exchange derivatives
Commodity derivatives
Other noncurrent assets
Interest rate swaps
Equity swap
Foreign currency exchange derivatives
Total assets
Other current liabilities
Foreign currency exchange derivatives
Commodity derivatives
Cross-currency interest rate swaps
Long-term debt
Fixed rate debt swapped to floating
Other noncurrent liabilities
Foreign currency exchange derivatives
Total liabilities
Derivatives and Hedging Activities
Designated as Hedging Instruments
under ASC 815
Derivatives and Hedging Activities Not
Designated as Hedging Instruments
under ASC 815
September 30,
September 30, September 30,
2011
2010
2011
September 30,
2010
$
$
$
$
28
—
15
—
11
54
49
32
20
865
19
985
$
$
$
$
19 $
14
—
—
1
34 $
19 $
—
17
—
1
37 $
18
—
—
112
16
146
21
—
—
—
11
32
$
$
$
$
8
—
—
104
1
113
8
—
—
—
1
9
The following table presents the location and amount of gains and losses gross of tax on derivative instruments and related hedge items
included in the Company’s consolidated statements of income for the fiscal year ended September 30, 2011 and 2010 and amounts
recorded in AOCI net of tax or cumulative translation adjustment (CTA) net of tax in the consolidated statements of financial position (in
millions):
As of
September 30, 2011
Year Ended
September 30, 2011
Year Ended
September 30, 2011
Derivatives in ASC 815 Cash Flow
Hedging Relationships
Foreign currency exchange derivatives
Commodity derivatives
Forward treasury locks
Total
Derivatives in ASC 815 Cash Flow
Hedging Relationships
Foreign currency exchange derivatives
Commodity derivatives
Forward treasury locks
Total
Amount of Gain
Location of Gain (Loss)
(Loss) Recognized in Reclassified from AOCI
AOCI on Derivative into Income (Effective
(Effective Portion)
$
Portion)
(16 ) Cost of sales
(20 ) Cost of sales
Amount of Gain
(Loss) Reclassified Location of Gain (Loss)
from AOCI into Recognized in Income on
Income (Effective Derivative (Ineffective
Portion)
$
Portion)
3 Cost of sales
28 Cost of sales
$
9 Net financing charges
$
(27 )
1 Net financing charges
$
32
Amount of Gain
(Loss) Recognized in
Income on
Derivative
(Ineffective Portion)
—
$
—
—
—
As of
September 30, 2010
Year Ended
September 30, 2010
Year Ended
September 30, 2010
Location of Gain (Loss)
Amount of Gain
(Loss) Recognized in Reclassified from AOCI
AOCI on Derivative into Income (Effective
(Effective Portion)
$
Portion)
— Cost of sales
10 Cost of sales
10 Net financing charges
$
20
$
$
Amount of Gain
(Loss) Reclassified Location of Gain (Loss)
from AOCI into Recognized in Income on
Income (Effective Derivative (Ineffective
Portion)
Portion)
(3 ) Cost of sales
(1 ) Cost of sales
2 Net financing charges
$
(2 )
Amount of Gain
(Loss) Recognized in
Income on
Derivative
(Ineffective Portion)
—
$
—
—
—
Net investment hedges
Total
Hedging Activities in ASC 815 Net
Investment Hedging Relationships
73
As of
As of
September 30, 2011 September 30, 2010
Amount of Gain
Amount of Gain
(Loss) Recognized in (Loss) Recognized in
CTA on Outstanding CTA on Outstanding
Derivatives (Effective Derivatives (Effective
Portion)
Portion)
$
$
(12 ) $
(12 ) $
(10 )
(10 )
Table of Contents
For the fiscal year ended September 30, 2011 and 2010, no gains or losses were reclassified from CTA into income for the Company’s
outstanding net investment hedges.
Derivatives in ASC 815 Fair Value Hedging
Relationships
Interest rate swap
Fixed rate debt swapped to floating
Total
Derivatives Not Designated as Hedging
Instruments under ASC 815
Foreign currency exchange derivatives
Foreign currency exchange derivatives
Equity swap
Commodity derivatives
Total
10. FAIR VALUE MEASUREMENTS
September 30, 2011
Amount of Gain (Loss) Amount of Gain (Loss)
Location of Gain (Loss) Recognized in Income on Recognized in Income on Recognized in Income on
September 30, 2010
Derivative
Derivative
Derivative
Year Ended
Year Ended
Net financing charges
Net financing charges
Location of Gain (Loss) Recognized in Income on
Derivative
$
$
15 $
(15 )
— $
10
(7 )
3
Year Ended
Year Ended
September 30, 2011
Amount of Gain (Loss) Amount of Gain (Loss)
Recognized in Income on Recognized in Income on
September 30, 2010
Derivative
Derivative
Cost of sales
Net financing charges
Selling, general and administrative expenses
Cost of sales
$
$
5 $
3
(23 )
—
(15 ) $
219
(185 )
14
1
49
ASC 820, “Fair Value Measurements and Disclosures,” defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a three-level
fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs where there is little or no market data, which requires the reporting entity to develop its own
assumptions.
ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure
fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the
lowest level input that is significant to the fair value measurement.
74
Table of Contents
Recurring Fair Value Measurements
The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value as of September 30,
2011 and 2010 (in millions):
Fair Value Measurements Using:
Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total as of
September 30, 2011
Other current assets
Foreign currency exchange derivatives
Other noncurrent assets
Interest rate swaps
Investments in marketable common stock
Equity swap
Foreign currency exchange derivatives
Total assets
Other current liabilities
Foreign currency exchange derivatives
Cross-currency interest rate swaps
Commodity derivatives
Long-term debt
Fixed rate swapped to floating
Other noncurrent liabilities
Foreign currency exchange derivatives
Total liabilities
Other current assets
Foreign currency exchange derivatives
Commodity derivatives
Other noncurrent assets
Investments in marketable common stock
Equity swap
Foreign currency exchange derivatives
Total assets
Other current liabilities
Foreign currency exchange derivatives
Cross-currency interest rate swaps
Other noncurrent liabilities
Foreign currency exchange derivatives
Total liabilities
Valuation Methods
$
$
$
$
46
$
46
$ —
$
15
34
112
27
234
70
20
32
865
$
$
—
34
112
27
219
70
—
—
—
30
1,017
$
30
100
$
15
—
—
—
15
$
$ —
20
32
865
—
917
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
Fair Value Measurements Using:
Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total as of
September 30, 2010
$
$
$
$
27
14
31
104
2
178
27
17
2
46
$
$
$
$
27
—
$ —
14
$
31
104
2
164
27
—
2
29
—
—
—
14
$
$ —
17
—
17
$
$
$
$
—
—
—
—
—
—
—
—
—
—
Foreign currency exchange derivatives — The Company selectively hedges anticipated transactions that are subject to foreign exchange
rate risk primarily using foreign currency exchange hedge contracts. The foreign currency exchange derivatives are valued under a market
approach using publicized spot and forward prices. As cash flow
75
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hedges, the effective portion of the hedge gains or losses due to changes in fair value are initially recorded as a component of
accumulated other comprehensive income and are subsequently reclassified into earnings when the hedged transactions occur and affect
earnings. Any ineffective portion of the hedge is reflected in the consolidated statement of income. These contracts are highly effective in
hedging the variability in future cash flows attributable to changes in currency exchange rates at September 30, 2011 and 2010. The fair
value of foreign currency exchange derivatives not designated as hedging instruments under ASC 815 are recorded in the consolidated
statement of income.
Commodity derivatives — The Company selectively hedges anticipated transactions that are subject to commodity price risk, primarily
using commodity hedge contracts, to minimize overall price risk associated with the Company’s purchases of lead, copper, tin and
aluminum. The commodity derivatives are valued under a market approach using publicized prices, where available, or dealer quotes. As
cash flow hedges, the effective portion of the hedge gains or losses due to changes in fair value are initially recorded as a component of
accumulated other comprehensive income and are subsequently reclassified into earnings when the hedged transactions, typically sales or
cost related to sales, occur and affect earnings. Any ineffective portion of the hedge is reflected in the consolidated statement of income.
These contracts are highly effective in hedging the variability in future cash flows attributable to changes in commodity price changes at
September 30, 2011 and 2010.
Interest rate swaps and related debt — The Company selectively uses interest rate swaps to reduce market risk associated with changes in
interest rates for its fixed-rate notes. As fair value hedges, the interest rate swaps and related debt balances are valued under a market
approach using publicized swap curves. Changes in the fair value of the swap and hedged portion of the debt are recorded in the
consolidated statement of income. During the second quarter of fiscal 2010, the Company entered into a fixed to floating interest rate
swap totaling $100 million to hedge the coupons of its 5.8% notes maturing November 15, 2012 and two fixed to floating interest rate
swaps totaling $300 million to hedge the coupons of its 4.875% notes maturing September 15, 2013. In the fourth quarter of fiscal 2010,
the Company terminated all of its interest rate swaps. In the second quarter of fiscal 2011 the Company entered into a fixed to floating
interest rate swap totaling $100 million to hedge the coupon of its 5.8% notes maturing November 15, 2012, two fixed to floating interest
rate swaps totaling $300 million to hedge the coupon of its 4.875% notes maturing September 15, 2013 and five fixed to floating interest
rate swaps totaling $450 million to hedge the coupon of its 1.75% notes maturing March 1, 2014.
Investments in marketable common stock — The Company invested in certain marketable common stock during the third quarter of fiscal
2010. The securities are valued under a market approach using publicized share prices. As of September 30, 2011 and 2010, the Company
recorded an unrealized gain of $9 million and $3 million, respectively, in accumulated other comprehensive income. The Company also
recorded an unrealized loss of $3 million in accumulated other comprehensive income on these investments as of September 30, 2011.
Unrealized losses recorded on these investments are deemed immaterial for further disclosure.
Equity swaps — The Company selectively uses equity swaps to reduce market risk associated with certain of its stock-based
compensation plans, such as its deferred compensation plans. The equity swaps are valued under a market approach as the fair value of
the swaps is based on the Company’s stock price at the reporting period date. Changes in fair value on the equity swaps are reflected in
the consolidated statement of income within selling, general and administrative expenses.
Cross-currency interest rate swaps — The Company selectively uses cross-currency interest rate swaps to hedge the foreign currency rate
risk associated with certain of its investments in Japan. The cross-currency interest rate swaps are valued using market assumptions.
Changes in the market value of the swaps are reflected in the foreign currency translation adjustments component of accumulated other
comprehensive income where they offset gains and losses recorded on the Company’s net investment in Japan. The Company entered
into three cross-currency swaps totaling 20 billion yen during the second quarter of fiscal 2010. In the fourth quarter of fiscal 2010, a
5 billion yen cross-currency swap matured. In the first quarter of fiscal 2011, another 5 billion yen cross-currency swap matured. In the
second quarter of fiscal 2011, a 10 billion yen cross-currency swap matured. All three of these cross-currency swaps were renewed for
one year in their respective periods. These swaps are designated as hedges of the Company’s net investment in Japan.
The fair value of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying values.
The fair value of long-term debt, which was $4.9 billion and $3.7 billion at September 30, 2011 and 2010, respectively, was determined
using market quotes.
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11. STOCK-BASED COMPENSATION
The Company has three share-based compensation plans, which are described below. The compensation cost charged against income for
those plans was approximately $47 million, $52 million and $27 million for the fiscal years ended September 30, 2011, 2010 and 2009,
respectively. The total income tax benefit recognized in the consolidated statements of income for share-based compensation
arrangements was approximately $19 million, $21 million and $11 million for the fiscal years ended September 30, 2011, 2010 and 2009,
respectively. The Company applies a non-substantive vesting period approach whereby expense is accelerated for those employees that
receive awards and are eligible to retire prior to the award vesting.
Stock Option Plan
The Company’s 2007 Stock Option Plan, as amended (the Plan), which is shareholder-approved, permits the grant of stock options to its
employees for up to approximately 41 million shares of new common stock as of September 30, 2011. Option awards are granted with an
exercise price equal to the market price of the Company’s stock at the date of grant; those option awards vest between two and three years
after the grant date and expire ten years from the grant date (approximately 20 million shares of common stock remained available to be
granted at September 30, 2011).
The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model that uses the
assumptions noted in the following table. Expected volatilities are based on the historical volatility of the Company’s stock and other
factors. The Company uses historical data to estimate option exercises and employee terminations within the valuation model. The
expected term of options represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods
during the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
Expected life of option (years)
Risk-free interest rate
Expected volatility of the Company’s stock
Expected dividend yield on the Company’s stock
2011
4.5 - 6.0
Year Ended September 30,
2010
4.3 - 5.0
2009
4.2 - 4.5
1.10% - 1.58% 1.91% - 2.20% 2.57% - 2.68%
38.00%
1.74%
40.00%
1.73%
28.00%
1.52%
A summary of stock option activity at September 30, 2011, and changes for the year then ended, is presented below:
Outstanding, September 30, 2010
Granted
Exercised
Forfeited or expired
Outstanding, September 30, 2011
Weighted
Average
Option Price
24.17
$
30.64
19.15
29.17
Shares
Subject to
Option
35,158,109
4,994,156
(5,522,620 )
(405,633 )
$
25.87
34,224,012
Exercisable, September 30, 2011
$
24.79
22,401,363
Weighted
Average
Remaining
Contractual
Life (years)
Aggregate
Intrinsic
Value
(in millions)
5.7
4.3
$
$
91
83
The weighted-average grant-date fair value of options granted during the fiscal years ended September 30, 2011, 2010 and 2009 was
$9.09, $7.70 and $6.68, respectively.
The total intrinsic value of options exercised during the fiscal years ended September 30, 2011, 2010 and 2009 was approximately
$101 million, $33 million and $4 million, respectively.
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Table of Contents
In conjunction with the exercise of stock options granted, the Company received cash payments for the fiscal years ended September 30,
2011, 2010 and 2009 of approximately $105 million, $52 million and $8 million, respectively.
The Company has elected to utilize the alternative transition method for calculating the tax effects of stock-based compensation. The
alternative transition method includes computational guidance to establish the beginning balance of the additional paid-in capital pool
(APIC Pool) related to the tax effects of employee stock-based compensation, and a simplified method to determine the subsequent
impact on the APIC Pool for employee stock-based compensation awards that are vested and outstanding upon adoption of ASC 718. The
tax benefit from the exercise of stock options, which is recorded in capital in excess of par value, was $30 million, $7 million and $1
million for the fiscal years ended September 30, 2011, 2010 and 2009, respectively. The Company does not settle equity instruments
granted under share-based payment arrangements for cash.
At September 30, 2011, the Company had approximately $31 million of total unrecognized compensation cost related to nonvested share-
based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of
0.8 years.
Stock Appreciation Rights (SARs)
The Plan also permits SARs to be separately granted to certain employees. SARs vest under the same terms and conditions as option
awards; however, they are settled in cash for the difference between the market price on the date of exercise and the exercise price. As a
result, SARs are recorded in the Company’s consolidated statements of financial position as a liability until the date of exercise.
The fair value of each SAR award is estimated using a similar method described for option awards. The fair value of each SAR award is
recalculated at the end of each reporting period and the liability and expense adjusted based on the new fair value.
The assumptions used to determine the fair value of the SAR awards at September 30, 2011 were as follows:
Expected life of SAR (years)
Risk-free interest rate
Expected volatility of the Company’s stock
Expected dividend yield on the Company’s stock
0.5 - 5.2
0.06% - 1.01%
38.00%
1.80%
A summary of SAR activity at September 30, 2011, and changes for the year then ended, is presented below:
Outstanding, September 30, 2010
Granted
Exercised
Forfeited or expired
Outstanding, September 30, 2011
Exercisable, September 30, 2011
Weighted
Average
SAR Price
$ 25.23
30.54
22.91
29.28
Shares
Subject to
SAR
3,237,113
585,190
(290,973 )
(67,355 )
$ 26.24
3,463,975
$ 25.16
2,032,304
Weighted
Average
Remaining
Contractual
Life (years)
Aggregate
Intrinsic
Value
(in millions)
6.0
4.4
$
$
8
7
In conjunction with the exercise of SARs granted, the Company made payments of $4 million, $3 million and $2 million during the fiscal
years ended September 30, 2011, 2010 and 2009, respectively.
Restricted (Nonvested) Stock
The Company has a restricted stock plan that provides for the award of restricted shares of common stock or restricted share units to
certain key employees. Awards under the restricted stock plan typically vest 50% after two years from the grant date and 50% after four
years from the grant date. The plan allows for different vesting terms on specific grants with approval by the board of directors.
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Table of Contents
A summary of the status of the Company’s nonvested restricted stock awards at September 30, 2011, and changes for the fiscal year then
ended, is presented below:
Nonvested, September 30, 2010
Granted
Vested
Nonvested, September 30, 2011
Weighted
Average
Price
$ 31.60
35.02
25.57
Shares/Units
Subject to
Restriction
765,455
331,700
(32,750 )
$ 32.85
1,064,405
At September 30, 2011, the Company had approximately $11 million of total unrecognized compensation cost related to nonvested share-
based compensation arrangements granted under the restricted stock plan. That cost is expected to be recognized over a weighted-average
period of 1.2 years.
12. EARNINGS PER SHARE
The Company presents both basic and diluted earnings per share (EPS) amounts. Basic EPS is calculated by dividing net income by the
weighted average number of common shares outstanding during the reporting period. Diluted EPS is calculated by dividing net income
by the weighted average number of common shares and common equivalent shares outstanding during the reporting period that are
calculated using the treasury stock method for stock options. The treasury stock method assumes that the Company uses the proceeds
from the exercise of awards to repurchase common stock at the average market price during the period. The assumed proceeds under the
treasury stock method include the purchase price that the grantee will pay in the future, compensation cost for future service that the
Company has not yet recognized and any windfall tax benefits that would be credited to capital in excess of par value when the award
generates a tax deduction. If there would be a shortfall resulting in a charge to capital in excess of par value, such an amount would be a
reduction of the proceeds.
The Company’s outstanding Equity Units due 2042 and 6.5% convertible senior notes due 2012 are reflected in diluted earnings per share
using the “if-converted” method. Under this method, if dilutive, the common stock is assumed issued as of the beginning of the reporting
period and included in calculating diluted earnings per share. In addition, if dilutive, interest expense, net of tax, related to the outstanding
Equity Units and convertible senior notes is added back to the numerator in calculating diluted earnings per share.
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Table of Contents
The following table reconciles the numerators and denominators used to calculate basic and diluted earnings per share (in millions):
Income Available to Common Shareholders
Basic income (loss) available to common shareholders
Interest expense, net of tax
Diluted income (loss) available to common shareholders
Weighted Average Shares Outstanding
Basic weighted average shares outstanding
Effect of dilutive securities:
Stock options
Equity units
Convertible senior notes
Diluted weighted average shares outstanding
Antidilutive Securities
Options to purchase common shares
2011
Year Ended September 30,
2010
2009
$ 1,624
3
$ 1,627
$ 1,491
5
$ 1,496
$
(338 )
—
(338 )
$
677.7
672.0
595.3
8.1
4.1
—
689.9
5.9
4.5
0.1
682.5
—
—
—
595.3
0.4
0.8
2.5
For the fiscal year ended September 30, 2009, the total weighted average of potential dilutive shares due to stock options, Equity Units
and the convertible senior notes was 47.8 million. However, these items were not included in the computation of diluted net loss per
common share for the fiscal year ended September 30, 2009, since to do so would decrease the loss per share.
During the three months ended September 30, 2011 and 2010, the Company declared a dividend of $0.16 and $0.13, respectively, per
common share. During the twelve months ended September 30, 2011 and 2010, the Company declared four quarterly dividends totaling
$0.64 and $0.52, respectively, per common share. The Company paid all dividends in the month subsequent to the end of each fiscal
quarter.
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Table of Contents
13. EQUITY AND NONCONTROLLING INTERESTS
The following schedules present changes in consolidated equity attributable to Johnson Controls, Inc. and noncontrolling interests (in
millions):
Equity Attributable to Equity Attributable to
Johnson Controls,
Inc.
Noncontrolling
Interests
$
9,406 $
Total Equity
9,493
87 $
At September 30, 2008
Total comprehensive income (loss):
Net income (loss)
Foreign currency translation adjustments
Realized and unrealized gains on derivatives
Employee retirement plans
Other comprehensive income (loss)
Comprehensive income (loss)
Other changes in equity:
Cash dividends — common stock ($0.52 per share)
Dividends attributable to noncontrolling interests
Debt conversion
Redemption value adjustment attributable to redeemable noncontrolling interests
Other, including options exercised
At September 30, 2009
Total comprehensive income:
Net income
Foreign currency translation adjustments
Realized and unrealized gains on derivatives
Unrealized gains on marketable common stock
Employee retirement plans
Other comprehensive loss
Comprehensive income
Other changes in equity:
Cash dividends — common stock ($0.52 per share)
Dividends attributable to noncontrolling interests
Redemption value adjustment attributable to redeemable noncontrolling interests
Other, including options exercised
At September 30, 2010
Total comprehensive income:
Net income
Foreign currency translation adjustments
Realized and unrealized losses on derivatives
Unrealized gains on marketable common stock
Employee retirement plans
Other comprehensive loss
Comprehensive income
Other changes in equity:
Cash dividends — common stock ($0.64 per share)
Dividends attributable to noncontrolling interests
Redemption value adjustment attributable to redeemable noncontrolling interests
Increase in noncontrolling interest share
Other, including options exercised
At September 30, 2011
$
81
(338 )
(194 )
41
(326 )
(479 )
(817 )
(309 )
—
804
(20 )
36
9,100
1,491
(115 )
13
3
(170 )
(269 )
1,222
(350 )
—
9
90
10,071
1,624
(109 )
(47 )
3
(205 )
(358 )
1,266
(435 )
—
(32 )
—
172
11,042 $
16
3
—
—
3
19
—
(23 )
—
—
1
84
43
—
—
—
—
—
43
(322 )
(191 )
41
(326 )
(476 )
(798 )
(309 )
(23 )
804
(20 )
37
9,184
1,534
(115 )
13
3
(170 )
(269 )
1,265
—
(22 )
—
1
(350 )
(22 )
9
91
106 10,177
53
(1 )
—
—
—
(1 )
52
1,677
(110 )
(47 )
3
(205 )
(359 )
1,318
—
(32 )
—
12
—
(435 )
(32 )
(32 )
12
172
138 $ 11,180
Table of Contents
The components of accumulated other comprehensive income were as follows (in millions, net of tax):
Foreign currency translation adjustments
Realized and unrealized gains (losses) on derivatives
Unrealized gains on marketable common stock
Employee retirement plans
Accumulated other comprehensive income (loss)
September 30,
2011
$
634
(27 )
6
(1,048 )
(435 )
$
2010
$
$
743
20
3
(843 )
(77 )
The Company consolidates certain subsidiaries in which the noncontrolling interest party has within their control the right to require the
Company to redeem all or a portion of its interest in the subsidiary. The redeemable noncontrolling interests are reported at their
estimated redemption value. Any adjustment to the redemption value impacts retained earnings but does not impact net income.
Redeemable noncontrolling interests which are redeemable only upon future events, the occurrence of which is not currently probable,
are recorded at carrying value.
The following schedules present changes in the redeemable noncontrolling interests (in millions):
Beginning balance, September 30
Net income (loss)
Foreign currency translation adjustments
Increase (decrease) in noncontrolling interest share
Dividends attributable to noncontrolling interests
Redemption value adjustment
Ending balance, September 30
14. RETIREMENT PLANS
Pension Benefits
$
Year Ended
Year Ended
Year Ended
September 30, 2011 September 30, 2010 September 30, 2009
167
(28 )
(2 )
—
(2 )
20
155
155 $
32
1
17
—
(9 )
196 $
196 $
64
—
(21 )
(11 )
32
260 $
$
The Company has non-contributory defined benefit pension plans covering certain U.S. and non-U.S. employees. The benefits provided
are primarily based on years of service and average compensation or a monthly retirement benefit amount. Effective January 1, 2006,
certain of the Company’s U.S. pension plans were amended to prohibit new participants from entering the plans. Effective September 30,
2009, active participants will continue to accrue benefits under the amended plans until December 31, 2014. Funding for U.S. pension
plans equals or exceeds the minimum requirements of the Employee Retirement Income Security Act of 1974. Funding for non-U.S.
plans observes the local legal and regulatory limits. Also, the Company makes contributions to union-trusteed pension funds for
construction and service personnel.
For pension plans with accumulated benefit obligations (ABO) that exceed plan assets, the projected benefit obligation (PBO), ABO and
fair value of plan assets of those plans were $4,339 million, $4,185 million and $3,346 million, respectively, as of September 30, 2011
and $3,942 million, $3,804 million and $3,169 million, respectively, as of September 30, 2010.
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Table of Contents
In fiscal 2011, total employer and employee contributions to the defined benefit pension plans were $280 million, of which $183 million
were voluntary contributions made by the Company. The Company expects to contribute approximately $350 million in cash to its
defined benefit pension plans in fiscal year 2012. Projected benefit payments from the plans as of September 30, 2011 are estimated as
follows (in millions):
2012
2013
2014
2015
2016
2017-2021
$
276
250
262
266
275
1,465
Postretirement Health and Other Benefits
The Company provides certain health care and life insurance benefits for eligible retirees and their dependents primarily in the U.S. Most
non-U.S. employees are covered by government sponsored programs, and the cost to the Company is not significant.
Eligibility for coverage is based on meeting certain years of service and retirement age qualifications. These benefits may be subject to
deductibles, co-payment provisions and other limitations, and the Company has reserved the right to modify these benefits. Effective
January 31, 1994, the Company modified certain salaried plans to place a limit on the Company’s cost of future annual retiree medical
benefits at no more than 150% of the 1993 cost.
The September 30, 2011 projected postretirement benefit obligation (PBO) for both pre-65 and post-65 years of age employees was
determined using assumed medical care cost trend rates of 7.5% for U.S. plans and non-U.S. plans, decreasing one half percent each year
to an ultimate rate of 5% and prescription drug trend rates of 7.5% for U.S. plans and non-U.S. plans, decreasing one half percent each
year to an ultimate rate of 5%. The September 30, 2010 PBO for both pre-65 and post-65 years of age employees was determined using
medical care cost trend rates of 7% and 8% for U.S. plans and non-U.S. plans, respectively, decreasing one half percent each year to an
ultimate rate of 5% and prescription drug trend rates of 9% and 8% for U.S. plans and non-U.S. plans, respectively, decreasing one half
percent each year to an ultimate rate of 6% and 5% for U.S. plans and non-U.S. plans, respectively. The health care cost trend assumption
does not have a significant effect on the amounts reported.
In fiscal 2011, total employer and employee contributions to the postretirement health and other benefit plans were $183 million, of
which $156 million were voluntary contributions made by the Company. The Company expects to contribute approximately $60 million
in cash to its postretirement health and other benefit plans in fiscal year 2012. Projected benefit payments from the plans as of
September 30, 2011 are estimated as follows (in millions):
2012
2013
2014
2015
2016
2017-2021
$
23
24
24
25
25
98
In December 2003, the U.S. Congress enacted the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Act) for
employers sponsoring postretirement health care plans that provide prescription drug benefits. The Act introduces a prescription drug
benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans providing a benefit that is at least
actuarially equivalent to Medicare Part D.1. Under the Act, the Medicare subsidy amount is received directly by the plan sponsor and not
the related plan. Further, the plan sponsor is not required to use the subsidy amount to fund postretirement benefits and may use the
subsidy for any valid business purpose. Projected subsidy receipts are estimated to be approximately $3 million per year over the next ten
years.
Savings and Investment Plans
The Company sponsors various defined contribution savings plans primarily in the U.S. that allow employees to contribute a portion of
their pre-tax and/or after-tax income in accordance with plan specified guidelines. Under specified conditions, the Company will
contribute to certain savings plans based on the employees’ eligible pay
83
Table of Contents
and/or will match a percentage of the employee contributions up to certain limits. Matching contributions charged to expense amounted
to $67 million, $42 million and $35 million for the fiscal years ended 2011, 2010 and 2009, respectively.
Multiemployer Pension Plans
The Company participates in multiemployer pension plans for certain of its hourly employees in the U.S. The Company contributed
$51 million, $46 million and $47 million to multiemployer pension plans in fiscal 2011, 2010 and 2009, respectively.
Plan Assets
The Company’s investment policies employ an approach whereby a mix of equities, fixed income and alternative investments are used to
maximize the long-term return of plan assets for a prudent level of risk. The investment portfolio primarily contains a diversified blend of
equity and fixed income investments. Equity investments are diversified across domestic and non-domestic stocks, as well as growth,
value and small to large capitalizations. Fixed income investments include corporate and government issues, with short-, mid- and long-
term maturities, with a focus on investment grade when purchased. Investment and market risks are measured and monitored on an
ongoing basis through regular investment portfolio reviews, annual liability measurements and periodic asset/liability studies. The
majority of the real estate component of the portfolio is invested in a diversified portfolio of high-quality, operating properties with cash
yields greater than the targeted appreciation. Investments in other alternative asset classes, including hedge funds and commodities, are
made via mutual funds to diversify the expected investment returns relative to the equity and fixed income investments. As a result of our
diversification strategies, there are no significant concentrations of risk within the portfolio of investments.
The Company’s actual asset allocations are in line with target allocations. The Company rebalances asset allocations as appropriate, in
order to stay within a range of allocation for each asset category.
The expected return on plan assets is based on the Company’s expectation of the long-term average rate of return of the capital markets in
which the plans invest. The average market returns are adjusted, where appropriate, for active asset management returns. The expected
return reflects the investment policy target asset mix and considers the historical returns earned for each asset category.
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Table of Contents
The Company’s plan assets at September 30, 2011 and 2010, by asset category, are as follows (in millions):
Asset Category
U.S. Pension
Cash
Equity Securities
Large-Cap
Small-Cap
International — Developed
Fixed Income Securities
Government
Corporate/Other
Hedge Funds
Real Estate
Total
Non-U.S. Pension
Cash
Equity Securities
Large-Cap
International — Developed
International — Emerging
Fixed Income Securities
Government
Corporate/Other
Commodities
Real Estate
Total
Postretirement Health and Other Benefits
Equity Securities
Large-Cap
Small-Cap
International — Developed
International — Emerging
Fixed Income Securities
Government
Corporate/Other
Commodities
Real Estate
Total
Fair Value Measurements Using:
Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total as of
September 30, 2011
$
25
$
25
$ —
$
—
734
230
429
162
494
94
204
734
230
429
162
494
—
—
—
—
—
—
—
—
—
—
—
—
—
—
94
204
2,372
$
2,074
$ —
$
298
57
$
57
$ —
$
—
$
$
141
347
47
276
499
11
93
141
347
47
276
499
11
—
—
—
—
—
—
—
—
$
1,471
$
1,378
$ —
$
$
$
25
8
19
9
19
53
14
9
25
8
19
9
19
53
14
9
$
$ —
—
—
—
—
—
—
—
$
156
$
156
$ —
$
—
—
—
—
—
—
93
93
—
—
—
—
—
—
—
—
—
85
Table of Contents
Asset Category
U.S. Pension
Cash
Equity Securities
Large-Cap
Small-Cap
International — Developed
Fixed Income Securities
Government
Corporate/Other
Hedge Funds
Real Estate
Total
Non-U.S. Pension
Cash
Equity Securities
Large-Cap
International — Developed
International — Emerging
Fixed Income Securities
Government
Corporate/Other
Commodities
Real Estate
Total
Fair Value Measurements Using:
Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total as of
September 30, 2010
$
52
$
52
$ —
$
—
779
287
505
147
469
91
141
779
287
505
147
469
—
—
—
—
—
—
—
—
—
—
—
—
—
—
91
141
2,471
$
2,239
$ —
$
232
28
$
28
$ —
$
—
$
$
97
452
13
132
412
11
71
97
452
13
132
412
11
—
—
—
—
—
—
—
—
$
1,216
$
1,145
$ —
$
—
—
—
—
—
—
71
71
There were no postretirement health and other benefit plan assets held at September 30, 2010.
Following is a description of the valuation methodologies used for assets measured at fair value.
Cash: The fair value of cash is valued at cost.
Equity Securities: The fair value of equity securities is determined by indirect quoted market prices. The value of assets held in separate
accounts is not published, but the investment managers report daily the underlying holdings. The underlying holdings are direct quoted
market prices on regulated financial exchanges.
Fixed Income Securities: The fair value of fixed income securities is determined by indirect quoted market prices. The value of assets
held in separate accounts is not published, but the investment managers report daily the underlying holdings. The underlying holdings are
direct quoted market prices on regulated financial exchanges.
Commodities: The fair value of the commodities is determined by quoted market prices of the underlying holdings on regulated financial
exchanges.
Hedge Funds: The fair value of hedge funds is accounted for by a custodian. The custodian obtains valuations from underlying managers
based on market quotes for the most liquid assets and alternative methods for assets that do not have sufficient trading activity to derive
prices. The Company and custodian review the methods used by the
86
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underlying managers to value the assets. The Company believes this is an appropriate methodology to obtain the fair value of these assets.
Real Estate: The fair value of Real Estate Investment Trusts (REITs) is recorded as Level 1 as these securities are traded on an open
exchange. The fair value measurement of other investments in real estate is deemed Level 3 since the value of these investments is
provided by fund managers. The fund managers value the real estate investments via independent third party appraisals on a periodic
basis. Assumptions used to revalue the properties are updated every quarter. The Company believes this is an appropriate methodology to
obtain the fair value of these assets. For the component of the real estate portfolio under development, the investments are carried at cost
until they are completed and valued by a third party appraiser.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of
future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market
participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in
a different fair value measurement at the reporting date.
The following sets forth a summary of changes in the fair value of assets measured using significant unobservable inputs (Level 3) (in
millions):
U.S. Pension
Total
Hedge Funds
Real Estate
Asset value as of September 30, 2009
$
174
$
86
$
88
Additions net of redemptions
Realized loss
Unrealized gain
50
(5 )
13
—
—
5
50
(5 )
8
Asset value as of September 30, 2010
$
232
$
91
$
141
Additions net of redemptions
Realized gain
Unrealized gain
41
10
15
—
—
3
41
10
12
Asset value as of September 30, 2011
$
298
$
94
$
204
Non-U.S. Pension
Asset value as of September 30, 2009
$
64
$
—
$
64
Unrealized gain
7
—
Asset value as of September 30, 2010
$
71
$
—
$
Additions net of redemptions
Unrealized gain
12
10
—
—
7
71
12
10
Asset value as of September 30, 2011
$
93
$
—
$
93
87
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Funded Status
The table that follows contains the ABO and reconciliations of the changes in the PBO, the changes in plan assets and the funded status
(in millions):
Pension Benefits
U.S. Plans
Non-U.S. Plans
Postretirement Health
and Other Benefits
2011
2010
$ —
September 30,
Accumulated Benefit Obligation
2011
$ 2,850
2010
$ 2,655
2011
$ 1,774
Change in Projected Benefit Obligation
Projected benefit obligation at beginning of year
Service cost
Interest cost
Plan participant contributions
Acquisitions
Actuarial loss
Amendments made during the year
Benefits paid
Estimated subsidy received
Curtailment gain
Settlement
Other
Currency translation adjustment
2,717
66
145
—
—
177
—
(150 )
—
—
(2 )
—
—
2,512
67
152
—
—
106
—
(120 )
—
—
—
—
—
1,725
34
70
6
76
9
(32 )
(67 )
—
(30 )
(12 )
40
33
2010
$ 1,622 $ —
146
1,521 256
38
5
68 13
5
6
1 —
5
(3 ) —
(68 ) (27 )
1
(5 ) —
— —
6 —
16 —
—
275
4
14
7
—
23
(44 )
(26 )
2
—
—
—
1
Projected benefit obligation at end of year
$ 2,953
$ 2,717
$ 1,852
$ 1,725 $ 259
$ 256
Change in Plan Assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Acquisitions
Employer and employee contributions
Benefits paid
Settlement payments
Other
Currency translation adjustment
$ 2,471
44
—
9
(150 )
(2 )
—
—
$ 1,867
151
—
573
(120 )
—
—
—
$ 1,216
29
12
271
(67 )
(12 )
1
21
$ 1,080 $ —
64 —
— —
108 183
(68 ) (27 )
— —
4 —
28 —
$ —
—
—
26
(26 )
—
—
—
Fair value of plan assets at end of year
$ 2,372
$ 2,471
$ 1,471
$ 1,216 $ 156
$ —
Funded status
$ (581 )
$ (246 )
$ (381 )
$ (509 ) $ (103 )
$ (256 )
Amounts recognized in the statement of financial position
consist of:
Prepaid benefit cost
Accrued benefit liability
$ —
(581 )
7
$
(253 )
40
$
(421 )
17 $ 15
$
(526 ) (118 )
$ —
(256 )
Net amount recognized
$ (581 )
$ (246 )
$ (381 )
$ (509 ) $ (103 )
$ (256 )
Weighted Average Assumptions (1)
Discount rate (2)
Rate of compensation increase
5.25 %
3.30 %
5.50 %
3.20 %
4.00 %
2.50 %
4.00 % 5.25 %
3.00 % NA
5.50 %
NA
88
Table of Contents
(1)
(2)
Plan assets and obligations are determined based on a September 30 measurement date at September 30, 2011 and 2010.
The Company considers the expected benefit payments on a plan-by-plan basis when setting assumed discount rates. As a result, the
Company uses different discount rates for each plan depending on the plan jurisdiction, the demographics of participants and the expected
timing of benefit payments. For the U.S. pension and postretirement health and other benefit plans, the Company uses a discount rate
provided by an independent third party calculated based on an appropriate mix of high quality bonds. For the non-U.S. pension and
postretirement health and other benefit plans, the Company consistently uses the relevant country specific benchmark indices for
determining the various discount rates.
Accumulated Other Comprehensive Income
The amounts in accumulated other comprehensive income on the consolidated statement of financial position, exclusive of tax impacts,
that have not yet been recognized as components of net periodic benefit cost at September 30, 2011 are as follows (in millions):
Accumulated other comprehensive loss (income)
Net transition obligation
Net actuarial loss
Net prior service credit
Total
Pension
Benefits
2
$
1,663
(11 )
$ 1,654
Postretirement
Health and Other
Benefits
$
$
—
16
(35 )
(19 )
The amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the
next fiscal year are shown below (in millions):
Amortization of:
Net actuarial loss
Net prior service credit
Total
89
Pension
Benefits
$ 102
—
$ 102
Postretirement
Health and Other
Benefits
$
$
1
(17 )
(16 )
Table of Contents
Net Periodic Benefit Cost
The table that follows contains the components of net periodic benefit cost (in millions):
Year ended September 30
Components of Net
Periodic Benefit Cost:
Service cost
Interest cost
Expected return on plan assets
Amortization of net actuarial loss
(gain)
Amortization of prior service cost
2011
U.S. Plans
2010
2009
2011
Non-U.S. Plans
2010
Pension Benefits
Postretirement Health
and Other Benefits
2009
2011
2010
2009
$ 66
145
(209 )
$ 67
152
(179 )
$ 66
159
(174 )
$ 34
70
(76 )
$ 38
68
(64 )
$ 32
65
(55 )
$
5
13
—
$
4
14
—
$
4
18
—
55
28
4
12
11
3
2
—
(3 )
(credit)
Special termination benefits
Curtailment loss (gain)
Settlement loss
Divestures gain
Currency translation adjustment
1
—
—
—
—
—
1
—
—
—
—
—
1
—
4
—
—
—
2
—
(19 )
4
—
(2 )
—
—
(1 )
2
—
2
—
1
(2 )
—
(1 )
—
(17 )
—
—
—
—
—
(17 )
—
—
—
—
—
(7 )
—
—
—
—
—
Net periodic benefit cost
$ 58
$ 69
$ 60
$ 25
$ 56
$ 43
$
3
$
1
$ 12
Expense Assumptions:
Discount rate
Expected return on plan assets
Rate of compensation increase
15. RESTRUCTURING COSTS
5.50 %
8.50 %
3.20 %
6.25 %
8.50 %
4.20 %
7.50 %
8.50 %
4.20 %
4.00 %
5.50 %
3.00 %
4.75 %
6.00 %
3.20 %
5.50 %
6.00 %
3.00 %
5.50 %
NA
NA
6.25 %
NA
NA
7.50 %
NA
NA
To better align the Company’s cost structure with global automotive market conditions, the Company committed to a significant
restructuring plan (2009 Plan) in the second quarter of fiscal 2009 and recorded a $230 million restructuring charge. The restructuring
charge related to cost reduction initiatives in the Company’s automotive experience, building efficiency and power solutions businesses
and included workforce reductions and plant consolidations. The Company expects to substantially complete the 2009 Plan by the end of
2011. The automotive-related restructuring actions targeted excess manufacturing capacity resulting from lower industry production in
the European, North American and Japanese automotive markets. The restructuring actions in building efficiency were primarily in
Europe where the Company is centralizing certain functions and rebalancing its resources to target the geographic markets with the
greatest potential growth. Power solutions actions focused on optimizing its manufacturing capacity as a result of lower overall demand
for original equipment batteries resulting from lower vehicle production levels.
Since the announcement of the 2009 Plan in March 2009, the Company has experienced lower employee severance and termination
benefit cash payouts than previously calculated for automotive experience in Europe of approximately $70 million, all of which was
identified prior to the current fiscal year, due to favorable severance negotiations and the decision to not close previously planned plants
in response to increased customer demand. The underspend of the initial 2009 Plan reserves has been committed for additional costs
incurred as part of power solutions and automotive experience Europe and North America’s additional cost reduction initiatives. The
planned workforce reductions disclosed for the 2009 Plan have been updated for the Company’s revised actions.
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Table of Contents
The following table summarizes the changes in the Company’s 2009 Plan reserve, included within other current liabilities in the
consolidated statements of financial position (in millions):
Balance at September 30, 2009
Noncash adjustment — underspend
Noncash adjustment — revised actions
Utilized — cash
Utilized — noncash
Balance at September 30, 2010
Utilized — cash
Utilized — noncash
Balance at September 30, 2011
Employee
Severance and
Termination
Benefits
$
$
$
140
(42 )
20
(64 )
—
54
(43 )
—
11
Other
$
2
—
—
—
(2 )
$ —
—
—
$ —
Currency
Translation
8
$
—
—
—
(6 )
2
—
(2 )
$ —
$
Total
$
$
$
150
(42 )
20
(64 )
(8 )
56
(43 )
(2 )
11
To better align the Company’s resources with its growth strategies while reducing the cost structure of its global operations, the Company
committed to a significant restructuring plan (2008 Plan) in the fourth quarter of fiscal 2008 and recorded a $495 million restructuring
charge. The restructuring charge related to cost reduction initiatives in its automotive experience, building efficiency and power solutions
businesses and included workforce reductions and plant consolidations. The Company expects to substantially complete the 2008 Plan by
the end of 2011. The automotive-related restructuring was in response to the fundamentals of the European and North American
automotive markets. The actions targeted reductions in the Company’s cost base by decreasing excess manufacturing capacity due to
lower industry production and the continued movement of vehicle production to low-cost countries, especially in Europe. The
restructuring actions in building efficiency were primarily in Europe where the Company centralized certain functions and rebalanced its
resources to target the geographic markets with the greatest potential growth. Power solutions actions focused on optimizing its regional
manufacturing capacity.
Since the announcement of the 2008 Plan in September 2008, the Company has experienced lower employee severance and termination
benefit cash payouts than previously calculated in Europe for building efficiency and automotive experience of approximately
$95 million, all of which was identified prior to the current fiscal year, due to favorable severance negotiations, individuals transferred to
open positions within the Company and changes in cost reduction actions from plant consolidation to downsizing of operations. The
underspend of the initial 2008 Plan has been committed for similar additional restructuring actions. The underspend experienced by
building efficiency in Europe has been committed by the same group for workforce reductions and plant consolidations. The underspend
experienced by automotive experience in Europe has been committed for additional plant consolidations for automotive experience in
North America and workforce reductions for building efficiency in Europe. The planned workforce reductions disclosed for the 2008 Plan
have been updated for the Company’s revised actions.
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Table of Contents
The following table summarizes the changes in the Company’s 2008 Plan reserve, included within other current liabilities in the
consolidated statements of financial position (in millions):
Balance at September 30, 2009
Noncash adjustment — underspend
Noncash adjustment — revised actions
Utilized — cash
Utilized — noncash
Balance at September 30, 2010
Utilized — cash
Utilized — noncash
Balance at September 30, 2011
Employee
Severance and
Termination
Benefits
$
$
$
215
(32 )
23
(98 )
—
108
(51 )
—
57
Fixed Asset
Impairment
—
$
—
19
—
(19 )
—
—
—
—
$
$
Other
$ —
—
12
—
(12 )
$ —
—
—
$ —
Currency
Translation
(18 )
$
—
—
—
(10 )
(28 )
—
1
(27 )
$
$
Total
$ 197
(32 )
54
(98 )
(41 )
80
(51 )
1
30
$
$
The 2008 and 2009 Plans included workforce reductions of approximately 20,400 employees (9,500 for automotive experience North
America, 5,200 for automotive experience Europe, 1,100 for automotive experience Asia, 2,900 for building efficiency other, 700 for
building efficiency global workplace solutions, 200 for building efficiency Asia and 800 for power solutions). Restructuring charges
associated with employee severance and termination benefits are paid over the severance period granted to each employee and on a lump
sum basis when required in accordance with individual severance agreements. As of September 30, 2011, approximately 17,300 of the
employees have been separated from the Company pursuant to the 2008 and 2009 Plans. In addition, the 2008 and 2009 Plans included
33 plant closures (14 for automotive experience North America, 11 for automotive experience Europe, 3 for automotive experience Asia,
2 for building efficiency other and 3 for power solutions). As of September 30, 2011, 27 of the 33 plants have been closed. The
restructuring charge for the impairment of long-lived assets associated with the plant closures was determined using fair value based on a
discounted cash flow analysis.
Company management closely monitors its overall cost structure and continually analyzes each of its businesses for opportunities to
consolidate current operations, improve operating efficiencies and locate facilities in low cost countries in close proximity to customers.
This ongoing analysis includes a review of its manufacturing, engineering and purchasing operations, as well as the overall global
footprint for all its businesses. Because of the importance of new vehicle sales by major automotive manufacturers to operations, the
Company is affected by the general business conditions in this industry. Future adverse developments in the automotive industry could
impact the Company’s liquidity position, lead to impairment charges and/or require additional restructuring of its operations.
16. IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying
amount may not be recoverable. The Company conducts its long-lived asset impairment analyses in accordance with ASC 360-10-15,
“Impairment or Disposal of Long-Lived Assets.” ASC 360-10-15 requires the Company to group assets and liabilities at the lowest level
for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group
against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset
group is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair
value based on discounted cash flow analysis or appraisals.
At September 30, 2011, the Company concluded it did not have any triggering events requiring assessment of impairment of its long-
lived assets. Refer to Note 1, “Summary of Significant Accounting Policies,” for discussion of the Company’s goodwill impairment
testing.
In the fourth quarter of fiscal 2010, the Company concluded it had a triggering event requiring assessment of impairment of its long-lived
assets due to the planned relocation of a plant in Japan in the automotive experience Asia segment. As a result, the Company reviewed its
long-lived assets for impairment and recorded an $11 million impairment charge within cost of sales in the fourth quarter of fiscal 2010
related to the automotive experience Asia segment. The impairment was measured under a market approach utilizing an appraisal. The
inputs utilized in the
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analysis are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, “Fair Value Measurements and
Disclosures.”
In the third quarter of fiscal 2010, the Company concluded it had a triggering event requiring assessment of impairment of its long-lived
assets due to the planned relocation of its headquarters building in Japan in the automotive experience Asia segment. As a result, the
Company reviewed its long-lived assets for impairment and recorded an $11 million impairment charge within selling, general and
administrative expenses in the third quarter of fiscal 2010 related to the automotive experience Asia segment. The impairment was
measured under a market approach utilizing an appraisal. The inputs utilized in the analysis are classified as Level 3 inputs within the fair
value hierarchy as defined in ASC 820, “Fair Value Measurements and Disclosures.”
In the second quarter of fiscal 2010, the Company concluded it had a triggering event requiring assessment of impairment of its long-
lived assets due to planned plant closures for the automotive experience North America segment. These closures are a result of the
Company’s revised restructuring actions to the 2008 Plan. Refer to Note 15, “Restructuring Costs,” of the notes to consolidated financial
statements for further information regarding the 2008 Plan. As a result, the Company reviewed its long-lived assets for impairment and
recorded a $19 million impairment charge in the second quarter of fiscal 2010 related to the automotive experience North America
segment. This impairment charge was offset by a decrease in the Company’s restructuring reserve related to the 2008 Plan due to lower
employee severance and termination benefit cash payments than previously expected, as discussed further in Note 15. The impairment
was measured under an income approach utilizing forecasted discounted cash flows for fiscal 2010 through 2014 to determine the fair
value of the impaired assets. This method is consistent with the method the Company has employed in prior periods to value other long-
lived assets. The inputs utilized in the discounted cash flow analysis are classified as Level 3 inputs within the fair value hierarchy as
defined in ASC 820, “Fair Value Measurements and Disclosures.”
In the third quarter of fiscal 2009, the Company concluded it had a triggering event requiring assessment of impairment of its long-lived
assets in light of the restructuring plans in North America announced by Chrysler LLC (Chrysler) and General Motors Corporation
(GM) during the quarter as part of their bankruptcy reorganization plans. As a result, the Company reviewed its long-lived assets relating
to the Chrysler and GM platforms within the automotive experience North America segment and determined no impairment existed.
In the second quarter of fiscal 2009, the Company concluded it had a triggering event requiring assessment of impairment of its long-
lived assets in conjunction with its restructuring plan announced in March 2009. As a result, the Company reviewed its long-lived assets
associated with the plant closures for impairment and recorded a $46 million impairment charge in the second quarter of fiscal 2009, of
which $25 million related to the automotive experience North America segment, $16 million related to the automotive experience Asia
segment and $5 million related to the automotive experience Europe segment. Refer to Note 15, “Restructuring Costs,” of the notes to
consolidated financial statements for further information regarding the 2009 Plan. Additionally, at March 31, 2009, in conjunction with
the preparation of its financial statements, the Company concluded it had a triggering event requiring assessment of its other long-lived
assets within the automotive experience Europe segment due to significant declines in European automotive sales volume. As a result, the
Company reviewed its other long-lived assets within the automotive experience Europe segment for impairment and determined no
additional impairment existed.
At December 31, 2008, in conjunction with the preparation of its financial statements, the Company concluded it had a triggering event
requiring assessment of impairment of its long-lived assets due to the significant declines in North American and European automotive
sales volumes. As a result, the Company reviewed its long-lived assets for impairment and recorded a $110 million impairment charge
within cost of sales in the first quarter of fiscal 2009, of which $77 million related to the automotive experience North America segment
and $33 million related to the automotive experience Europe segment.
The Company reviews its equity investments for impairment whenever there is a loss in value of an investment which is other than a
temporary decline. The Company conducts its equity investment impairment analyses in accordance with ASC 323, “Investments-Equity
Method and Joint Ventures.” ASC 323 requires the Company to record an impairment charge for a decrease in value of an investment
when the decline in the investment is considered to be other than temporary.
At December 31, 2008, in conjunction with the preparation of its financial statements, the Company concluded it had a triggering event
requiring assessment of impairment of its equity investment in a 48%-owned joint venture with U.S. Airconditioning Distributors, Inc.
(U.S. Air) due to the significant decline in North American residential housing construction starts, which had significantly impacted the
financial results of the equity investment. The
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Company reviewed its equity investment in U.S. Air for impairment and as a result, recorded a $152 million impairment charge within
equity income (loss) for the building efficiency other segment in the first quarter of fiscal 2009. The U.S. Air investment balance included
in the consolidated statement of financial position at September 30, 2011 was $53 million. The Company does not anticipate future
impairment of this investment as, based on its current forecasts, a further decline in value that is other than temporary is not considered
reasonably likely to occur.
17. INCOME TAXES
The more significant components of the Company’s income tax provision from continuing operations are as follows (in millions):
Tax expense (benefit) at federal statutory rate
State income taxes, net of federal benefit
Foreign income tax expense at different rates and foreign losses without tax benefits
U.S. tax on foreign income
Reserve and valuation allowance adjustments
Medicare Part D
Credits
Other
Provision for income taxes
2011
Year Ended September 30,
2010
$
739
(10 )
(351 )
28
(30 )
—
(7 )
1
370
$
$
$
617
28
(330 )
(3 )
(138 )
16
(3 )
10
197
2009
$
(111 )
(15 )
(92 )
81
180
—
(11 )
—
32
$
The effective rate is below the U.S. statutory rate due to continuing global tax planning initiatives, income in certain non-U.S.
jurisdictions with a rate of tax lower than the U.S. statutory tax rate and certain discrete period items.
Valuation Allowances
The Company reviews its deferred tax asset valuation allowances on a quarterly basis, or whenever events or changes in circumstances
indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results
of the legal entity or consolidated group recording the net deferred tax asset are considered, along with any other positive or negative
evidence. Since future financial results may differ from previous estimates, periodic adjustments to the Company’s valuation allowances
may be necessary.
In fiscal 2011, the Company recorded a decrease to its valuation allowances primarily due to a $30 million discrete period income tax
adjustment in the fourth quarter. In the fourth quarter of fiscal 2011, the Company performed an analysis related to the realizability of its
worldwide deferred tax assets. As a result, and after considering tax planning initiatives and other positive and negative evidence, the
Company determined that it was more likely than not that the deferred tax assets primarily within Denmark, Italy, automotive experience
in Korea and automotive experience in the United Kingdom would be utilized. Therefore, the Company released a net $30 million of
valuation allowances in the three month period ended September 30, 2011.
In fiscal 2010, the Company recorded an overall decrease to its valuation allowances of $87 million primarily due to a $111 million
discrete period income tax adjustment. In the fourth quarter of fiscal 2010, the Company performed an analysis related to the realizability
of its worldwide deferred tax assets. As a result, and after considering tax planning initiatives and other positive and negative evidence,
the Company determined that it was more likely than not that the deferred tax assets primarily within Mexico would be utilized.
Therefore, the Company released $39 million of valuation allowances in the three month period ended September 30, 2010. Further, the
Company determined that it was more likely than not that the deferred tax assets would not be utilized in selected entities in Europe.
Therefore, the Company recorded $14 million of valuation allowances in the three month period ended September 30, 2010. To the extent
the Company improves its underlying operating results in these entities, these valuation allowances, or a portion thereof, could be
reversed in future periods.
In the third quarter of fiscal 2010, the Company determined that it was more likely than not that a portion of the deferred tax assets within
the Slovakia automotive entity would be utilized. Therefore, the Company released $13 million of valuation allowances in the three
month period ended June 30, 2010.
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In the first quarter of fiscal 2010, the Company determined that it was more likely than not that a portion of the deferred tax assets within
the Brazil automotive entity would be utilized. Therefore, the Company released $69 million of valuation allowances. This was
comprised of a $93 million decrease in income tax expense offset by a $24 million reduction in cumulative translation adjustments.
In the fourth quarter of fiscal 2010, the Company increased the valuation allowances by $20 million, which was substantially offset by a
decrease in its reserves for uncertain tax positions in a similar amount. These adjustments were based on a review of tax return filing
positions taken in these jurisdictions and the established reserves.
In fiscal 2009, the Company recorded an overall increase to its valuation allowances by $245 million. This was comprised of a
$252 million increase in income tax expense with the remaining amount impacting the consolidated statement of financial position.
In the third quarter of fiscal 2009, the Company determined that it was more likely than not that a portion of the deferred tax assets within
the Brazil power solutions entity would be utilized. Therefore, the Company released $10 million of valuation allowances in the three
month period ended June 30, 2009. This was comprised of a $3 million decrease in income tax expense with the remaining amount
impacting the consolidated statement of financial position because it related to acquired net operating losses.
In the second quarter of fiscal 2009, the Company determined that it was more likely than not that the deferred tax asset associated with a
capital loss would be utilized. Therefore, the Company released $45 million of valuation allowances in the three month period ended
March 31, 2009.
In the first quarter of fiscal 2009, as a result of the rapid deterioration in the economic environment, several jurisdictions incurred
unexpected losses in the first quarter that resulted in cumulative losses over the prior three years. As a result, and after considering tax
planning initiatives and other positive and negative evidence, the Company determined that it was more likely than not that the deferred
tax assets would not be utilized in several jurisdictions including France, Mexico, Spain and the United Kingdom. Therefore, the
Company recorded $300 million of valuation allowances in the three month period ended December 31, 2008. To the extent the Company
improves its underlying operating results in these jurisdictions, these valuation allowances, or a portion thereof, could be reversed in
future periods.
Uncertain Tax Positions
The Company is subject to income taxes in the U.S. and numerous non-U.S. jurisdictions. Judgment is required in determining its
worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of the Company’s business,
there are many transactions and calculations where the ultimate tax determination is uncertain. The Company is regularly under audit by
tax authorities.
At September 30, 2011, the Company had gross tax effected unrecognized tax benefits of $1,357 million of which $1,164 million, if
recognized, would impact the effective tax rate. Total net accrued interest at September 30, 2011 was approximately $77 million (net of
tax benefit).
At September 30, 2010, the Company had gross tax effected unrecognized tax benefits of $1,262 million of which $1,063 million, if
recognized, would impact the effective tax rate. Total net accrued interest at September 30, 2010 was approximately $68 million (net of
tax benefit).
At September 30, 2009, the Company had gross tax effected unrecognized tax benefits of $1,049 million of which $874 million, if
recognized, would impact the effective tax rate. Total net accrued interest at September 30, 2009 was approximately $68 million (net of
tax benefit).
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Table of Contents
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Year Ended
Year Ended
September 30, 2011 September 30, 2010 September 30, 2009
Year Ended
(in millions)
Beginning balance, September 30
Additions for tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Statute closings
Ending balance, September 30
$
$
1,262 $
150
20
(62 )
(5 )
(8 )
1,357 $
1,049 $
253
257
(158 )
(109 )
(30 )
1,262 $
814
236
65
(29 )
(37 )
—
1,049
The Company is regularly under audit by tax authorities, including major jurisdictions noted below:
Tax
Jurisdiction
Austria
Belgium
Brazil
Canada
China
Czech Republic
France
Germany
Italy
Japan
Mexico
Poland
Spain
United Kingdom
United States — Federal
United States — State
Statute of
Limitations
5 years
3 years
5 years
5 years
3 to 5 years
3 years
3 years
4 to 5 years
4 years
5 to 7 years
5 years
5 years
4 years
4 years
3 years
3 to 5 years
In the U.S., the fiscal years 2007 through 2009 are currently under exam by the Internal Revenue Service (IRS) and fiscal years 2004
through 2006 are currently under IRS Appeals. Additionally, the Company is currently under exam in the following major foreign
jurisdictions:
Tax Jurisdiction
Austria
Brazil
Canada
Czech Republic
France
Germany
Italy
Mexico
Poland
Spain
Tax Years Covered
2006 — 2008
2005 — 2008
2007 — 2008
2007 — 2009
2002 — 2010
2001 — 2009
2005 — 2009
2003 — 2004
2007 — 2008
2006 — 2008
It is reasonably possible that certain tax examinations, appellate proceedings and/or tax litigation will conclude within the next
12 months, the impact of which could be up to a $100 million adjustment to tax expense.
Based on published case law in a non-U.S. jurisdiction and the settlement of a tax audit during the third quarter of fiscal 2010, the
Company released net $38 million of reserves for uncertain tax positions, including interest and penalties.
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As a result of certain events related to prior year tax planning initiatives during the first quarter of fiscal 2010, the Company increased the
reserve for uncertain tax positions by $31 million, including $26 million of interest and penalties.
In the fourth quarter of fiscal 2010, the Company decreased its reserves for uncertain tax positions by $20 million, which was
substantially offset by an increase in its valuation allowances in a similar amount. These adjustments were based on a review of tax filing
positions taken in jurisdictions with valuation allowances as indicated above.
As a result of certain events in various jurisdictions during the fourth quarter of fiscal year 2009, including the settlement of the fiscal
2002 through fiscal 2003 U.S. federal tax examinations, the Company decreased its total reserve for uncertain tax positions by
$32 million. This was comprised of a $55 million decrease to tax expense and a $23 million increase to goodwill.
As a result of various entities exiting business in certain jurisdictions and certain events related to prior tax planning initiatives during the
third quarter of fiscal 2009, the Company reduced the reserve for uncertain tax positions by $33 million. This was comprised of a $17
million decrease to tax expense and a $16 million decrease to goodwill.
Change in Tax Status
In the fourth quarter of fiscal 2009, the Company recorded $84 million in discrete period tax benefits related to a change in tax status of a
U.S. and a U.K. subsidiary. This is comprised of a $59 million tax expense benefit and a $25 million decrease to goodwill. In the second
quarter of fiscal 2009, the Company recorded a $30 million discrete period tax benefit related to a change in tax status of a French
subsidiary.
The changes in tax status resulted from voluntary tax elections that produced deemed liquidations for U.S. federal income tax purposes.
The Company received tax benefits in the U.S. for the losses from the decrease in value as compared to the original tax basis of its
investments. These elections changed, for U.S. federal income tax purposes, the tax status of these entities and are reported as a discrete
period tax benefit in accordance with the provision of ASC 740.
Impacts of Tax Legislation and Change in Statutory Tax Rates
During the fiscal year ended September 30, 2011, tax legislation was adopted in various jurisdictions. None of these changes are expected
to have a material impact on the Company’s consolidated financial condition, results of operations or cash flows.
On March 23, 2010, the U.S. President signed into law comprehensive health care reform legislation under the Patient Protection and
Affordable Care Act (HR3590). Included among the major provisions of the law is a change in the tax treatment of a portion of Medicare
Part D medical payments. The Company recorded a noncash tax charge of approximately $18 million in the second quarter of fiscal year
2010 to reflect the impact of this change. In the fourth quarter of fiscal 2010, the amount decreased by $2 million resulting in an overall
impact of $16 million.
In fiscal 2009, the Company obtained High Tech Enterprise status from the Chinese Tax Bureaus for various Chinese subsidiaries. This
status allows the entities to benefit from a 15% tax rate.
In February 2009, Wisconsin enacted numerous changes to Wisconsin income tax law as part of the Budget Stimulus and Repair Bill,
Wisconsin Act 2. These changes were effective in the Company’s tax year ended September 30, 2010. The major changes included an
adoption of corporate unitary combined reporting and an expansion of the related entity expense add back provisions. These Wisconsin
tax law changes did not have a material impact on the Company’s consolidated financial condition, results of operations or cash flows.
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Continuing Operations
Components of the provision for income taxes on continuing operations were as follows (in millions):
Current
Federal
State
Foreign
Deferred
Federal
State
Foreign
2011
Year Ended September 30,
2010
2009
$
56
—
458
514
$
112
29
141
282
$
208
(9 )
(343 )
(144 )
106
2
(193 )
(85 )
53
6
(33 )
26
(159 )
(11 )
176
6
Provision for income taxes
$
370
$
197
$
32
Consolidated domestic income from continuing operations before income taxes and noncontrolling interests for the fiscal years ended
September 30, 2011, 2010 and 2009 was income of $787 million, income of $666 million and loss of $263 million, respectively.
Consolidated non-U.S. income from continuing operations before income taxes and noncontrolling interests for the fiscal years ended
September 30, 2011, 2010 and 2009 was income of $1,324 million, income of $1,097 million and loss of $55 million, respectively.
Income taxes paid for the fiscal years ended September 30, 2011, 2010 and 2009 were $384 million, $535 million and $326 million,
respectively.
The Company has not provided additional U.S. income taxes on approximately $5.7 billion of undistributed earnings of consolidated non-
U.S. subsidiaries included in shareholders’ equity attributable to Johnson Controls, Inc. Such earnings could become taxable upon the
sale or liquidation of these non-U.S. subsidiaries or upon dividend repatriation. The Company’s intent is for such earnings to be
reinvested by the subsidiaries or to be repatriated only when it would be tax effective through the utilization of foreign tax credits. It is
not practicable to estimate the amount of unrecognized withholding taxes and deferred tax liability on such earnings. Refer to
“Capitalization” within the “Liquidity and Capital Resources” section of Item 7 for discussion of domestic and foreign cash projections.
Deferred taxes were classified in the consolidated statements of financial position as follows (in millions):
Other current assets
Other noncurrent assets
Other current liabilities
Other noncurrent liabilities
Net deferred tax asset
98
September 30,
2011
$
558
1,855
(4 )
(56 )
2010
$
533
1,436
(1 )
(112 )
$ 2,353
$ 1,856
Table of Contents
Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities included (in millions):
Deferred tax assets
Accrued expenses and reserves
Employee and retiree benefits
Net operating loss and other credit carryforwards
Research and development
Valuation allowances
Deferred tax liabilities
Property, plant and equipment
Intangible assets
Other
Net deferred tax asset
September 30,
2011
2010
$
793
390
2,314
103
3,600
(719 )
2,881
130
345
53
528
$ 2,353
$
821
333
1,731
128
3,013
(739 )
2,274
40
330
48
418
$ 1,856
At September 30, 2011, the Company had available net operating loss carryforwards of approximately $3.8 billion, of which $1.4 billion
will expire at various dates between 2012 and 2030, and the remainder has an indefinite carryforward period. The Company had available
U.S. foreign tax credit carryforwards at September 30, 2011 of $961 million, which will expire at various dates between 2016 and 2021.
The valuation allowance, generally, is for loss carryforwards for which utilization is uncertain because it is unlikely that the losses will be
utilized given the lack of sustained profitability and/or limited carryforward periods in certain countries.
18. SEGMENT INFORMATION
Effective October 1, 2010, the building efficiency business of the Company reorganized its management reporting structure to reflect its
current business activities.
Prior to this reorganization, building efficiency was comprised of six reportable segments for financial reporting purposes (North
America systems, North America service, North America unitary products, global workplace solutions, Europe and rest of world). As a
result of this change, building efficiency is now comprised of five reportable segments for financial reporting purposes (North America
systems, North America service, global workplace solutions, Asia and other).
A summary of the significant building efficiency reportable segment changes is as follows:
•
•
•
The systems and services businesses in Asia, previously included in the rest of world segment, are now part of a new
reportable segment named “Asia.”
The former Europe segment is now included in the former rest of world segment, which has been renamed “other.”
The former North America unitary products segment is now included in the other segment.
The Company’s financial statements reflect the new building efficiency reportable segment structure and certain building efficiency cost
allocation methodology changes. The changes in allocation methodology more specifically allocate engineering and other building
efficiency costs to the reportable segments. Prior year building efficiency reportable segment information has been revised to conform to
this presentation.
ASC 280, “Segment Reporting,” establishes the standards for reporting information about segments in financial statements. In applying
the criteria set forth in ASC 280, the Company has determined that it has nine reportable segments for financial reporting purposes. The
Company’s nine reportable segments are presented in the context of its three primary businesses — building efficiency, automotive
experience and power solutions.
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Table of Contents
Building efficiency
Building efficiency designs, produces, markets and installs heating, ventilating and air conditioning (HVAC) and control systems that
monitor, automate and integrate critical building segment equipment and conditions including HVAC, fire-safety and security in
commercial buildings and in various industrial applications.
•
North America systems designs, produces, markets and installs mechanical equipment that provides heating and cooling in
North American non-residential buildings and industrial applications as well as control systems that integrate the operation of
this equipment with other critical building systems.
•
•
•
•
North America service provides technical services including inspection, scheduled maintenance, repair and replacement of
mechanical and control systems in North America, as well as the retrofit and service components of performance contracts
and other solutions.
Global workplace solutions provides on-site staff for complete real estate services, facility operation and management to
improve the comfort, productivity, energy efficiency and cost effectiveness of building systems around the globe.
Asia provides HVAC and refrigeration systems and technical services to the Asian marketplace.
Other provides HVAC and refrigeration systems and technical services to markets in Europe, the Middle East and Latin
America. Other also designs and produces heating and air conditioning solutions for residential and light commercial
applications and markets products to the replacement and new construction markets.
Automotive experience
Automotive experience designs and manufactures interior systems and products for passenger cars and light trucks, including vans, pick-
up trucks and sport utility/crossover vehicles in North America, Europe and Asia. Automotive experience systems and products include
complete seating systems and components; cockpit systems, including instrument panels and clusters, information displays and body
controllers; overhead systems, including headliners and electronic convenience features; floor consoles; and door systems.
Power solutions
Power solutions services both automotive original equipment manufacturers and the battery aftermarket by providing advanced battery
technology, coupled with systems engineering, marketing and service expertise.
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Table of Contents
Management evaluates the performance of the segments based primarily on segment income, which represents income from continuing
operations before income taxes and noncontrolling interests excluding net financing charges, debt conversion costs and significant
restructuring costs. General corporate and other overhead expenses are allocated to business segments in determining segment income.
Financial information relating to the Company’s reportable segments is as follows (in millions):
Net Sales
Building efficiency
North America systems
North America service
Global workplace solutions
Asia
Other
Automotive experience
North America
Europe
Asia
Power solutions
Total net sales
Segment Income (Loss)
Building efficiency
North America systems
North America service (1)
Global workplace solutions (2)
Asia (3)
Other (4)
Automotive experience
North America (5)
Europe (6)
Asia (7)
Power solutions (8)
Total segment income
Net financing charges
Debt conversion costs
Restructuring costs
2011
Year Ended September 30,
2010
2009
$ 2,343
2,305
4,153
1,840
4,252
14,893
7,431
10,267
2,367
20,065
5,875
$ 40,833
$ 2,142
2,127
3,288
1,422
3,823
12,802
6,765
8,019
1,826
16,610
4,893
$ 34,305
$ 2,222
2,168
2,832
1,293
3,978
12,493
4,631
6,287
1,098
12,016
3,988
$ 28,497
2011
Year Ended September 30,
2010
2009
$
239
113
16
249
99
716
404
114
243
761
808
$ 2,285
(174 )
—
—
$
206
117
40
178
132
673
379
105
107
591
669
$ 1,933
(170 )
—
—
$
$
259
188
58
170
(278 )
397
(333 )
(212 )
4
(541 )
406
262
(239 )
(111 )
(230 )
Income (loss) before income taxes
$ 2,111
$ 1,763
$
(318 )
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Table of Contents
Assets
Building efficiency
North America systems
North America service
Global workplace solutions
Asia
Other
Automotive experience
North America
Europe
Asia
Power solutions
Unallocated
Total
Depreciation/Amortization
Building efficiency
North America systems
North America service
Global workplace solutions
Asia
Other
Automotive experience
North America
Europe
Asia
Power solutions
Total
2011
September 30,
2010
2009
$ 1,300
1,581
1,228
1,247
4,115
9,471
3,863
7,348
1,587
12,798
6,638
769
$ 29,676
$ 1,354
1,511
1,012
1,236
3,925
9,038
3,392
5,390
1,345
10,127
5,478
1,100
$ 25,743
$ 1,301
1,481
860
1,014
3,833
8,489
3,259
5,386
1,087
9,732
4,278
1,589
$ 24,088
2011
Year Ended September 30,
2010
2009
$
$
10
25
18
15
69
137
138
254
27
419
175
731
$
$
11
23
16
15
73
138
147
213
31
391
162
691
$
$
9
19
13
14
79
134
198
220
32
450
161
745
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Table of Contents
Capital Expenditures
Building efficiency
North America systems
North America service
Global workplace solutions
Asia
Other
Automotive experience
North America
Europe
Asia
Power solutions
Total
2011
Year Ended September 30,
2010
2009
$
6
17
32
22
91
168
210
383
45
638
519
$ 1,325
$
$
14
32
17
13
43
119
123
225
38
386
272
777
$
$
12
55
9
12
44
132
104
235
30
369
146
647
(1) Building efficiency — North America service segment income for the year ended September 30, 2011 includes $2 million of equity
income.
(2) Building efficiency — Global workplace solutions segment income for the year ended September 30, 2009 excludes $1 million of
restructuring costs.
(3) Building efficiency — Asia segment income for the year ended September 30, 2009 excludes $2 million of restructuring costs. For the
years ended September 30, 2011, 2010 and 2009, Asia segment income includes $3 million, $2 million and $1 million, respectively, of
equity income.
(4) Building efficiency — Other segment income for the year ended September 30, 2009 excludes $21 million of restructuring costs. For the
years ended September 30, 2011, 2010 and 2009, other segment income includes $17 million, $2 million and ($153) million, respectively,
of equity income (loss).
(5) Automotive experience — North America segment income for the year ended September 30, 2009 excludes $47 million of restructuring
costs. For the years ended September 30, 2011, 2010 and 2009, North America segment income includes $20 million, $14 million and
($14) million, respectively, of equity income (loss).
(6) Automotive experience — Europe segment income for the year ended September 30, 2009 excludes $86 million of restructuring costs.
For the years ended September 30, 2011, 2010 and 2009, Europe segment income includes $7 million, $7 million and ($3) million,
respectively, of equity income (loss).
(7) Automotive experience — Asia segment income for the year ended September 30, 2009 excludes $23 million of restructuring costs. For
the years ended September 30, 2011, 2010 and 2009, Asia segment income includes $187 million, $132 million and $70 million,
respectively, of equity income.
(8) Power solutions segment income for the year ended September 30, 2009 excludes $50 million of restructuring costs. For the years ended
September 30, 2011, 2010 and 2009, power solutions segment income includes $62 million, $97 million and $22 million, respectively, of
equity income.
The Company has significant sales to the automotive industry. In fiscal years 2011, 2010 and 2009, no customer exceeded 10% of
consolidated net sales.
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Table of Contents
Geographic Segments
Financial information relating to the Company’s operations by geographic area is as follows (in millions):
Net Sales
United States
Germany
Mexico
Other European countries
Other foreign
Total
Long-Lived Assets (Year-end)
United States
Germany
Mexico
Other European countries
Other foreign
Total
2011
Year Ended September 30,
2010
2009
$ 14,367
4,590
1,869
10,212
9,795
$ 40,833
$ 2,116
864
540
1,356
740
$ 5,616
$ 12,892
3,542
1,428
8,338
8,105
$ 34,305
$ 1,573
388
464
1,071
600
$ 4,096
$ 11,099
2,877
952
7,330
6,239
$ 28,497
$ 1,535
438
403
1,118
492
$ 3,986
Net sales attributed to geographic locations are based on the location of the assets producing the sales. Long-lived assets by geographic
location consist of net property, plant and equipment.
19. COMMITMENTS AND CONTINGENCIES
The Company accrues for potential environmental liabilities in a manner consistent with accounting principles generally accepted in the
United States; that is, when it is probable a liability has been incurred and the amount of the liability is reasonably estimable. Reserves for
environmental liabilities totaled $30 million and $47 million at September 30, 2011 and 2010, respectively. The Company reviews the
status of its environmental sites on a quarterly basis and adjusts its reserves accordingly. Such potential liabilities accrued by the
Company do not take into consideration possible recoveries of future insurance proceeds. They do, however, take into account the likely
share other parties will bear at remediation sites. It is difficult to estimate the Company’s ultimate level of liability at many remediation
sites due to the large number of other parties that may be involved, the complexity of determining the relative liability among those
parties, the uncertainty as to the nature and scope of the investigations and remediation to be conducted, the uncertainty in the application
of law and risk assessment, the various choices and costs associated with diverse technologies that may be used in corrective actions at
the sites, and the often quite lengthy periods over which eventual remediation may occur. Nevertheless, the Company has no reason to
believe at the present time that any claims, penalties or costs in connection with known environmental matters will have a material
adverse effect on the Company’s financial position, results of operations or cash flows. In addition, the Company has identified asset
retirement obligations for environmental matters that are expected to be addressed at the retirement, disposal, removal or abandonment of
existing owned facilities, primarily in the power solutions business. At September 30, 2011 and 2010, the Company recorded conditional
asset retirement obligations of $91 million and $84 million, respectively.
The Company is involved in a number of product liability and various other casualty lawsuits 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 material adverse effect on the Company’s financial position, results of operations or cash flows. Costs related to
such matters were not material to the periods presented.
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Table of Contents
JOHNSON CONTROLS, INC. AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(In millions)
Year Ended September 30,
Accounts Receivable — Allowance for Doubtful Accounts
Balance at beginning of period
Provision charged to costs and expenses
Reserve adjustments
Accounts charged off
Acquisition of businesses
Currency translation
Balance at end of period
Deferred Tax Assets — Valuation Allowance
Balance at beginning of period
Allowance established for new operating and other loss carryforwards
Acquisition of businesses
Allowance reversed for loss carryforwards utilized and other adjustments
Balance at end of period
2011
2010
2009
$
$
$
$
96
37
(23 )
(24 )
4
(1 )
89
739
95
18
(133 )
719
$
99
42
(24 )
(25 )
4
—
96
$
$
816
70
—
(147 )
739
$
$
87
51
(11 )
(28 )
—
—
99
$
$
$
373
531
(19 )
(69 )
816
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated
the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended (“the Exchange Act”)) as of the end of the period covered by this report. Based on such evaluations,
the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s
disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information
required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, and that information is
accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rule 13a-15(f). The Company’s management, with the participation of the Company’s Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s internal control over financial reporting based on
the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, the company’s management has concluded that, as of September 30, 2011, the Company’s
internal control over financial reporting was effective.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Table of Contents
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the Company’s consolidated financial
statements and the effectiveness of internal controls over financial reporting as of September 30, 2011 as stated in its report which is
included in Item 8 of this Form 10-K and is incorporated by reference herein.
Changes in Internal Control Over Financial Reporting
Except as noted below, there have been no changes in the Company’s internal control over financial reporting during the quarter ended
September 30, 2011, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
During the fiscal year ended September 30, 2011, the Company completed the implementation of a global financial consolidations
software system, and maintained and monitored appropriate internal controls during the implementation period. The Company believes
that its internal control environment has been enhanced as a result of this implementation.
The Company is also undertaking the implementation of new enterprise resource planning (“ERP”) systems in certain businesses, which
will occur over a period of several years. As the phased roll-out of the new ERP systems occurs, the Company may experience changes in
its internal control over financial reporting. No significant changes were made to the Company’s current internal control over financial
reporting as a result of the implementation of the new ERP systems during the fiscal year ended September 30, 2011.
ITEM 9B OTHER INFORMATION
None.
PART III
The information required by Part III, Items 10, 11, 13 and 14, and certain of the information required by Item 12, is incorporated herein
by reference to the Company’s Proxy Statement for its 2012 Annual Meeting of Shareholders (fiscal 2011 Proxy Statement), dated and to
be filed with the SEC on or about December 9, 2011, as follows:
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Incorporated by reference to the sections entitled “Proposal One: Election of Directors,” “Q: Where can I find Corporate Governance
materials for Johnson Controls?,” “Board Information,” “Audit Committee Report,” and “Beneficial Ownership Reporting Compliance
— Section 16(a),” of the fiscal 2011 Proxy Statement. Required information on executive officers of the Company appears at Part I,
Item 4 of this report.
ITEM 11 EXECUTIVE COMPENSATION
Incorporated by reference to the sections entitled “Compensation Committee Report,” “Compensation Discussion and Analysis,”
“Director Compensation during Fiscal Year 2011,” “Potential Payments and Benefits Upon Termination or Change of Control,” “Board
Information,” and “Shareholder Information Summary” of the fiscal 2011 Proxy Statement.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Incorporated by reference to sections entitled “Johnson Controls Share Ownership” and “Schedule 13D and Schedule 13G Filings” of the
fiscal 2011 Proxy Statement.
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Table of Contents
The following table provides information about the Company’s equity compensation plans as of September 30, 2011:
(a)
(b)
(c)
Number of Securities
Remaining Available for
Future Issuance Under
Number of Securities to Weighted-Average Equity Compensation
be Issued upon Exercise Exercise Price of
of Outstanding Options, Outstanding Options, Securities Reflected in
Warrants and Rights
Warrants and Rights
Plans (Excluding
Column (a))
Plan Category
Equity compensation plans approved by shareholders
Equity compensation plans not approved by shareholders
Total
34,224,012 $
—
34,224,012 $
25.87
—
25.87
22,497,948
—
22,497,948
(c) Includes shares of Common Stock that remain available for grant under Company Plans as follows: 20,265,547 shares under the 2007
Stock Option Plan, 2,085,125 shares under the 2001 Restricted Stock Plan, as amended, and 147,276 shares under the 2003 Stock Plan
for Outside Directors, as amended and restated.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Incorporated by reference to sections entitled “Board Information — Related Person Transactions” and “Board Information — Board
Independence” of the fiscal 2011 Proxy Statement.
ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES
Incorporated by reference to the Audit Committee Report, section entitled “Relationship with Independent Auditors,” of the fiscal 2011
Proxy Statement.
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PART IV
ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Form 10-K:
(1) Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income for the years ended September 30, 2011, 2010 and 2009
Consolidated Statements of Financial Position at September 30, 2011 and 2010
Consolidated Statements of Cash Flows for the years ended September 30, 2011, 2010 and 2009
Consolidated Statements of Shareholders’ Equity Attributable to Johnson Controls, Inc. for the years ended
September 30, 2011, 2010 and 2009
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
For the years ended September 30, 2011, 2010 and 2009:
Schedule II — Valuation and Qualifying Accounts
(3) Exhibits
Page in
Form 10-K
52
54
55
56
57
58
105
Reference is made to the separate exhibit index contained on pages 110 through 113 filed herewith.
All other schedules are omitted because they are not applicable, or the required information is shown in the financial statements or notes
thereto.
Financial statements of 50% or less-owned companies have been omitted because the proportionate share of their profit before income taxes
and total assets are less than 20% of the respective consolidated amounts, and investments in such companies are less than 20% of consolidated
total assets.
Other Matters
For the purposes of complying with the amendments to the rules governing Form S-8 under the Securities Act of 1933, the undersigned
registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant’s Registration Statements on Form
S-8 Nos. 333-173326, 33-30309, 33-31271, 333-10707, 333-66073, 333-41564, 333-117898 and 333-141578.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such issue.
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Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
JOHNSON CONTROLS, INC.
By /s/ R. Bruce McDonald
R. Bruce McDonald
Executive Vice President and
Chief Financial Officer
Date: November 22, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of November 22, 2011, by the
following persons on behalf of the registrant and in the capacities indicated:
/s/ Stephen A. Roell
Stephen A. Roell
Chairman and
Chief Executive Officer
/s/ Brian J. Stief
Brian J. Stief
Vice President and Corporate Director Controller
(Principal Accounting Officer)
/s/ David Abney
David Abney
Director
/s/ Natalie A. Black
Natalie A. Black
Director
/s/ Richard Goodman
Richard Goodman
Director
/s/ William H. Lacy
William H. Lacy
Director
/s/ Eugenio Clariond Reyes-Retana
Eugenio Clariond Reyes-Retana
Director
/s/ R. Bruce McDonald
R. Bruce McDonald
Executive Vice President and
Chief Financial Officer
/s/ Dennis W. Archer
Dennis W. Archer
/s/ Robert L. Barnett
Robert L. Barnett
Director
/s/ Robert A. Cornog
Robert A. Cornog
Director
/s/ Jeffrey A. Joerres
Jeffrey A. Joerres
Director
Mark P. Vergnano
Director
109
Table of Contents
Johnson Controls, Inc.
Index to Exhibits
Title
Restated Articles of Incorporation of Johnson Controls, Inc., as amended through January 26, 2011 (incorporated by reference to
Exhibit 3.1 to Johnson Controls, Inc. Current Report on Form 8-K dated January 26, 2011) (Commission File No. 1-5097).
Johnson Controls, Inc. By-Laws, as amended and restated through January 26, 2011 (incorporated by reference to Exhibit 3.2 to
Johnson Controls, Inc. Current Report on Form 8-K dated January 26, 2011 ) (Commission File No. 1-5097).
Exhibit
3.(i)
3.(ii)
4.A
Miscellaneous long-term debt agreements and financing leases with banks and other creditors and debenture indentures.*
4.B
Miscellaneous industrial development bond long-term debt issues and related loan agreements and leases.*
4.C
4.D
4.E
4.F
4.G
4.H
4.I
4.J
Letter of agreement dated December 6, 1990 between Johnson Controls, Inc., LaSalle National Trust, N.A. and Fidelity
Management Trust Company which replaces LaSalle National Trust, N.A. as Trustee of the Johnson Controls, Inc. Employee
Stock Ownership Plan Trust with Fidelity Management Trust Company as Successor Trustee, effective January 1, 1991
(incorporated by reference to Exhibit 4.F to Johnson Controls, Inc. Annual Report on Form 10-K for the year ended
September 30, 1991) (Commission File No. 1-5097).
Indenture for debt securities dated January 17, 2006 between Johnson Controls, Inc. and US Bank N.A. as successor trustee to JP
Morgan Chase (incorporated by reference to Exhibit 4.1 to Johnson Controls, Inc. Registration Statement on Form S-3ASR [Reg.
No. 333-130714]).
Underwriting Agreement dated February 1, 2011, among Johnson Controls, Inc. and the underwriters named therein,
(incorporated by reference to Exhibit 1.1 to Johnson Controls, Inc. Current Report on Form 8-K dated February 1, 2011)
(Commission File No. 1-5907).
Supplemental Indenture, dated March 16, 2009, between Johnson Controls, Inc. and U.S. Bank National Association, as Trustee
(incorporated by reference to Exhibit 4.1 to Johnson Controls, Inc. Current Report on Form 8-K/A dated March 10, 2009)
(Commission File No. 1-5907).
Subordinated Indenture, dated March 16, 2009, between Johnson Controls, Inc. and U.S. Bank National Association, as Trustee
(incorporated by reference to Exhibit 4.2 to Johnson Controls, Inc. Current Report on Form 8-K/A dated March 10, 2009)
(Commission File No. 1-5907).
Supplemental Indenture No. 1, dated March 16, 2009, between Johnson Controls, Inc. and U.S. Bank National Association, as
Trustee (incorporated by reference to Exhibit 4.3 to Johnson Controls, Inc. Current Report on Form 8-K/A dated March 10,
2009) (Commission File No. 1-5907).
Purchase Contract and Pledge Agreement, dated March 16, 2009, among Johnson Controls, Inc., U.S. Bank National
Association, as Purchase Contract Agent, and U.S. Bank National Association, as Collateral Agent, Custodial Agent and
Securities Intermediary (incorporated by reference to Exhibit 4.4 to Johnson Controls, Inc. Current Report on Form 8-K/A dated
March 10, 2009) (Commission File No. 1-5907).
Form of Remarketing Agreement among Johnson Controls, Inc., U.S. Bank National Corporation, as the Reset Agent and the
Remarketing Agent and U.S. Bank National Corporation, as the Purchase Contract Agent (incorporated by reference to
Exhibit 4.5 to Johnson Controls, Inc. Current Report on Form 8-K/A dated March 10, 2009) (Commission File No. 1-5907).
4.K
Form of Corporate Unit (incorporated by reference to Exhibit 4.6 to Johnson Controls, Inc. Current Report on Form 8-K/A dated
March 10, 2009) (Commission File No. 1-5907).
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Exhibit
4.L
4.M
4.N
4.O
4.P
10.B
10.C
10.D
10.E
10.F
10.G
Johnson Controls, Inc.
Index to Exhibits
Title
Form of Treasury Unit (incorporated by reference to Exhibit 4.7 to Johnson Controls, Inc. Current Report on Form 8-K/A dated
March 10, 2009) (Commission File No. 1-5907).
Form of Subordinated Note (incorporated by reference to Exhibit 4.8 to Johnson Controls, Inc. Current Report on Form 8-K/A
dated March 10, 2009) (Commission File No. 1-5907).
Officer’s Certificate, dated March 9, 2010 creating 5.000% Senior Notes due 2020 (incorporated by reference to Exhibit 4.1 to
Johnson Controls, Inc. Current Report on Form 8-K dated March 9, 2010) (Commission File No. 1-5907).
Credit Agreement, dated as of February 4, 2011, among Johnson Controls, Inc. and the financial institutions parties thereto
(incorporated by reference to Exhibit 4.1 to Johnson Controls, Inc.’s Current Report on Form 8-K dated February 4, 2011)
(Commission File No. 1-5907).
Officers’ Certificate, dated February 4, 2011, establishing the Floating Rate Notes due 2014, 1.75% Senior Notes due 2014,
4.25% Senior Notes due 2021 and 5.70% Senior Notes due 2041 (incorporated by reference to Exhibit 4.1 to Johnson Controls,
Inc.’s Current Report on Form 8-K dated February 7, 2011).
Johnson Controls, Inc. Common Stock Purchase Plan for Executives as amended November 17, 2004 and effective December 1,
2004 (incorporated by reference to Exhibit 10.B to Johnson Controls, Inc. Annual Report on Form 10-K for the year ended
September 30, 2004) (Commission File No. 1-5097).**
Johnson Controls, Inc. Deferred Compensation Plan for Certain Directors, as amended and restated effective November 18, 2009
(incorporated by reference to Exhibit 10.C to Johnson Controls, Inc. Annual Report on Form 10-K for the year ended
September 30, 2009) (Commission File No. 1-5097).**
Johnson Controls, Inc. Executive Survivor Benefits Plan, as amended and restated effective September 15, 2009 (incorporated by
reference to Exhibit 10.D to Johnson Controls, Inc. Annual Report on Form 10-K for the year ended September 30, 2009)
(Commission File No. 1-5097).**
Form of employment agreement between Johnson Controls, Inc. and all elected officers remains effective for those officers
employed before September 15, 2009, as amended and restated January 1, 2008 (incorporated by reference to Exhibit 10.K to
Johnson Controls, Inc. Annual Report on Form 10-K for the year ended September 30, 2007) (Commission File No. 1-5097).**
Form of employment agreement between Johnson Controls, Inc. and all elected officers and named executives hired between
September 15, 2009 and July 28, 2010, as amended and restated effective September 15, 2009.**
Form of indemnity agreement effective October 16, 2006, between Johnson Controls, Inc. and each of the directors and elected
officers (incorporated by reference to Exhibit 10.L to Johnson Controls, Inc. Annual Report on Form 10-K for the year ended
September 30, 2007) (Commission File No. 1-5097).**
10.H
Johnson Controls, Inc. Director Share Unit Plan, as amended and restated effective September 20, 2011, filed herewith.**
10.I
Johnson Controls, Inc. 2000 Stock Option Plan, as amended and restated effective January 1, 2009 (incorporated by reference to
Exhibit 10.I to Johnson Controls, Inc. Annual Report on Form 10-K for the year ended September 30, 2009) (Commission File
No. 1-5097).**
10.J
Form of stock option award agreement for Johnson Controls, Inc. 2000 Stock Option Plan, as amended through October 1, 2001,
as in use through March 20, 2006 (incorporated by reference
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Exhibit
Johnson Controls, Inc.
Index to Exhibits
Title
to Exhibit 10.1 to Johnson Controls, Inc. Current Report on Form 8-K dated November 17, 2004) (Commission File No. 1-
5097).**
10.K
Johnson Controls, Inc. 2001 Restricted Stock Plan, as amended and restated effective September 20, 2011, filed herewith.**
10.L
10.M
10.N
10.O
10.P
Form of restricted stock award agreement for Johnson Controls, Inc. 2001 Restricted Stock Plan, as first amended March 21,
2006 with effectiveness of August 1, 2006, and as currently amended effective September 20, 2011, filed herewith.**
Johnson Controls, Inc. Executive Deferred Compensation Plan, as amended and restated effective March 23, 2010 (incorporated
by reference to Exhibit 10.2 to Johnson Controls, Inc. Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2010) (Commission File No. 1-5097) .**
Johnson Controls, Inc. 2003 Stock Plan for Outside Directors, as amended September 1, 2009 (incorporated by reference to
Exhibit 10.N to Johnson Controls, Inc. Annual Report on Form 10-K for the year ended September 30, 2009) (Commission File
No. 1-5097).**
Johnson Controls, Inc. Annual Incentive Performance Plan, as amended and restated effective January 1, 2008 (incorporated by
reference to Exhibit 10.1 to Johnson Controls, Inc. Current Report Form 8-K dated January 26, 2011) (Commission File No. 1-
5097).**
Johnson Controls, Inc. Retirement Restoration Plan, as amended and restated effective November 17, 2009 (incorporated by
reference to Exhibit 10.P to Johnson Controls, Inc. Annual Report on Form 10-K for the year ended September 30, 2009)
(Commission File No. 1-5097).**
10.Q
Compensation Summary for Non-Employee Directors as amended and restated effective September 20, 2011, filed herewith.**
10.S
10.T
Form of stock option award agreement for Johnson Controls, Inc. 2000 Stock Option Plan, as amended September 16, 2006, as
in effect since October 2, 2006 (incorporated by reference to Exhibit 10.CC to Johnson Controls, Inc. Annual Report on
Form 10-K for the year ended September 30, 2006) (Commission File No. 1-5097).**
Johnson Controls, Inc. Long Term Incentive Performance Plan, as amended and restated effective January 1, 2008 (incorporated
by reference to Exhibit 10.2 to Johnson Controls, Inc. Current Report on Form 8-K dated January 26, 2011) (Commission File
No. 1-5097).**
10.U
Johnson Controls, Inc. 2007 Stock Option Plan, amended as of September 20, 2011, filed herewith.**
10.V
10.W
10.X
Form of stock option award agreement for Johnson Controls, Inc. 2007 Stock Option Plan effective September 20, 2011, filed
herewith.**
Supplemental Agreement to the Employment Contract between the Company and Dr. Beda Bolzenius dated August 25, 2008
(incorporated by reference to Exhibit 10.EE to Johnson Controls, Inc. Annual Report on Form 10-K for the year ended
September 30, 2008) (Commission File No. 1-5097).**
Johnson Controls, Inc. Executive Compensation Incentive Recoupment Policy effective September 15, 2009 (incorporated by
reference to Exhibit 10.X to Johnson Controls, Inc. Annual Report on Form 10-K for the year ended September 30, 2009)
(Commission File No. 1-5097).**
10.Y
Form of employment agreement between Johnson Controls, Inc. and all elected officers and named executives hired after
July 28, 2010, as amended and restated July 28, 2010 (incorporated
112
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Exhibit
Johnson Controls, Inc.
Index to Exhibits
Title
by reference to Exhibit 10.Y to Johnson Controls, Inc. Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2010) (Commission File No. 1-5097).**
12
Computation of ratio of earnings to fixed charges for the years ended September 30, 2011 and September 30, 2010, filed
herewith.
21
Subsidiaries of the Registrant, filed herewith.
23
Consent of Independent Registered Public Accounting Firm dated November 22, 2011, filed herewith.
31.1
Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
31.2
Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32
101
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, filed herewith.
The following materials from Johnson Controls, Inc.’s Annual Report on Form 10-K for the year ended September 30, 2011,
formatted in XBRL (Extensible Business Reporting Language):
(i) the Consolidated Statements of Financial Position, (ii) the Consolidated Statements of Income, (iii) the Consolidated
Statements of Cash Flow, (iv) the Consolidated Statements of Shareholders’ Equity Attributable to Johnson Controls, Inc. and
(v) Notes to Consolidated Financial Statements, filed herewith.
*
These instruments are not being filed as exhibits herewith because none of the long-term debt instruments authorizes the issuance of debt
in excess of 10% of the total assets of Johnson Controls, Inc. and its subsidiaries on a consolidated basis. Johnson Controls, Inc. agrees to
furnish a copy of each agreement to the Securities and Exchange Commission upon request.
** Denotes a management contract or compensatory plan.
113
JOHNSON CONTROLS, INC.
DIRECTOR SHARE UNIT PLAN
ARTICLE 1.
PURPOSE AND DURATION
Exhibit 10.H
Section 1.1. Purpose . The purpose of the Johnson Controls, Inc. Director Share Unit Plan is to advance the Company’s growth and
success, and to advance the interests of its shareholders, by attracting and retaining well-qualified Outside Directors upon whose judgment the
Company is largely dependent for the successful conduct of its operations and by providing such individuals with incentives to put forth
maximum effort for the long-term success of the Company’s business, thereby aligning their interests more closely with the interests of
shareholders.
Section 1.2. Duration . The Plan was originally effective on November 18, 1998. The Plan is amended and restated effective
September 20, 2011. The provisions of the Plan as amended and restated apply to each individual with an interest hereunder on or after
September 20, 2011.
ARTICLE 2.
DEFINITIONS AND CONSTRUCTION
Section 2.1. Definitions . Wherever used in the Plan, the following terms shall have the meanings set forth below and, when the meaning
is intended, the initial letter of the word is capitalized:
(a) “Administrator” means the Employee Benefits Policy Committee of the Company.
(b) “Affiliate” means each entity that is required to be included in the Company’s controlled group of corporations within the meaning of
Code Section 414(b), or that is under common control with the Company within the meaning of Code Section 414(c); provided that for
purposes of determining when a Participant has incurred a Separation from Service, the phrase “at least 50 percent” shall be used in place of the
phrase “at least 80 percent” in each place that phrase appears in the regulations issued thereunder.
(c) “Beneficiary” means the person or persons entitled to receive the interest of a Participant in the event of the Participant’s death as
provided in Section 3.7.
(d) “Board” means the Board of Directors of the Company.
(e) “Change of Control” has the meaning ascribed to such term in Section 10.2.
(f) “Committee” means the Corporate Governance Committee of the Board; provided, however , that if the Corporate Governance
Committee does not include two or more “non-employee directors” within the meaning of Rule 16b-3 of the Exchange Act, then the term
“Committee” means such other committee appointed by the Board consisting of two or more “non-employee directors.”
(g) “Company” means Johnson Controls, Inc., a Wisconsin corporation, and any successor thereto as provided in Article 11.
(h) “Exchange Act” means the Securities Exchange Act of 1934, as interpreted by regulations and rules issued pursuant thereto, all as
amended and in effect from time to time. Any reference to a specific provision of the Exchange Act shall be deemed to include reference to any
successor provision thereto.
(i) “Fair Market Value” means with respect to a Share, except as otherwise provided herein, the closing sales price of a Share on the New
York Stock Exchange as of 4:00 p.m. EST on the date in question (or the immediately preceding trading day, if the date in question is not a
trading day), and with respect to any other property, such value as is determined by the Administrator.
(j) “Investment Options” means the investment options offered under the Johnson Controls Savings and Investment (401k) Plan
(excluding the Company stock fund) or any successor plan thereto, the Share Units, and any other alternatives made available by the
Administrator, which shall be used for the purpose of measuring hypothetical investment experience attributable to a Participant’s Retirement
Account.
(k) “Outside Director” means a member of the Board who is not an officer or employee of the Company or an Affiliate.
(l) “Participant” means each Outside Director who has a Retirement Account under the Plan. Where the context so requires, a Participant
also means a former director who is entitled to a benefit under the Plan.
(m) “Plan” means the arrangement described herein, as from time to time amended and in effect.
(n) “Retirement Account” means the record keeping account maintained to record the interest of each Participant under the Plan. A
Retirement Account is established for record keeping purposes only and not to reflect the physical segregation of assets on the Participant’s
behalf, and may consist of such subaccounts or balances as the Administrator may determine to be necessary or appropriate.
(o) “Separation from Service” means a Participant’s cessation of service as a Board member, for any reason, provided the cessation of
service is a good-faith and complete termination of the Participant’s relationship with the Company and its Affiliates, within the meaning of
Code Section 409A. If, at the time the Participant’s service as a Board member ends, the Participant begins providing services to the Company
or an Affiliate as an employee, the Participant shall not incur a Separation from Service under the terms of the Plan until the Participant has a
separation from service from the Company or an Affiliate as an employee within the meaning of Code Section 409A.
2
(p) “Share” means a share of the Company’s common stock, $0.16 par value.
(q) “Share Units” means the hypothetical Shares that are credited to the Participant’s Retirement Account in accordance with Article 5.
(r) “Total and Permanent Disability” means the Participant’s inability to engage in any substantial gainful activity as a result of a
medically-determinable physical or mental impairment which can be expected to result in death or which can be expected to last for a
continuous period of at least twelve (12) months, as determined by the Administrator. The Administrator may require the Participant to submit
such medical evidence or to undergo a medical examination by a doctor selected by the Administrator as the Administrator determines is
necessary in order to make a determination hereunder.
(s) “Valuation Date” means each day when the United States financial markets are open for business, as of which the Administrator will
determine the value of each Retirement Account.
Section 2.2. Construction . Wherever any words are used in the masculine, they shall be construed as though they were used in the
feminine in all cases where they would so apply; and wherever any words are use in the singular or the plural, they shall be construed as though
they were used in the plural or the singular, as the case may be, in all cases where they would so apply. Titles of articles and sections are for
general information only, and the Plan is not to be construed by reference to such items.
Section 2.3. Severability . In the event any provision of the Plan is held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the said illegal or invalid provision had not been
included.
ARTICLE 3.
ADMINISTRATION
Section 3.1. General . The Committee shall have overall authority with respect to administration of the Plan; provided that the
Administrator shall have responsibility for the general operation and daily administration of the Plan as specified herein. If at any time the
Committee shall not be in existence or not be composed of members of the Board who qualify as “non-employee directors”, then the Board
shall administer the Plan (with the assistance of the Administrator) and all references herein to the Committee shall be deemed to include the
Board.
Section 3.2. Authority . In addition to the authority specifically provided herein, the Committee and the Administrator shall have full
power and discretionary authority to take any action or make any determination deemed necessary for the proper administration of the Plan
with respect to the respective duties of each under the Plan, including but not limited to the power and authority to: (a) interpret the Plan;
(b) correct errors, supply omissions or reconcile inconsistencies in the Plan’s terms; (c) establish, amend or waive rules and regulations, and
appoint such agents, as it deems appropriate for the Plan’s administration; and (d) make any other determinations, including factual
determinations, and take any other action as it determines is necessary or desirable for the Plan’s administration. Any action taken by the
Committee shall
3
be controlling over any contrary action of the Administrator. The Committee and the Administrator may delegate their ministerial duties to
third parties and to the extent of such delegation, references to the Committee or Administrator herein shall mean such delegates, if any.
Section 3.3. Decision Binding . The Committee’s and the Administrator’s determinations and decisions made pursuant to the provisions
of the Plan and all related orders or resolutions of the Board shall be final, conclusive and binding on all persons who have an interest in the
Plan, and such determinations and decisions shall not be reviewable.
Section 3.4. Procedures for Administration . The Committee’s determinations must be made by not less than a majority of its members
present at the meeting (in person or otherwise) at which a quorum is present, or by written majority consent, which sets forth the action, is
signed by the members of the Committee and filed with the minutes for proceedings of the Committee. A majority of the entire Committee
shall constitute a quorum for the transaction of business. The Administrator’s determinations shall be made in accordance with such procedures
it establishes.
Section 3.5. Indemnification . Neither the Committee, nor the Administrator, nor any member thereof shall be liable for any act,
omission, interpretation, construction or determination made in connection with the Plan in good faith and the members of the Committee and
the Administrator shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense
(including attorneys’ fees) arising therefrom to the full extent permitted by law and under any directors’ and officers’ liability insurance that
may be in effect from time to time.
Section 3.6. Restrictions to Comply with Applicable Law . Transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 under the Exchange Act. The Committee and the Administrator shall administer the Plan so that transactions under
the Plan will be exempt from or comply with Section 16 of the Exchange Act, and shall have the right to restrict or rescind any transaction, or
impose other rules and requirements, to the extent it deems necessary or desirable for such exemption or compliance to be met.
Section 3.7. Designation of Beneficiary . Each Participant may designate a Beneficiary in such form and manner and within such time
periods as the Administrator may prescribe. A Participant can change his beneficiary designation at any time, provided that each beneficiary
designation shall revoke the most recent designation, and the last designation received by the Administrator while the Participant is alive shall
be given effect. If a Participant designates a Beneficiary without providing in the designation that the Beneficiary must be living at the time of
distribution, the designation shall vest in the Beneficiary all of the distribution payable after the Participant’s death, and any distributions
remaining upon the Beneficiary’s death shall be made to the Beneficiary’s estate. If there is no valid beneficiary designation in effect at the
time of the Participant’s death, if the Beneficiary does not survive the Participant, or if the beneficiary designation provides that the Beneficiary
must be living at the time of each distribution and such designated Beneficiary does not survive to a distribution date, the Participant’s estate
will be deemed the Beneficiary and will be entitled to receive payment. If a Participant designates his spouse as a Beneficiary, such beneficiary
designation automatically
4
shall become null and void on the date the Administrator receives notice of the Participant’s divorce or legal separation.
ARTICLE 4.
PARTICIPATION
Each Outside Director shall automatically become a Participant on the date the individual is first elected or appointed to become an
Outside Director.
ARTICLE 5.
RETIREMENT ACCOUNTS
Section 5.1. Establishment of Retirement Account . Each Participant shall have a Retirement Account established under this Plan on his
behalf. A Participant’s Retirement Account shall be credited with “Share Units” and otherwise subject to adjustment as follows:
(a) Conversion of Accrued Benefits . For each Participant who was an Outside Director of the Company as of December 1, 1998, the
Administrator shall calculate the value of such Outside Director’s accrued benefits under the Company’s Director Retirement Plan as of
September 30, 1998. Each such Outside Director’s Retirement Account shall be credited with a number of Share Units equal to the result
obtained by (i) dividing (A) the value of such Outside Director’s accrued benefits under the Company’s Director Retirement Plan as of
September 30, 1998 by (B) the Fair Market Value of a Share as of the first trading day in December 1998.
(b) Annual Credit of Share Units . On the date of each regular meeting of the Board held in November, the Retirement Account of each
Participant who is then an Outside Director shall be credited with a number of additional Share Units equal to the result obtained by dividing
(A) the amount determined for such year by the Committee by (B) the Fair Market Value of a Share on such date. Effective October 1, 2006,
no additional Share Units shall be credited to a Participant’s Retirement Account under this subsection (b).
Section 5.2. Interim Election . Any Outside Director whose election to the Board is first effective at any time other than the regular
meeting of the Board held in November shall have credited to his or her Retirement Account a proportionate share of the Annual Credit at the
time of effectiveness of his election. Such credit shall be based on the Fair Market Value of a Share on the date on which his election is
effective. Effective October 1, 2006, no Share Units shall be credited to a Participant’s Retirement Account under this Section 5.2.
Section 5.3. Investment Election .
(a) Effective November 15, 2006, amounts credited to a Participant’s Retirement Account shall reflect the investment experience of the
Investment Options selected by the Participant. A Participant may elect to reallocate his or her Retirement Account among the various
Investment Options in whole increments of one percent (1%) from time to time as prescribed by the Administrator, subject to any restrictions
on re-allocation with respect to Share Units as may be imposed by the Company. Such investment elections shall remain in effect until changed
by the Participant. All investment elections shall become effective as soon as
5
practicable after receipt of such election by the Administrator or its designee, and must be made in the form and manner and within such time
periods as the Administrator prescribes in order to be effective. In the absence of an effective election, the Participant’s Account shall be
deemed invested in the Share Unit Account.
Notwithstanding the foregoing, a Participant may not reallocate his or her Retirement Account among the various Investment Options
until the date of such Participant’s Separation from Service. Thereafter, such a Participant may reallocate his or her Retirement Account at any
time as set forth above.
(b) On each Valuation Date, the Administrator or its designee shall credit the deemed investment experience with respect to the selected
Investment Options to each Participant’s Account.
(c) Notwithstanding anything herein to the contrary, the Company retains the right to allocate actual amounts hereunder without regard to
a Participant’s request.
Section 5.4. Securities Law Restrictions . Notwithstanding anything to the contrary herein, all elections under Section 5.3 by a
Participant who is subject to Section 16 of the Exchange Act are subject to review by the Administrator prior to implementation. In accordance
with Section 3.6, the Administrator may restrict additional transactions, rescind transactions, or impose other rules and procedures, to the extent
deemed desirable by the Administrator in order to comply with the Exchange Act, including, without limitation, application of the review and
approval provisions of this Section 5.4 to Participants who are not subject to Section 16 of the Exchange Act.
Section 5.5. Accounts are For Record Keeping Purposes Only . Retirement Accounts and the record keeping procedures described
herein serve solely as a device for determining the amount of benefits accumulated by a Participant under the Plan, and shall not constitute or
imply an obligation on the part of the Company to fund such benefits.
ARTICLE 6.
RULES WITH RESPECT TO SHARE UNITS
Section 6.1. Transactions Affecting Common Stock . In the event of any merger, share exchange, reorganization, consolidation,
recapitalization, stock dividend, stock split or other change in corporate structure of the Company affecting Shares, the Administrator may
make appropriate equitable adjustments with respect to the Share Units credited to the Retirement Account of each Participant, including
without limitation, adjusting the date as of which such units are valued and/or distributed, as the Administrator determines is necessary or
desirable to prevent the dilution or enlargement of the benefits intended to be provided under the Plan.
Section 6.2. No Shareholder Rights With Respect to Share Units . Participants shall have no rights as a stockholder pertaining to Share
Units credited to their Retirement Accounts. No Participant or Beneficiary shall have any right to receive a distribution of Shares under this
Plan. All distributions under the Plan are made in cash.
6
Section 6.3. Dividends . Whenever the Company declares a dividend on its Shares, in cash or in property, at a time when Participants
have Share Units credited to their Retirement Accounts, a dividend award shall be made to all such Participants as of the date of payment of the
dividend. The dividend award for a Participant shall be determined by multiplying the Share Units credited to the Participant’s Account as of
the date the dividend is declared by the amount or Fair Market Value of the dividend paid or distributed on one Share. The dividend award
shall be credited to the Participant’s Retirement Account by converting such award into Share Units by dividing the amount of the dividend
award by the Fair Market Value of a Share on the date the dividend is paid. Any other provision of this Plan to the contrary notwithstanding, if
a dividend is declared on Shares in the form of a right or rights to purchase shares of capital stock of the Company or of any entity acquiring
the Company, such dividend award shall not be credited to the Participant’s Retirement Account, but each Share Unit credited to a Participant’s
Retirement Account at the time such dividend is paid, and each Share Unit thereafter credited to the Participant’s Retirement Account at a time
when such rights are attached to Shares, shall thereafter be valued as of any point in time on the basis of the aggregate of the then Fair Market
Value of one Share plus the then Fair Market Value of such right or rights then or previously attached to one Share.
ARTICLE 7.
PAYMENT
Section 7.1. Distributions .
(a) Participant’s Separation from Service . Upon a Participant’s Separation from Service for any reason, the Participant, or his
Beneficiary, in the event of his death, shall be entitled to payment of the amount accumulated in such Participant’s Retirement Account.
Section 7.2. Election of Form of Distribution . A Participant, within the first thirty (30) days following the date he commences
participation in the Plan, shall make a distribution election with respect to his Retirement Account. Such election shall be made in such form
and manner and within such time periods as the Administrator may prescribe, and shall be irrevocable. The election shall specify whether
distributions shall be made in a single lump sum or annual installments of from two (2) to ten (10) years. If no valid election is in effect,
distribution shall be made in ten (10) annual installments.
Section 7.3. Manner of Distribution . A Participant’s Retirement Account shall be paid or begin to be paid in cash as follows:
(a) If payment is to be made in a lump sum, payment shall be made in the first calendar quarter of the year following the year in which
the Participant’s Separation from Service occurs, and shall be in an amount equal to the balance of the Participant’s Retirement Account as of
the Valuation Date immediately preceding the distribution date.
(b) If payment is to be made in annual installments, the first annual payment shall be made in the first calendar quarter of the year
following the year in which the Participant’s Separation from Service occurs, and shall equal the value of 1/10 th (or 1/9 th , 1/8 th , 1/7 th , etc.
depending on the number of installments elected) of the balance of the Participant’s
7
Retirement Account as of the Valuation Date immediately preceding the distribution date. A second annual payment shall be made in the first
calendar quarter of the second year after the year in which the Participant’s Separation from Service occurs, and shall equal the value of 1/9 th
(or 1/8 th , 1/7 th , 1/6 th , etc. depending on the number of installments elected) of the balance of the Participant’s Retirement Account as of the
Valuation Date immediately preceding the distribution date. Each succeeding installment payment (if any) shall be determined in a similar
manner, until the final installment which shall equal the then remaining balance of such account as of the Valuation Date immediately
preceding the final distribution date.
Notwithstanding the foregoing provisions, if the balance of a Participant’s Retirement Account as of the Valuation Date immediately
preceding a distribution date is $50,000 or less, then the entire remaining balance of the Participant’s Retirement Account shall be paid in the
form of a lump sum on such distribution date.
Section 7.4. Distribution of Remaining Account Following Participant’s Death . In the event of the Participant’s death prior to receiving
all payments due under this Article 7, the balance of the Participant’s Retirement Account shall be paid to the Participant’s Beneficiary in a
lump sum in the first calendar quarter of the year following the year of the Participant’s death.
Section 7.5. Tax Withholding . The Company shall have the right to deduct from any deferral or payment made hereunder, or from any
other amount due a Participant, the amount of cash sufficient to satisfy the Company’s or Affiliate’s foreign, federal, state or local income tax
withholding obligations with respect to such deferral or payment. In addition, if prior to the date of distribution of any amount hereunder, the
Federal Insurance Contributions Act (FICA) tax imposed under Code Sections 3101, 3121(a) and 3121(v)(2), where applicable, becomes due,
the Participant’s Retirement Account balance shall be reduced by the amount needed to pay the Participant’s portion of such tax, plus an
amount equal to the withholding taxes due under federal, state or local law resulting from the payment of such FICA tax, and an additional
amount to pay the additional income tax at source on wages attributable to the pyramiding of the Code Section 3401 wages and taxes, but no
greater than the aggregate of the FICA tax amount and the income tax withholding related to such FICA tax amount.
Section 7.6. Offset . The Company shall have the right to offset from any amount payable hereunder any amount that the Participant
owes to the Company or to any Affiliate without the consent of the Participant (or his Beneficiary, in the event of the Participant’s death).
Section 7.7. Additional Payment Provisions .
(a) Acceleration of Payment . Notwithstanding the foregoing:
(1) If an amount deferred under this Plan is required to be included in income under Code Section 409A prior to the date such amount
is actually distributed, a Participant shall receive a distribution, in a lump sum within ninety (90) days after the date the Plan fails to
meet the requirements of Code Section 409A, of the amount required to be included in the Participant’s income as a result of such
failure.
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(2) If an amount under the Plan is required to be immediately distributed in a lump sum under a domestic relations order within the
meaning of Code Section 414(p)(1)(B), it may be distributed according to the terms of such order, provided the Participant holds the
Administrator harmless with respect to such distribution. The Plan shall not distribute amounts required to be distributed under a
domestic relations order other than in the limited circumstance specifically stated herein.
(b) Delay in Payment . Notwithstanding the foregoing:
(1) If a distribution required under the terms of this Plan would jeopardize the ability of the Company to continue as a going concern,
the Company shall not be required to make such distribution. Rather, the distribution shall be delayed until the first date that making
the distribution does not jeopardize the ability of the Company to continue as a going concern. Any distribution delayed under this
provision shall be treated as made on the date specified under the terms of this Plan.
(2) If the distribution will violate the terms of Section 16(b) of the Exchange Act or other Federal securities laws, or any other
applicable law, then the distribution shall be delayed until the earliest date on which making the distribution will not violate such
law.
ARTICLE 8.
TERMS AND CONDITIONS
Section 8.1. No Funding . No stock, cash or other property will be deliverable to a Participant or his or her Beneficiary in respect of the
Participant’s Retirement Account until the date or dates identified pursuant to Article 7, and all Retirement Accounts shall be reflected in one
or more unfunded accounts established for the Participant by the Company. Payment of the Company’s obligation will be from general funds,
and no special assets (stock, cash or otherwise) have been or will be set aside as security for this obligation, unless otherwise provided by the
Administrator.
Section 8.2. No Transfers . Except as permitted by Section 7.5, a Participant’s rights to payments under this Plan are not subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance by a Participant or his Beneficiary, or garnishment by a
Participant’s creditors or the creditors of his or her beneficiaries, whether by operation of law or otherwise, and any attempted sale, transfer,
assignment, pledge, or encumbrance with respect to such payment shall be null and void, and shall be without legal effect and shall not be
recognized by the Company.
Section 8.3. Unsecured Creditor . The right of a Participant or Beneficiary to receive payments under this Plan is that of a general,
unsecured creditor of the Company, and the obligation of the Company to make payments constitutes a mere promise by the Company to pay
such benefits in the future. Further, the arrangements contemplated by this Plan are intended to be unfunded for tax purposes and for purposes
of Title I of ERISA.
9
Section 8.4. Retention as Director . Nothing contained in the Plan shall interfere with or limit in any way the right of the shareholders of
the Company to remove any Director from the Board, nor confer upon any Director any right to continue in the service of Company as a
Director.
ARTICLE 9.
TERMINATION AND AMENDMENT OF PLAN
Section 9.1. Amendment . To the extent permitted by Code Section 409A, the Committee may at any time amend the Plan; provided,
however , that (a) the Committee may not amend the Plan more than once every six months, other than amendments the Committee deems
necessary or advisable to assure the conformity of the Plan with any requirements of state and federal law or regulations now or hereafter in
effect, and (b) subject to the provisions of Section 9.2, no amendment shall affect adversely any of the rights of any Outside Director (except as
such Outside Director’s Retirement Account balance may be reduced as a result of investment losses allocable to such account), without such
Outside Director’s consent, under any election theretofore in effect under the Plan; provided further that the Board must approve any
amendment that expands the class of individuals eligible for participation under the Plan, that materially increases the benefits provided
hereunder, or that is required to be approved by the Board by any applicable law or the listing requirements of the national securities exchange
upon which the Company’s common stock is then traded. In addition, the Administrator may at any time amend the Plan to make
administrative changes and changes necessary to comply with applicable law.
Section 9.2. Termination . The Committee may terminate the Plan in accordance with the following provisions. Upon termination of the
Plan, the Committee may authorize the payment of all amounts accrued under the Plan in a single sum payment without regard to any
distribution election then in effect, only in the following circumstances:
(1) The Plan is terminated within twelve (12) months of a corporate dissolution taxed under Code Section 331, or with the approval of a
bankruptcy court pursuant to 11 U.S.C. §503(b)(1)(A). In such event, the single sum payment must be distributed by the latest of:
(A) the last day of the calendar year in which the Plan termination occurs, (B) the first calendar year in which the amount is no
longer subject to a substantial risk of forfeiture, or (C) the first calendar year in which payment is administratively practicable.
(2) The Plan is terminated at any other time, provided that such termination does not occur proximate to a downturn in the financial
health of the Company or an Affiliate, and all other plans required to be aggregate with this Plan under Code Section 409A are also
terminated and liquidated. In such event, the single sum payment shall be paid no earlier than twelve (12) months (and no later than
twenty-four (24) months) after the date of the Plan’s termination. Notwithstanding the foregoing, any payment that would otherwise
be paid during the twelve (12)-month period beginning on the Plan termination date pursuant to the terms of the Plan shall be paid
10
in accordance with such terms. In addition, the Company or any Affiliate shall be prohibited from adopting a similar arrangement
within three (3) years following the date of the Plan’s termination.
ARTICLE 10.
CHANGE OF CONTROL
Section 10.1. Acceleration of Payment . Anything in this Plan to the contrary notwithstanding, each Participant’s Retirement Account
shall be paid in cash in a lump sum within thirty (30) days following the occurrence of a Change of Control. The amount of the cash payment
shall be determined by multiplying the number of Share Units in the Retirement Account by the Fair Market Value of a Share as of the most
recent Valuation Date preceding the occurrence of the Change of Control.
In determining the amount accumulated in a Participant’s Retirement Account, each Share Unit shall have a value equal to the higher of
(a) the highest reported sales price, regular way, of a share of the Company’s common stock on the Composite Tape for New York Stock
Exchange Listed Stocks (the “Composite Tape”) during the sixty (60)-day period prior to the date of the Change of Control of the Company
and (b) if the Change of Control of the Company is the result of a transaction or series of transactions described in Section 10.2(a), the highest
price per Share of the Company paid in such transaction or series of transactions.
Section 10.2. Definition of a Change of Control . A Change of Control means any of the following events, provided that each such event
would constitute a change of control within the meaning of Code Section 409A:
(a) The acquisition, other than from the Company, by any individual, entity or group of beneficial ownership (within the meaning of Rule
l3d-3 promulgated under the Exchange Act), including in connection with a merger, consolidation or reorganization, of more than either:
(1) Fifty percent (50%) of the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”)
or
(2) Thirty-five percent (35%) of the combined voting power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the “Company Voting Securities”),
provided, however , that any acquisition by (x) the Company or any of its subsidiaries, or any employee benefit plan (or related trust) sponsored
or maintained by the Company or any of its subsidiaries or (y) any corporation with respect to which, following such acquisition, more than
sixty percent (60%) of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Company Voting Securities immediately prior to such acquisition in substantially the same proportion as their
ownership, immediately prior to such acquisition, of the Outstanding Company Common
11
Stock and Company Voting Securities, as the case may be, shall not constitute a Change in Control of the Company; or
(b) Individuals who, as of January 1, 2005, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a
majority of the Board during any twelve (12)-month period, provided that any individual becoming a director subsequent to January 1, 2005,
whose election or nomination for election by the Company’s shareholders was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board, shall be considered as though such individual were a member of the Incumbent Board; or
(c) A complete liquidation or dissolution of the Company or sale or other disposition of all or substantially all of the assets of the
Company other than to a corporation with respect to which, following such sale or disposition, more than sixty percent (60%) of, respectively,
the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally
in the election of directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and Company Voting Securities immediately prior to such
sale or disposition in substantially the same proportion as their ownership of the Outstanding Company Common Stock and Company Voting
Securities, as the case may be, immediately prior to such sale or disposition. For purposes hereof, “a sale or other disposition of all or
substantially all of the assets of the Company” will not be deemed to have occurred if the sale involves assets having a total gross fair market
value of less than forty percent (40%) of the total gross fair market value of all assets of the Company immediately prior to the acquisition. For
this purpose, “gross fair market value” means the value of the assets without regard to any liabilities associated with such assets.
(d) For purposes of this Section 10.2, persons will not be considered to be acting as a “group” solely because they purchase or own stock
of the Company at the same time, or as a result of the same public offering. However, persons will be considered to be acting as a “group” if
they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with
the Company. If a person, including an entity, owns stock in the Company and any other corporation that enters into a merger, consolidation,
purchase or acquisition of stock, or similar transaction, such shareholder is considered to be acting as a group with other shareholders in such
corporation only with respect to the ownership in that corporation prior to the transaction giving rise to the change and not with respect to the
ownership interest in the Company.
ARTICLE 11.
SUCCESSORS
All obligations of the Company under the Plan shall be binding on any successor to the Company, whether the existence of such
successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business and/or assets
of the Company. This Plan shall be binding upon and inure to the benefit of the Participants, Beneficiaries, and their heirs, executors,
administrators and legal representatives.
12
ARTICLE 12.
DISPUTE RESOLUTION
Section 12.1. Governing Law . This Plan and the rights and obligations hereunder shall be governed by and construed in accordance
with the internal laws of the State of Wisconsin (excluding any choice of law rules that may direct the application of the laws of another
jurisdiction).
Section 12.2. Arbitration .
(a) Application . Notwithstanding anything to the contrary herein, if a Participant or Beneficiary brings a claim that relates to benefits
under this Plan, regardless of the basis of the claim, such claim shall be settled by final binding arbitration in accordance with the rules of the
American Arbitration Association (“AAA”) and judgment upon the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof.
(b) Initiation of Action . Arbitration must be initiated by serving or mailing a written notice of the complaint to the other party. Normally,
such written notice should be provided to the other party within one year (365 days) after the day the complaining party first knew or should
have known of the events giving rise to the complaint. However, this time frame may be extended if the applicable statute of limitation
provides for a longer period of time. If the complaint is not properly submitted within the appropriate time frame, all rights and claims that the
complaining party has or may have against the other party shall be waived and void. Any notice sent to the Company shall be delivered to:
Office of General Counsel
Johnson Controls, Inc.
5757 North Green Bay Avenue
P.O. Box 591
Milwaukee, WI 53201-0591
The notice must identify and describe the nature of all complaints asserted and the facts upon which such complaints are based. Notice
will be deemed given according to the date of any postmark or the date of time of any personal delivery.
(c) Compliance with Personnel Policies . Before proceeding to arbitration on a complaint, the Participant or Beneficiary must initiate and
participate in any complaint resolution procedure identified in the Company’s personnel policies. If the claimant has not initiated the complaint
resolution procedure before initiating arbitration on a complaint, the initiation of the arbitration shall be deemed to begin the complaint
resolution procedure. No arbitration hearing shall be held on a complaint until any applicable Company complaint resolution procedure has
been completed.
(d) Rules of Arbitration . All arbitration will be conducted by a single arbitrator according to the Employment Dispute Arbitration Rules
of the AAA. The arbitrator will have authority to award any remedy or relief that a court of competent jurisdiction could order or grant
including, without limitation, specific performance of any obligation created under
13
policy, the awarding of punitive damages, the issuance of any injunction, costs and attorney’s fees to the extent permitted by law, or the
imposition of sanctions for abuse of the arbitration process. The arbitrator’s award must be rendered in a writing that sets forth the essential
findings and conclusions on which the arbitrator’s award is based.
(e) Representation and Costs . Each party may be represented in the arbitration by an attorney or other representative selected by the
party. The Company shall be responsible for its own costs, the AAA filing fee and all other fees, costs and expenses of the arbitrator and AAA
for administering the arbitration. The claimant shall be responsible for his attorney’s or representative’s fees, if any. However, if any party
prevails on a statutory claim which allows the prevailing party costs and/or attorneys’ fees, the arbitrator may award costs and reasonable
attorneys’ fees as provided by such statute.
(f) Discovery; Location; Rules of Evidence . Discovery will be allowed to the same extent afforded under the Federal Rules of Civil
Procedure. Arbitration will be held at a location selected by the Company. AAA rules notwithstanding, the admissibility of evidence offered at
the arbitration shall be determined by the arbitrator who shall be the judge of its materiality and relevance. Legal rules of evidence will not be
controlling, and the standard for admissibility of evidence will generally be whether it is the type of information that responsible people rely
upon in making important decisions.
(g) Confidentiality . The existence, content or results of any arbitration may not be disclosed by a party or arbitrator without the prior
written consent of both parties. Witnesses who are not a party to the arbitration shall be excluded from the hearing except to testify.
14
JOHNSON CONTROLS, INC.
2001 RESTRICTED STOCK PLAN
(Adjusted to reflect 3-for-1 stock split effective September 14, 2007)
ARTICLE 1.
PURPOSE AND DURATION
Exhibit 10.K
Section 1.1. Purpose . The Johnson Controls, Inc. Restricted Stock Plan has two complementary purposes: (a) to promote the success of
the Company by providing incentives to the Company’s and subsidiary’s officers and other key employees that will link their personal interests
to the long-term financial success of the Company and to growth in value; and (b) to permit the Company and its subsidiaries to attract,
motivate and retain experienced and knowledgeable employees upon whose judgment, interest, and special efforts the successful conduct of the
Company’s operations is largely dependent.
Section 1.2. Duration . The Plan was originally effective on October 1, 2001. The Plan is amended and restated effective September 20,
2011. The Plan shall remain in effect, subject to the right of the Board to terminate the Plan at any time pursuant to Article 11 herein, until all
Shares reserved for issuance under the Plan have been issued.
ARTICLE 2.
DEFINITIONS AND CONSTRUCTION
Section 2.1. Definitions . Wherever used in the Plan, the following terms shall have the meanings set forth below and, when the meaning
is intended, the initial letter of the word is capitalized:
(a) “Act” means the Securities Act of 1933, as interpreted by rules and regulations issued pursuant thereto, all as amended and in effect
from time to time. Any reference to a specific provision of the Act shall be deemed to include reference to any successor provision thereto.
(b) “Award” means a grant of Restricted Shares or Restricted Share Units.
(c) “Beneficial Owner” (or derivatives thereof) shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act.
(d) “Board” means the Board of Directors of the Company.
(e) “Cause” means: (1) if the Participant is subject to an employment agreement that contains a definition of “cause”, such definition, or
(2) otherwise, any of the following as determined by the Committee: (a) violation of the provisions of any employment agreement, non-
competition agreement, confidentiality agreement, or similar agreement with the Company or subsidiary, or the Company’s or subsidiary’s
code of ethics, as then in effect, (b) conduct rising to the level of gross negligence or willful misconduct in the course of employment
with the Company or subsidiary, (c) commission of an act of dishonesty or disloyalty involving the Company or subsidiary, (d) violation of any
federal, state or local law in connection with the Participant’s employment, or (e) breach of any fiduciary duty to the Company or a subsidiary.
(f) “Change of Control” means the occurrence of any one of the following:
(1) The acquisition, other than from the Company, by any Person of Beneficial Ownership of 20% or more of either (A) the then
outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting
power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the
“Company Voting Securities”); provided, however , that any acquisition by (x) the Company or any of its subsidiaries, or any
employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (y) any corporation
with respect to which, following such acquisition, more than 60% of, respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then Beneficially Owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the Beneficial Owners, respectively, of the Outstanding Company Common Stock and Company Voting
Securities immediately prior to such acquisition in substantially the same proportion as their ownership, immediately prior to such
acquisition, of the Outstanding Company Common Stock and Company Voting Securities, as the case may be, shall not constitute
a Change in Control of the Company.
(2) Individuals who, as of May 24, 1989, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a
majority of the Board, provided that any individual becoming a director subsequent to May 24, 1989, whose election or
nomination for election by the Company’s shareholders was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the Directors of the Company (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act).
(3) Consummation of a reorganization, merger or consolidation (a “Business Combination”), in each case, with respect to which all or
substantially all of the individuals and entities who were the respective Beneficial Owners of the Outstanding Company Common
Stock and Company Voting Securities immediately prior to such Business Combination do not, following such Business
Combination, Beneficially Own, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting
from such Business Combination in substantially the same proportion as their ownership immediately prior to such Business
Combination of the Outstanding Company Common Stock and Company Voting Securities, as the case may be.
(4) A complete liquidation or dissolution of the Company or sale or other disposition of all or substantially all of the assets of the
Company other than to a corporation with respect to which, following such sale or disposition, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors is then Beneficially Owned, directly or indirectly, by all or substantially all of the individuals and
entities who were the Beneficial Owners, respectively, of the Outstanding Company Common Stock and Company Voting Securities
immediately prior to such sale or disposition in substantially the same proportion as their ownership of the Outstanding Company
Common Stock and Company Voting Securities, as the case may be, immediately prior to such sale or disposition.
(g) “Code” means the Internal Revenue Code of 1986, as interpreted by rules and regulations issued pursuant thereto, all as amended and
in effect from time to time. Any reference to a specific provision of the Code shall be deemed to include reference to any successor provision
thereto.
(h) “Committee” means the Compensation Committee of the Board, or such other committee appointed by the Board to administer the
Plan pursuant to Article 3 herein.
(i) “Company” means Johnson Controls, Inc., a Wisconsin corporation, and any successor as provided in Article 13.
(j) “Deferred Compensation Plan” means the Johnson Controls, Inc. Executive Deferred Compensation Plan, as from time to time
amended and in effect.
(k) “Eligible Employee” means a current management or highly compensated employee of the Company or subsidiary.
(l) “Exchange Act” means the Securities Exchange Act of 1934, as interpreted by rules and regulations issued pursuant thereto, all as
amended and in effect from time to time. Any reference to a specific provision of the Exchange Act shall be deemed to include reference to any
successor provision thereto.
(m) “Fair Market Value” means with respect to a Share, the closing sales price on the New York Stock Exchange on the date in question
(or the immediately preceding trading
day if the date in question is not a trading day), and with respect to any other property, such value as is determined by the Committee.
(n) “Inimical Conduct” means any act or omission that is inimical to the best interests of the Company or any subsidiary, as determined
by the Committee in its sole discretion, including but not limited to: (1) violation of any employment, noncompete, confidentiality or other
agreement in effect with the Company or any subsidiary, (2) taking any steps or doing anything which would damage or negatively reflect on
the reputation of the Company or a subsidiary, or (3) failure to comply with applicable laws relating to trade secrets, confidential information or
unfair competition.
(o) “Participant” means an Eligible Employee who has been granted an Award.
(p) “Period of Restriction” means the period during which Shares or Share Units may not be transferred and are subject to a substantial
risk of forfeiture.
(q) “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a “group” as defined in Section 13(d) thereof.
(r) “Plan” means this Johnson Controls, Inc. 2001 Restricted Stock Plan, as from time to time amended and in effect.
(s) “Restricted Shares” means Shares that are subject to a Period of Restriction.
(t) “Restricted Share Units” means Share Units that are subject to a Period of Restriction.
(u) “Retirement” means, unless otherwise set forth in an Award agreement, a voluntary termination of employment from the Company
and its subsidiaries (for other than Cause) on or after age fifty-five (55) and completion of at least ten (10) years of vesting service, or age
sixty-five (65) and completion of at least five (5) years of vesting service (such vesting service to be determined within the meaning of the
Johnson Controls Pension Plan or such other plan or methodology specified by the Committee).
(v) “Rule 16b-3” means Rule 16b-3 under the Exchange Act.
(w) “Share” means the common stock of the Company, or such other securities specified in Section 4.3.
(x) “Share Unit” means a measure of compensation having a value equal to the Fair Market Value of a single Share.
(y) “Total and Permanent Disability” means the Participant’s inability to perform the material duties of his occupation as a result of a
medically-determinable physical or mental impairment which can be expected to result in death or which has lasted or can be
expected to last for a period of at least twelve (12) months, as determined by the Committee. The Participant will be required to submit such
medical evidence or to undergo a medical examination by a doctor selected by the Committee as the Committee determines is necessary in
order to make a determination hereunder.
Section 2.2. Construction . Wherever any words are used in the masculine, they shall be construed as though they were used in the
feminine in all cases where they would so apply; and wherever any words are use in the singular or the plural, they shall be construed as though
they were used in the plural or the singular, as the case may be, in all cases where they would so apply. Titles of articles and sections are for
general information only, and the Plan is not to be construed by reference to such items.
Section 2.3. Severability . In the event any provision of the Plan is held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the said illegal or invalid provision had not been
included.
ARTICLE 3.
ADMINISTRATION
Section 3.1. The Committee . The Plan shall be administered by the Committee. If at any time the Committee shall not be in existence,
the Plan shall be administered by the Board and each reference to the Committee herein shall be deemed to include the Board.
Section 3.2. Authority of the Committee . In addition to the authority specifically granted to the Committee in the Plan, and subject to
the provisions of the Plan, the Committee shall have full power and discretionary authority to: (a) select Participants, grant Awards, and
determine the terms and conditions of each such Award, including but not limited to the Period of Restriction and the number of Shares to
which the Award will relate; (b) administer the Plan, including but not limited to the power and authority to construe and interpret the Plan and
any award agreement; (c) correct errors, supply omissions or reconcile inconsistencies in the terms of the Plan and any award agreement;
(d) establish, amend or waive rules and regulations, and appoint such agents, as it deems appropriate for the Plan’s administration; and
(e) make any other determinations, including factual determinations, and take any other action as it determines is necessary or desirable for the
Plan’s administration.
Notwithstanding the foregoing, the Committee shall have no authority to act to adversely affect the rights or benefits granted under any
outstanding Award without the consent of the person holding such Award (other than as specifically provided herein).
Section 3.3. Decision Binding . The Committee’s determination and decisions made pursuant to the provisions of the Plan and all related
orders or resolutions of the Board shall be final, conclusive and binding on all persons who have an interest in the Plan or an Award, and such
determinations and decisions shall not be reviewable.
Section 3.4. Procedures of the Committee . The Committee’s determinations must be made by not less than a majority of its members
present at the meeting (in person or otherwise) at which a quorum is present, or by written majority consent, which sets forth the
action, is signed by each member of the Committee and filed with the minutes for proceedings of the Committee. A majority of the entire
Committee shall constitute a quorum for the transaction of business. Service on the Committee shall constitute service as a director of the
Company so that the Committee members shall be entitled to indemnification, limitation of liability and reimbursement of expenses with
respect to their Committee services to the same extent that they are entitled under the Company’s By-laws and Wisconsin law for their services
as directors of the Company.
Section 3.5. Award Agreements . The Committee shall evidence the grant of each Award by an award agreement which shall be signed
by an authorized officer of the Company and by the Participant, and shall contain such terms and conditions as may be approved by the
Committee, subject to the terms and conditions as may be approved by the Committee, subject to the terms of the Plan. Terms and conditions
of such Awards need not be the same in all cases.
ARTICLE 4.
SHARES SUBJECT TO THE PLAN
Section 4.1. Number of Shares . Subject to adjustment as provided in Section 4.3, the aggregate number of Shares that may be issued
pursuant to Awards granted under the Plan shall not exceed 4,500,000 Shares. Shares delivered under the Plan shall consist solely of treasury
Shares.
Section 4.2. Lapsed Awards . If any shares issued under the Plan are forfeited, then such Shares shall be available for the grant of a new
Award under the Plan.
Section 4.3. Adjustments in Authorized Shares . In the event of any merger, reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, split-up, share combination, or other change in the corporate structure of the Company affecting the Shares, the
Committee shall adjust: (a) the number and class of Shares which may be delivered under the Plan; and (b) the number and class of Shares or
Share Units subject to outstanding Awards, as it determines to be appropriate and equitable to prevent dilution or enlargement of the rights
intended to be granted hereunder and under any Award; provided that the number of Shares subject to any Award shall always be a whole
number.
Subject to the provisions of the Plan, the Committee shall have the authority to select the Employees to receive an Award. No Employee
shall have any right to be granted an Award even if previously granted an Award.
ARTICLE 5.
PARTICIPATION
ARTICLE 6.
TERMS AND CONDITIONS OF AWARDS
Section 6.1. Grant of Award . Subject to the terms and provisions of the Plan, the Committee shall have the authority to determine the
number of Shares or Share Units to which an Award shall relate, the term of the Restriction Period and conditions for lapse thereof, and any
other terms and conditions of an Award. If determined by the Committee, a Participant may elect to defer all or any portion of his Restricted
Shares or Restricted Share Units pursuant to the Deferred Compensation Plan.
Section 6.2. Terms and Conditions of Restricted Share Awards .
(a) Period of Restriction . Restricted Shares may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, and
shall be subject to a substantial risk of forfeiture, until the termination of the applicable Period of Restriction as set forth in the Participant’s
award agreement or provided herein. During the Period of Restriction, the Company shall have the right to hold the Restricted Shares in
escrow.
(b) Certificate Legend . Each certificate representing Restricted Shares shall bear the following legend:
“The sale or other transfer of the shares of stock represented by this certificate, whether voluntary,
involuntary, or by operation of law, is subject to certain restrictions on transfer set forth in the Johnson
Controls, Inc. 2001 Restricted Stock Plan, in the rules and administrative procedures adopted pursuant to
such Plan, and in a Restricted Stock Agreement dated _________________. A copy of the Plan, such rules
and procedures, and such Restricted Stock Agreement may be obtained from the Secretary of Johnson
Controls, Inc.”
(c) Removal of Restrictions . Except as otherwise provided in this Article, Restricted Shares shall become vested in, and freely
transferable by, the Participant after the last day of the Period of Restriction. Once the Shares are released from the restrictions, the Participant
shall be entitled to have the legend required by subsection (b) removed from his stock certificate.
(d) Voting Rights . Unless determined otherwise by the Committee, during the Period of Restriction, Participants holding Restricted
Shares may exercise full voting rights with respect to those Shares.
(e) Dividends and Other Distributions . Any dividends or other distributions paid or delivered with respect to Restricted Shares will be
subject to the same terms and conditions (including risk of forfeiture) as the Restricted Shares to which they relate and payment or delivery
thereof will be deferred accordingly. Unless otherwise determined by the Committee, all dividends or other distributions paid or delivered with
respect to Restricted Shares shall be allocated to a Share Unit account or other investment account under the Deferred Compensation Plan.
Section 6.3. Terms and Conditions of Restricted Share Units .
(a) Establishment of Account . Upon the grant of Restricted Share Units to a Participant, the Company shall establish a bookkeeping
account under the Deferred Compensation Plan to which shall be credited the number of Share Units granted.
(b) Alienation of Account . A Participant (or beneficiary) shall not have any right to assign, hypothecate, pledge, encumber or otherwise
alienate his Share Unit account.
(c) Dividends and Other Distributions . Each Participant with a Share Unit account shall be entitled to receive a credit to such account for
any dividends or other distributions delivered on Shares, whether in the form of cash or in property, in accordance with the terms of the
Deferred Compensation Plan; provided that such credit shall be subject to the same terms and conditions (including risk of forfeiture) as the
Restricted Share Units to which they relate.
(d) Payment of Account . The value of the Participant’s Share Unit account as to which the Restriction Period has lapsed shall be paid to
the Participant (or his beneficiary) in accordance with the terms of the Deferred Compensation Plan.
Section 6.4. Termination of Employment . Upon a Participant’s termination of employment from the Company and its subsidiaries, the
following rules shall apply:
(a) Retirement . If the Participant terminates employment due to Retirement, any remaining Period of Restriction shall continue as if the
Participant continued in active employment. Notwithstanding the foregoing, if the Participant engages in Inimical Conduct after his Retirement,
any Restricted Shares and/or Restricted Share Units still subject to a Period of Restriction shall automatically be forfeited as of the date of the
Committee’s determination.
(b) Death or Disability . If the Participant’s employment terminates because of death or Total and Permanent Disability at a time when
the Participant could not have been terminated for Cause, or if the Participant dies after Retirement while holding an Award that is subject to a
Period of Restriction, any remaining Period of Restriction shall automatically lapse as of the date of such termination of employment or death,
as applicable.
(c) Termination for Other Reasons . If the Participant’s employment terminates for any reason not described above, then any Restricted
Shares and/or Restricted Share Units still subject to a Period of Restriction as of the date of such termination shall automatically be forfeited
and returned to the Company; provided, however , that in the event of an involuntary termination of the employment of an Employee by the
Company or a subsidiary for other than Cause, the Committee may waive the automatic forfeiture of any or all such Shares or Share Units and
may add such new restrictions to such Restricted Shares or Restricted Share Units as it deems appropriate.
(d) Suspension . The Committee may suspend payment or delivery of Shares (without liability for interest thereon) pending its
determination of whether the Participant was or should have been terminated for Cause or whether the Participant has engaged in Inimical
Conduct.
Section 6.5. Other Restrictions . The Committee may impose such other restrictions on any Awards granted pursuant to the Plan
(including after the Period of Restriction lapses) as it may deem advisable including, without limitation, restrictions under applicable Federal or
state securities laws, and the Committee may legend certificates to give appropriate notice of such restrictions.
ARTICLE 7.
RIGHTS OF ELIGIBLE INDIVIDUALS
Section 7.1. Employment . Nothing in the Plan shall interfere with or limit in any way the right of the Company or subsidiary to
terminate any Participant’s employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or
subsidiary.
Section 7.2. No Implied Rights; Rights on Termination of Service . Neither the establishment of the Plan nor any amendment thereof
shall be construed as giving any Participant or any other person any legal or equitable right unless such right shall be specifically provided for
in the Plan or conferred by specific action of the Committee in accordance with the terms and provisions of the Plan.
Section 7.3. No Funding . Neither the Participant nor any other person shall acquire, by reason of the Plan or any Award, any right in or
title to any assets, funds or property of the Company and its subsidiaries whatsoever including, without limiting the generality of the foregoing,
any specific funds, assets, or other property which the Company or its subsidiaries may, in their sole discretion, set aside in anticipation of a
liability hereunder. Any benefits which become payable hereunder shall be paid from the general assets of the Company and its subsidiaries, as
applicable. The Participant shall have only a contractual right to the amounts, if any, payable hereunder unsecured by any asset of the Company
or its subsidiaries. Nothing contained in the Plan constitutes a guarantee by the Company or its subsidiaries that the assets of the Company or
its subsidiaries shall be sufficient to pay any benefit to any person.
Section 7.4. Other Restrictions . As a condition to the issuance of any Shares, the Committee may require the Participant to enter into a
restrictive stock transfer or other shareholder’s agreement with the Company.
If a Change of Control occurs, any Period of Restriction of any outstanding Award shall lapse upon the date of the Change of Control.
ARTICLE 8.
CHANGE OF CONTROL
ARTICLE 9.
AMENDMENT, MODIFICATION, AND TERMINATION
Section 9.1. Amendment, Modification, and Termination of the Plan . At any time and from time to time, the Board may terminate,
amend, or modify the Plan. However, the approval of any such amendment by the shareholders of the Company shall be obtained if required by
the Code, by the insider trading rules of Section 16 of the Exchange Act, by any national securities exchange or system on which the Shares are
then listed or reported, or by any regulatory body having jurisdiction with respect hereto. Further, no termination, amendment or modification
of the Plan shall in any manner adversely affect any Award theretofore granted under the Plan, without the written consent of the Participant,
except as specifically provided herein.
Section 9.2. Amendment of Award Agreements . The Committee may at any time amend any outstanding award agreement; provided,
however, that any amendment that decreases or impairs the rights of a Participant under such agreement shall not be effective unless consented
to by the Participant in writing, except that Participant consent shall not be required in the event an Award is amended, adjusted or cancelled
under Section 4.3 or paid as provided in Article 8, and Participant consent shall not be required with respect to any amendment of the Deferred
Compensation Plan that affects a Participant’s Share Unit account to the extent such plan does not require Participant consent.
Section 9.3. Survival Following Termination . Notwithstanding the foregoing, to the extent provided in the Plan, the authority of (a) the
Committee to amend, alter, adjust, suspend, discontinue or terminate any Award, waive any conditions or restrictions with respect to any
Award, and otherwise administer the Plan and any Award and (b) the Board to amend the Plan, shall extend beyond the date of the Plan’s
termination. Termination of the Plan shall not affect the rights of Participants with respect to Awards previously granted to them, and all
unexpired Awards shall continue in force and effect after termination of the Plan except as they may lapse or be terminated by their own terms
and conditions, subject to the terms of the Deferred Compensation Plan.
ARTICLE 10.
WITHHOLDING
Section 10.1. Tax Withholding . The Company shall have the power and the right to deduct or withhold, or require a Participant to remit
to the Company, an applicable amount sufficient to satisfy foreign, Federal, state and local taxes (including the Participant’s FICA obligation)
required by law to be withheld with respect to the issuance of Shares, the lapse of the Period of Restriction, or the distribution of the
Participant’s Share Unit account. The Company shall also have the right to withhold Shares as to which the Period of Restriction has lapsed
and which have a Fair Market Value equal to the Participants’ minimum tax withholding liability, to satisfy any withholding obligations.
Section 10.2. Stock Delivery or Withholding . Participants may elect, subject to the approval of the Committee and such rules as it shall
prescribe, to satisfy the withholding requirement, in whole or in part, by tendering to the Company previously acquired Shares in an
amount having a Fair Market Value equal to the amount required to be withheld to satisfy the minimum tax withholding obligations described
in Section 10.1. The value of the Shares to be tendered is to be based on the Fair Market Value of the Shares on the date that the amount of tax
to be withheld is determined.
ARTICLE 11.
LEGENDS; PAYMENT OF EXPENSES
Section 11.1. Legends . The Company may endorse such legend or legends upon the certificates for Shares issued under the Plan and
may issue such “stop transfer” instructions to its transfer agent in respect of such Shares as it determines to be necessary or appropriate to (a)
prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act, applicable state securities laws or
other legal requirements, or (b) implement the provisions of the Plan or any agreement between the Company and the Participant with respect
to such Shares.
Section 11.2. Payment of Expenses . The Company shall pay for all issuance taxes with respect to the issuance of Shares under the Plan,
as well as all fees and expenses incurred by the Company in connection with such issuance.
ARTICLE 12.
SUCCESSORS
All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or
substantially all of the business and/or assets of the Company. The Plan shall be binding upon and inure to the benefit of the Participants and
their heirs, executors, administrators or legal representatives.
ARTICLE 13.
REQUIREMENTS OF LAW
Section 13.1. Requirements of Law . The granting of Awards and the issuance of Shares under this Plan shall be subject to all applicable
laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
Section 13.2. Governing Law . This Plan and the rights and obligations hereunder shall be governed by and construed in accordance
with the internal laws of the State of Wisconsin (excluding any choice of law rules that may direct the application of the laws of another
jurisdiction), except as provided in Section 13.3 hereof.
Section 13.3. Arbitration .
(a) Application . Notwithstanding any employee agreement in effect between a Participant and the Company or any subsidiary employer,
if a Participant brings a claim that relates to benefits under this Plan, regardless of the basis of the claim (including but not limited to, actions
under Title VII, wrongful discharge, breach of employment agreement, etc.), such
claim shall be settled by final binding arbitration in accordance with the rules of the American Arbitration Association (“AAA”) and judgment
upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.
(b) Initiation of Action . Arbitration must be initiated by serving or mailing a written notice of the complaint to the other party. Normally,
such written notice should be provided the other party within one year (365 days) after the day the complaining party first knew or should have
known of the events giving rise to the complaint. However, this time frame may be extended if the applicable statute of limitation provides for
a longer period of time. If the complaint is not properly submitted within the appropriate time frame, all rights and claims that the complaining
party has or may have against the other party shall be waived and void. Any notice sent to the Company shall be delivered to:
Office of General Counsel
Johnson Controls, Inc.
5757 North Green Bay Avenue
P.O. Box 591
Milwaukee, WI 53201-0591
The notice must identify and describe the nature of all complaints asserted and the facts upon which such complaints are based. Notice
will be deemed given according to the date of any postmark or the date of time of any personal delivery.
(c) Compliance with Personnel Policies . Before proceeding to arbitration on a complaint, the Participant or Beneficiary must initiate and
participate in any complaint resolution procedure identified in the Company’s or subsidiary’s personnel policies. If the claimant has not
initiated the complaint resolution procedure before initiating arbitration on a complaint, the initiation of the arbitration shall be deemed to begin
the complaint resolution procedure. No arbitration hearing shall be held on a complaint until any applicable Company or subsidiary complaint
resolution procedure has been completed.
(d) Rules of Arbitration . All arbitration will be conducted by a single arbitrator according to the Employment Dispute Arbitration Rules
of the AAA. The arbitrator will have authority to award any remedy or relief that a court of competent jurisdiction could order or grant
including, without limitation, specific performance of any obligation created under policy, the awarding of punitive damages, the issuance of
any injunction, costs and attorney’s fees to the extent permitted by law, or the imposition of sanctions for abuse of the arbitration process. The
arbitrator’s award must be rendered in a writing that sets forth the essential findings and conclusions on which the arbitrator’s award is based.
(e) Representation and Costs . Each party may be represented in the arbitration by an attorney or other representative selected by the
party. The Company or subsidiary shall be responsible for its own costs, the AAA filing fee and all other fees, costs and expenses of the
arbitrator and AAA for administering the arbitration. The claimant shall be responsible for his attorney’s or representative’s fees, if any.
However, if any party prevails on a statutory claim which allows the prevailing party costs and/or attorneys’ fees, the arbitrator may award
costs and reasonable attorneys’ fees as provided by such statute.
(f) Discovery; Location; Rules of Evidence . Discovery will be allowed to the same extent afforded under the Federal Rules of Civil
Procedure. Arbitration will be held at a location selected by the Company. AAA rules notwithstanding, the admissibility of evidence offered at
the arbitration shall be determined by the arbitrator who shall be the judge of its materiality and relevance. Legal rules of evidence will not be
controlling, and the standard for admissibility of evidence will generally be whether it is the type of information that responsible people rely
upon in making important decisions.
(g) Confidentiality . The existence, content or results of any arbitration may not be disclosed by a party or arbitrator without the prior
written consent of both parties. Witnesses who are not a party to the arbitration shall be excluded from the hearing except to testify.
Exhibit 10.L
Granted To:
Number of Shares:
Grant Date:
Vesting Schedule:
RESTRICTED STOCK AGREEMENT
This certifies that on [DATE], Johnson Controls, Inc., granted a Restricted Stock Award as indicated above, upon the terms and conditions in
this Agreement and the terms of the Restricted Stock Plan dated October 1, 2001, and amended through September 20, 2011, which terms the
Participant accepts.
Johnson Controls, Inc., a Wisconsin corporation, has its principal office in Milwaukee, Wisconsin, (the “Company”). The Restricted Stock Plan
(the “Plan”) was adopted October 1, 2001, to allow Restricted Shares or Restricted Share Units of the Company’s common stock (“Shares”) to
be granted to certain key employees of the Company or any Subsidiary, as defined in Section 425(f) of the Internal Revenue Code of 1986, as
amended (“Subsidiary”).
The individual named in this agreement (the “Participant”) is a key employee of the Company or a Subsidiary, and the Company desires the
Participant to remain in such employ by providing the Participant with a means to increase his/her proprietary interest in the Company’s
success. The Plan and this Agreement shall be administered by the Compensation Committee of the Board of Directors (the “Committee”). If at
any time the Committee shall not be in existence, the Board shall administer the Plan and this Agreement and each reference to the Committee
herein shall be deemed to include the Board.
The parties mutually agree as follows:
1.
Grant of Award . Subject to the terms and conditions of the Plan, a copy of which has been delivered to the Participant and made a
part hereof, and this Agreement, the Company grants to the Participant an award of Restricted Shares on the date and with respect to
the number of Shares specified above. Any capitalized terms not defined in this Agreement will have the meanings provided in the
Plan.
2.
Restricted Shares . If the Award is in the form of Restricted Shares, the Restricted shares are subject to the following provisions:
Restriction Period. The Company will hold the Restricted Shares in escrow for the Restriction Period. During this period, the
Participant may not sell, transfer, pledge, assign or otherwise use these Restricted Shares, and the Restricted Shares shall be subject to
forfeiture as provided in Section 4.
Restricted Shares will be held in a book entry share position while in escrow, subject to the transfer restrictions and risk of forfeiture.
a.
Removal of Restrictions . Restricted Shares that have not been forfeited shall become available to the Participant after the last
day of the Restriction Period. Once the Shares are released, the restrictions shall be removed from the Participant’s book entry
share position.
b.
Voting Rights . During the Restriction Period, the Participant may exercise full voting rights with respect to the Restricted
Shares.
c.
Dividends and Other Distributions . Any dividends or other distributions paid or delivered with respect to Restricted Shares
will be subject to the same terms and conditions (including risk of forfeiture) as the Restricted Shares to which they relate. All
dividends or other distributions paid or delivered with respect to Restricted Shares during the Restriction Period (other than
dividends or other distributions payable in Shares) shall be allocated to a Share Unit account under the Deferred
Compensation Plan. Dividends or distributions payable in shares will be held in a book entry share position as Restricted
Shares.
d.
Payment of Dividends . The value of the Participant’s Share Unit account as to which the Restriction Period has lapsed shall
be paid to the Participant (or his beneficiary).
3.
Restricted Share Units. If the Award is in the form of Restricted Share Units , the Restricted Share Units are subject to the following
terms:
a.
Establishment of Account . The Company shall establish a bookkeeping account under the Deferred Compensation Plan to
which shall be credited the number of Restricted Share Units elected. During the Restriction Period, the Restricted Share Unit
account will be subject to a risk of forfeiture as provided in Section 4.
b.
Alienation of Account . The Participant (or beneficiary) shall not have any right to assign, transfer, pledge, encumber or
otherwise use the Restricted Share Unit account (including after the Restriction Period has lapsed).
c.
Dividends and Other Distributions . The Participant’s Restricted Share Unit account shall be credited for any dividends or
other distributions delivered on Shares equivalent to the number of Restricted Share Units credited to such account, whether in
the form of cash or in property, in accordance with the terms of the Deferred Compensation Plan. Such credit shall be subject
to the same terms and conditions (including risk of forfeiture) as the Restricted Share Units to which they relate.
d.
Payment of Account . The value of the Participant’s Share Unit account as to which the Restriction Period has lapsed shall be
paid to the Participant (or his beneficiary) in accordance with the terms of the Deferred Compensation Plan.
4.
Termination of Employment — Risk of Forfeiture.
a.
Retirement . If the Participant terminates employment from the Company and its Subsidiaries due to Retirement on or after
the last day of the calendar year following the calendar year in which the Award of Restricted Shares or Restricted Share
Units is made, any remaining Restriction Period shall continue as if the Participant continued in active employment. If the
Participant engages in Inimical Conduct after his Retirement, as determined by the Committee, any Restricted Shares and/or
Restricted Share Units still subject to a Restriction Period shall automatically be forfeited as of the date of the Committee’s
determination. For purposes of this Agreement, “Retirement” [[has the meaning given in the Plan.] [means the attainment of
age x [with x years of service.]]
b.
Death or Disability . If the Participant’s employment from the Company and its Subsidiaries terminates because of death or
Total and Permanent Disability at a time when the Participant could not have been terminated for Cause, or if the Participant
dies after Retirement while this Award is still subject to the Restriction Period, any remaining Restriction Period shall
automatically lapse as of the date of such termination of employment or death, as applicable.
c.
Other Termination. If the Participant’s employment terminates for any reason not described above, then any Restricted Shares
or Restricted Share Units (and all deferred dividends paid or credited thereon) still subject to the Restriction Period as of the
date of such termination shall automatically be forfeited and returned to the Company. In the event of the Participant’s
involuntary termination of employment by the Company or a Subsidiary for other than Cause, the Committee may waive the
automatic forfeiture of any or all such Shares or Share Units (and all deferred dividends paid or credited thereon) and may add
such new restrictions to such Restricted Shares or Restricted Share Units as it deems appropriate. The Company may suspend
payment or delivery of Shares (without liability for interest thereon) pending the Committee’s determination of whether the
Participant was or should have been terminated for Cause or whether the Participant has engaged in Inimical Conduct.
-2-
5.
Amendment of Agreement. The Committee, subject to the provisions of the Restricted Stock Plan, may amend this award agreement.
6.
Withholding. The Participant agrees to remit to the Company any foreign, Federal, state and/or local taxes (including the Participant’s
FICA obligation) required by law to be withheld with respect to the issuance of Shares or the vesting and/or distribution of the
Participant’s Share Unit account. The Company can withhold Shares no longer restricted, or can withhold from other cash or property
payable to the Participant, in the amount needed to satisfy any withholding obligations.
The Participant may elect to tender to the Company previously acquired Shares to satisfy the minimum tax withholding obligations.
The value of the Shares to be tendered is to be based on the Fair Market Value of the Shares on the date that the amount of tax to be
withheld is determined.
7.
Securities Compliance. The Company may place a legend or legends upon the certificates for Shares issued under the Plan and may
issue “stop transfer” instructions to its transfer agent in respect of such Shares as it determines to be necessary or appropriate to (a)
prevent a violation of, or to obtain an exemption from, the registration requirements of the Securities Act, applicable state securities
laws or other legal requirements, or (b) implement the provisions of the Plan or any agreement between the Company and the
Participant with respect to such Shares.
8.
Successors. All obligations of the Company under this Agreement shall be binding on any successor to the Company. The terms of
this Agreement and the Plan shall be binding upon and inure to the benefit of the Participants, heirs, executors, administrators or legal
representatives.
9.
Legal Compliance. The granting of this Award and the issuance of Shares under this Agreement shall be subject to all applicable
laws, rules, and regulations and to such approvals by any governmental agencies or national securities exchanges as may be required.
10. Governing Law; Arbitration. This Agreement and the rights and obligations hereunder shall be governed by and construed in
accordance with the internal laws of the State of Wisconsin.
Arbitration will be conducted per the provisions in the Restricted Stock Plan.
This Agreement, and any documents expressly incorporated herein, contains all of the provisions applicable to the Restricted Stock Award. No
other statements, documents or practices may modify, waive or alter such provisions unless expressly set forth in writing, signed by an
authorized officer of the Company and delivered to the Participant.
IN WITNESS WHEREOF, the Company has caused this Restricted Stock Agreement to be executed by one of its duly authorized officers, and
the Participant has consented to the terms of this Agreement, as of the date of Grant specified on the front of this certificate.
JOHNSON CONTROLS, INC.
Jerome D. Okarma
Vice President, Secretary and General Counsel
[Name]
Date
-3-
Exhibit 10.Q
JOHNSON CONTROLS, INC.
COMPENSATION SUMMARY FOR NON-EMPLOYEE DIRECTORS
Compensation for non-employee members of the Board of Directors (the “Board”) of Johnson Controls, Inc. (the “Company”), effective
October 1, 2011, consists of the payment for the Company’s fiscal year of:
(i) a retainer at the annual rate of $240,000 to each non-employee director in the form of $110,000 in cash and $130,000 in common
stock of the Company (the “Retainer”) and
(ii) a Committee chair fee at the annual rate of $25,000 in cash to each non-employee chair and successor chair for the Audit, Corporate
Governance, Nominating and Compensation Committees of the Board (the “Committee Chair Fee”).
Payment of Common Stock Portion of the Retainer . The Company will pay the common stock portion of the Retainer on the date of the
annual shareholders meeting to each director then in office, subject to the following:
• If a director is retiring from the Board as of the date of such annual shareholders meeting, then the director will be entitled to receive
common stock with an aggregate value equal to (x) the number of days that have elapsed from October 1 of the fiscal year in question to the
date of the annual shareholders meeting divided by (y) 365, multiplied by $130,000;
• If a director is newly elected at the annual shareholders meeting, or was appointed as a director on or after the October 1 of the fiscal year in
question, then the director will be entitled to receive common stock with an aggregate value equal to (x) the number of days in the period
from the effective date of the director’s appointment or election to the Board through September 30 of the fiscal year in question divided by
(y) 365, multiplied by $130,000.
If a director is newly appointed or elected to the Board after the annual shareholders meeting in the fiscal year in question, then the
director will be entitled to receive upon the effective date of his or her appointment or election common stock with an aggregate value equal to
(x) the number of days in the period from the effective date of the director’s appointment or election through September 30 of the fiscal year in
question divided by (y) 365, multiplied by $130,000.
If a director retires from the Board either on October 1 or after October 1 of the fiscal year in question but prior to the annual
shareholders meeting in such fiscal year, then the director will be entitled to receive upon the effective date of his or her date of retirement
common stock with an aggregate value of (x) the number of days that have elapsed from October 1 of the fiscal year in question to the date of
the director’s retirement divided by (y) 365, multiplied by $130,000.
Payment of the Cash Portion of the Retainer and Committee Chair Fee . The Company will pay the cash portion of the Retainer and the
Committee Chair Fee in the form of a quarterly payment ($27,500 per quarter for the cash portion of the Retainer and $6,250 per quarter for the
Committee Chair Fee) in advance on the first business day of each quarter to each director then in office. If a director is either elected or
appointed to the Board or is appointed as a Committee Chair (or successor to a Committee Chair) at any time during the fiscal year after the
first business day of a quarter, then such director will receive upon the effective date of such election or appointment, for the quarter in which
such
election or appointment is effective, a prorated amount of the cash portion of the Retainer and/or any Committee Chair Fee with such amount to
be determined in the manner set forth below:
• Cash portion of Retainer : The director shall receive a cash amount equal to (x) the number of days from the effective date of the
appointment or election to the first day of the next quarter divided by (y) 90, multiplied by $27,500; and
• Committee Chair Fee : The director shall receive a cash amount equal to (x) the number of days from the effective date of the appointment
or election to the first day of the next quarter divided by (y) 90, multiplied by $6,250.
The Company will not pay any fees for attendance at meetings of the Board or any committee.
All shares of stock to be issued to directors as contemplated above will be issued pursuant to the 2003 Director Stock Plan.
Non-employee directors are permitted to defer all or any part of their Retainer and Committee Chair Fees under the Johnson Controls,
Inc. Deferred Compensation Plan for Certain Directors.
The Company will also reimburse non-employee directors for any expenses related to their service on the Board.
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Exhibit 10.U
JOHNSON CONTROLS, INC.
2007 STOCK OPTION PLAN
(Adjusted to reflect 3-for-1 stock split effective September 14, 2007)
1. Purpose and Effective Date.
(a) Purpose . The Johnson Controls, Inc. 2007 Stock Option Plan has two complementary purposes: (i) to attract and retain outstanding
individuals to serve as officers and employees and (ii) to increase shareholder value. This Plan will provide participants incentives to increase
shareholder value by offering the opportunity to acquire shares of the Company’s common stock, or receive monetary payments based on the
value of such common stock, on the potentially favorable terms that this Plan provides.
(b) Effective Date . This Plan will become effective, and Awards may be granted under this Plan, on and after January 24, 2007 (the
“Effective Date”), contingent on approval of the Plan by the Company’s shareholders on such date. Upon the Effective Date, no new awards
may be granted under the Johnson Controls, Inc. 2000 Stock Option Plan (the “2000 Stock Option Plan”).
2. Definitions. Capitalized terms used in this Plan have the following meanings:
(a) “Administrator” means the Committee. In addition, the Chief Executive Officer of the Company may act as the Administrator with
respect to Awards made (or to be made) to employees who are not Section 16 Participants or Section 162(m) Participants at the time such
authority or responsibility is exercised.
(b) “Affiliate” means any entity that, directly or through one or more intermediaries, is controlled by, controls, or is under common control
with the Company within the meaning of Code Sections 414(b) or (c), provided that, in applying such provisions, the phrase “at least 50
percent” shall be used in place of “at least 80 percent” each place it appears therein; and further provided that solely for purposes of Sections 2
(e), 2(m), 2(r), 9 and 14(b), the phrase “at least 20 percent” shall be used in place of “at least 80 percent” each place it appears therein.
(c) “Award” means a grant of Options and/or Stock Appreciation Rights.
(d) “Board” means the Board of Directors of the Company.
(e) “Cause” means: (1) if the Participant is subject to an employment agreement with the Company or an Affiliate that contains a definition
of “cause”, such definition, or (2) otherwise, any of the following as determined by the Administrator: (A) violation of the provisions of any
employment agreement, non-competition agreement, confidentiality agreement, or similar agreement with the Company or an Affiliate, or the
Company’s or an Affiliate’s code of ethics, as then in effect, (B) conduct rising to the level of gross negligence or willful misconduct in the
course of employment with the Company or an Affiliate, (C) commission of an act of dishonesty or disloyalty involving the Company or an
Affiliate, (D) violation of any federal, state or local law in connection with the Participant’s employment, or (E) breach of any fiduciary duty to
the Company or an Affiliate.
(f) “Change of Control” means the first to occur of any one of the following events:
(i) The acquisition by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
35% or more of either (A) the then-outstanding Shares (the “Outstanding Company Common Stock”) or (B) the combined voting power of
the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company
Voting Securities”); provided, however, that the following acquisitions shall not constitute a Change of Control: (1) any acquisition directly
from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Affiliated Company (as defined below) or (4) any acquisition by any corporation pursuant to a
transaction that complies with Sections 2(f)(iii)(A) — 2(f)(iii)(C);
(ii) Any time at which individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to
constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than
the Board;
(iii) Consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the
Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of
assets or stock of another entity by the Company or any of its subsidiaries (each, a “Business Combination”), in each case unless, following
such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding
Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-
outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such
Business Combination (including, without limitation, a corporation that, as a result of such transaction, owns the Company or all or
substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their
ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company
Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee
benefit plan (or related trust) of the Company, or an Affiliated Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 35% or more of, respectively, the then-outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation,
except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution
of the
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initial agreement or of the action of the Board providing for such Business Combination; or
(iv) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
Notwithstanding the foregoing, for purposes of an Award that provides for the payment of deferred compensation that is subject to Code
Section 409A, if a Change of Control triggers the payment of compensation under such Award, then the definition of Change of Control herein
shall be deemed amended to conform to the requirements of Code Section 409A and the Administrator may provide such an alternate definition
of a Change of Control in the Award agreement governing such Award.
(g) “Code” means the Internal Revenue Code of 1986, as amended. Any reference to a specific provision of the Code includes any successor
provision and the regulations promulgated under such provision.
(h) “Committee” means the Compensation Committee of the Board (or a successor committee with the same or similar authority).
(i) “Company” means Johnson Controls, Inc., a Wisconsin corporation, or any successor thereto.
(j) “Disability” means the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last for a continuous period of at least twelve (12) months, as
determined by the Administrator. The Administrator may request such evidence of disability as it reasonably determines.
(k) “Exchange Act” means the Securities Exchange Act of 1934, as amended. Any reference to a specific provision of the Exchange Act
includes any successor provision and the regulations and rules promulgated under such provision.
(l) “Fair Market Value” means, per Share on a particular date, the closing sales price on such date on the New York Stock Exchange, or if
no sales of Stock occur on the date in question, on the last preceding date on which there was a sale on such market. If the Shares are not listed
on the New York Stock Exchange, but are traded on a national securities exchange or in an over-the-counter market, the closing sales price (or
if there is no closing sales price reported, the average of the closing bid and asked prices) for the Shares on the particular date, or on the last
preceding date on which there was a sale of Shares on that exchange or market, will be used. If the Shares are neither listed on a national
securities exchange nor traded in an over-the-counter market, the price determined by the Administrator, in its discretion, will be used.
However, in connection with an exercise of Options, to the extent the Participant sells any Shares acquired upon such exercise in a market
transaction on the date of exercise, the sale price(s) for any such Shares shall be the Fair Market Value for such Shares.
(m) “Inimical Conduct” means any act or omission that is inimical to the best of interests of the Company or any Affiliate, as determined by
the Administrator in its sole discretion, including but not limited to: (i) violation of any employment, noncompete, confidentiality or other
agreement in effect with the Company or any Affiliate, (ii) taking any steps or doing anything which would damage or negatively reflect on the
reputation of the
3
Company or an Affiliate, or (iii) failure to comply with applicable laws relating to trade secrets, confidential information or unfair competition.
(n) “Option” means the right to purchase Shares at a stated price for a specified period of time.
(o) “Participant” means an individual selected by the Administrator to receive an Award.
(p) “Person” has the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof.
(q) “Plan” means this Johnson Controls, Inc. 2007 Stock Option Plan, as may be amended from time to time.
(r) “Retirement” means, unless otherwise set forth in an Award agreement, termination of employment from the Company and its Affiliates
(for other than Cause) on a date the Participant is then eligible to receive immediate early or normal retirement benefits under the provisions of
any of the Company’s or its Affiliate’s defined benefit pension plans, or if the Participant is not covered under any such plan, on or after
attainment of age fifty-five (55) and completion of ten (10) years of continuous service with the Company and its Affiliates or on or after
attainment of age sixty-five (65) and completion of five (5) years of continuous service with the Company and its Affiliates.
(s) “Rule 16b-3” means Rule 16b-3 as promulgated by the United States Securities and Exchange Commission under the Exchange Act.
(t) “Section 16 Participants” means Participants who are subject to the provisions of Section 16 of the Exchange Act at the time in question.
(u) “Section 162(m) Participants” means the Chief Executive Officer of the Company (or person acting in such capacity) and the four
highest compensated officers (other than the Chief Executive Officer).
(v) “Share” means a share of Stock.
(w) “Stock” means the Common Stock of the Company, par value of $0.01-7/18 per share.
(x) “Stock Appreciation Right” or “SAR” means the right to receive a payment equal to the appreciation of the Fair Market Value of a Share
during a specified period of time.
(y) “Subsidiary” means any corporation, limited liability company or other limited liability entity in an unbroken chain of entities beginning
with the Company if each of the entities (other than the last entity in the chain) owns the stock or equity interest possessing more than fifty
percent (50%) of the total combined voting power of all classes of stock or other equity interests in one of the other entities in the chain.
4
3. Administration.
(a) Administration . The Administrator shall administer this Plan. In addition to the authority specifically granted to the Administrator in
this Plan, the Administrator has full discretionary authority to administer this Plan and all Awards, including but not limited to the authority to:
(i) interpret the provisions of this Plan, (ii) prescribe, amend and rescind rules and regulations relating to this Plan, (iii) correct any defect,
supply any omission, or reconcile any inconsistency in any Award or agreement covering an Award in the manner and to the extent it deems
desirable to carry this Plan into effect and (iv) make all other determinations necessary or advisable for the administration of this Plan. All
determinations of the Administrator are final and binding.
(b) Delegation to Other Committees or Officers . To the extent applicable law permits, the Board may delegate to another committee of the
Board, or the Committee may delegate to one or more officers of the Company, any or all of the authority and responsibility of the Committee.
However, no such delegation is permitted with respect to Awards made to Section 16 Participants or Section 162(m) Participants at the time
any such delegated authority or responsibility is exercised. The Board also may delegate to another committee of the Board consisting entirely
of Non-Employee Directors any or all of the authority and responsibility of the Committee with respect to individuals who are Section 16
Participants or Section 162(m) Participants. If the Board or the Committee has made such a delegation, then all references to the Committee in
this Plan include such other committee or one or more officers to the extent of such delegation.
(c) Indemnification . The Company will indemnify and hold harmless each member of the Committee, the Chief Executive Officer of the
Company, and each officer or member of any other committee to whom a delegation under Section 3(b) has been made, as to any act done, or
determination made, with respect to this Plan or any Award to the maximum extent that the law and the Company’s articles of incorporation
and by-laws permit.
4. Eligibility. The Administrator (to the extent of its authority) may designate any of the following as a Participant from time to time: any
officer or other employee of the Company or its Affiliates, or an individual that the Company or an Affiliate has engaged to become an officer
or employee. The Administrator’s designation of a Participant in any year will not require the Administrator to designate such person to receive
an Award in any other year. No individual shall have any right to be granted an Award, even if an Award was granted to such individual at any
prior time, or if a similarly-situated individual is or was granted an Award under similar circumstances.
5. Types of Awards. Subject to the terms of this Plan, the Administrator may grant any type of Award to any Participant it selects, but only
employees of the Company or a Subsidiary may receive grants of incentive stock options within the meaning of Code Section 422. Awards
may be granted alone or in addition to, in tandem with, or in substitution for any other Award (or any other award granted under another plan
of the Company or any Affiliate).
6. Shares Reserved under this Plan.
(a) Plan Reserve . Subject to adjustment as provided in Section 13, an aggregate of 36,965,289 Shares, plus the Shares described in
subsection (c), are reserved for issuance under this Plan. Notwithstanding the foregoing, subject to adjustment as provided in Section 13, the
Company may issue only 36,965,289 Shares under this Plan upon the exercise of incentive stock options.
5
(b) Depletion and Replenishment of Share Reserve . The aggregate number of Shares reserved under Section 6(a) shall be depleted by the
number of Shares with respect to which an Award is granted. If, however, an Award lapses, expires, terminates or is cancelled without the
issuance of Shares under the Award, or if Shares are forfeited under an Award, or if Shares are issued under any Award and the Company
subsequently reacquires them pursuant to rights reserved upon the issuance of the Shares, or if an SAR is settled in cash, then such Shares may
again be used for new Awards under this Plan under Section 6(a), but such Shares may not be issued pursuant to incentive stock options.
(c) Addition of Shares from Predecessor Plan . If any Shares subject to awards granted under the 2000 Stock Option Plan would again
become available for new grants under the terms of such plan (and are in fact not used for new grants under such plan prior to the Effective
Date), then those Shares will be available for the purpose of granting Awards under this Plan, thereby increasing the number of Shares
available for issuance under this Plan as determined under the first sentence of Section 6(a). Any such Shares will not be available for future
awards under the 2000 Stock Option Plan after the Effective Date.
(d) Participant Limitations . Subject to adjustment as provided in Section 13, no Participant may receive Options for, and/or Stock
Appreciation Rights with respect to, more than 6,000,000 Shares during any two consecutive calendar years. In the initial calendar year that
this Plan is in effect, any Options or SARs granted to a Participant under the 2000 Option Plan in such calendar year shall be counted towards
this limit. In all cases, determinations under this Section 6(d) should be made in a manner that is consistent with the exemption for
performance-based compensation that Code Section 162(m) provides.
7. Options. Subject to the terms of this Plan, the Administrator will determine all terms and conditions of each Option, including but not
limited to: (a) the grant date, which may not be any day prior to the date the Administrator approves the grant; (b) the number of Shares subject
to the Option; (c) the exercise price, which may not be less than the Fair Market Value of the Shares subject to the Option as determined on the
date of grant; (d) the terms and conditions of exercise; and (e) the term, except that an Option must terminate no later than ten (10) years after
the date of grant. In all other respects, the terms of any incentive stock option should comply with the provisions of Code Section 422 except to
the extent the Administrator determines otherwise.
8. Stock Appreciation Rights. Subject to the terms of this Plan, the Administrator will determine all terms and conditions of each SAR,
including but not limited to: (a) whether the SAR is granted independently of an Option or relates to an Option; (b) the number of Shares to
which the SAR relates; (c) the grant date, which may not be any day prior to the date the Administrator approves the grant; (d) the grant price,
provided that the grant price shall not be less than the Fair Market Value of the Shares subject to the SAR as determined on the date of grant;
(e) the terms and conditions of exercise or maturity; (f) the term, provided that an SAR must terminate no later than ten (10) years after the date
of grant; and (g) whether the SAR will be settled in cash, Shares or a combination thereof. If an SAR is granted in relation to an Option, then
unless otherwise determined by the Administrator, the SAR shall be exercisable or shall mature at the same time or times, on the same
conditions and to the extent and in the proportion, that the related Option is exercisable and may be exercised or mature for all or part of the
Shares subject to the related Option. Upon exercise of an SAR in respect of any number of Shares, the number of Shares subject to the related
Option shall be reduced by the same amount and such Option may not be exercised with respect to that number of Shares. The
6
exercise of any number of Options that relate to an SAR shall likewise result in an equivalent reduction in the number of Shares covered by the
related SAR.
9. Termination of Awards.
(a) Termination of Employment . Unless otherwise provided by the Administrator, in the event of the Participant’s termination of
employment or service from the Company and its Affiliates:
(i) As a result of death, the Participant’s Award shall be exercisable immediately to the extent it would have been exercisable had the
Participant remained in service for twelve (12) months after the date of death, and may be exercised until the earlier of the first (1st)
anniversary of the date of the Participant’s death or the last day of the term of the Award.
(ii) As a result of Retirement, the Participant’s Award shall be exercisable immediately in full ( provided that an Award made to a
Participant who Retires prior to the end of the first full calendar year following the completion of the fiscal year in which such Award was
granted shall be exercisable only to the extent exercisable as of the date of Retirement and without regard to Retirement), and may be
exercised until the earlier of the third (3rd) anniversary of the date of Retirement or the last day of the term of the Award; provided that if
the Participant is an officer of the Company at the time of Retirement, the Award may be exercised for the remainder of its full term;
(iii) As a result of Disability, the Participant’s Award shall be exercisable immediately in full, and may be exercised until the earlier of
the third (3rd) anniversary of the date of termination or the last day of the term of the Award; provided that if the Participant is an officer of
the Company at the time of Disability, the Award may be exercised until the earlier of the fifth (5th) anniversary of the date of termination
or the date the Award expires;
(iv) For any other reason not described above (other than Cause, which is governed by subsection (b)), the Participant’s Award may
be exercisable (to the extent exercisable as of the date of such termination) until the earlier of thirty (30) days from the date of termination or
the date the Award expires.
For purposes of this subsection (a) and Sections 7 and 8, the termination of an Award shall occur at the close of business at the Company’s
headquarters on the date in question, or if the date in question is a Saturday, Sunday or holiday, on the immediately preceding business day.
(b) For Cause or Inimical Conduct . Unless otherwise provided by the Administrator, notwithstanding any provisions of this Plan or an
Award agreement to the contrary, a Participant’s Award shall be immediately cancelled and forfeited, regardless of vesting, and any pending
exercises shall be cancelled, on the date that: (i) the Company or an Affiliate terminates the Participant’s employment for Cause, (ii) the
Administrator determines that the Participant’s employment could have been terminated for Cause if the Company or Affiliate had all relevant
facts in its possession as of the date of the Participant’s termination, or (iii) the Administrator determines the Participant has engaged in
Inimical Conduct. The Administrator may suspend all exercises or delivery of cash or Shares (without liability for interest thereon)
7
pending its determination of whether the Participant has been or should have been terminated for Cause or has engaged in Inimical Conduct.
10. Transferability. Awards are not transferable other than by will or the laws of descent and distribution, unless and to the extent the
Administrator allows a Participant to: (a) designate in writing a beneficiary to exercise the Award after the Participant’s death; or (b) transfer an
Award.
11. Termination and Amendment of Plan; Amendment, Modification or Cancellation of Awards.
(a) Term of Plan . Unless the Board earlier terminates this Plan pursuant to Section 11(b), this Plan will terminate on the tenth (10th)
anniversary of the Effective Date.
(b) Termination and Amendment . The Board or the Committee may amend, alter, suspend, discontinue or terminate this Plan at any time,
subject to the following limitations:
(i) the Board must approve any amendment of this Plan to the extent the Company determines such approval is required by: (A) action
of the Board, (B) applicable corporate law or (C) any other applicable law;
(ii) shareholders must approve any amendment of this Plan to the extent the Company determines such approval is required by:
(A) Section 16 of the Exchange Act, (B) the Code, (C) the listing requirements of any principal securities exchange or market on which the
Shares are then traded or (D) any other applicable law; and
(iii) shareholders must approve any of the following Plan amendments: (A) an amendment to materially increase any number of
Shares specified in Section 6(a) or 6(d) (except as permitted by Section 13); or (B) an amendment that would diminish the protections
afforded by Section 11(e).
Notwithstanding anything in the Plan to the contrary, the Board reserves the right to amend the provisions of Section 13(c) prior to the
effective date of a Change of Control without the need to obtain the consent of a Participant or any other individual with an interest in an
Award.
(c) Amendment, Modification or Cancellation of Awards . Subject to the requirements of this Plan including Section 11(e), the
Administrator may modify, amend or cancel any Award, or waive any restrictions or conditions applicable to any Award or the exercise of the
Award, provided that any modification or amendment that materially diminishes the rights of the Participant, or the cancellation of the Award,
shall be effective only if agreed to by the Participant, but the Administrator need not obtain Participant consent for the modification, adjustment
or cancellation of an Award pursuant to the provisions of Section 13 or the modification of an Award to the extent deemed necessary in the
judgment of the Administrator to comply with any applicable law or the listing requirements of any principal securities exchange or market on
which the Shares are then traded or to preserve favorable accounting treatment of any Award for the Company. Notwithstanding the foregoing,
unless determined otherwise by the Administrator, any such amendment shall be made in a manner that will enable an Award intended to be
exempt from Code Section 409A to continue to be so exempt, or to enable an Award intended to comply with Code Section 409A to continue
to so comply.
8
(d) Survival of Authority and Awards . Notwithstanding the foregoing, the authority of the Board and the Administrator under this
Section 11 and to otherwise administer this Plan will extend beyond the date of this Plan’s termination. In addition, termination of this Plan will
not affect the rights of Participants with respect to Awards previously granted to them, and all unexpired Awards will continue in force and
effect after termination of this Plan except as they may be terminated by their own terms and conditions or the terms and conditions of this Plan
prior to its termination.
(e) Repricing Prohibited . Notwithstanding anything in this Plan to the contrary, and except for the adjustments provided in Section 13,
neither the Administrator nor any other person may decrease the exercise price for any outstanding Option or SAR after the date of grant nor
allow a Participant to surrender an outstanding Option or SAR to the Company as consideration for the grant of a new Option or SAR with a
lower exercise price.
(f) Foreign Participation . To assure the viability of Awards granted to Participants employed in foreign countries, the Administrator may
provide for such special terms as it may consider necessary or appropriate to accommodate differences in local law, tax policy or custom.
Moreover, the Administrator may approve such supplements to, or amendments, restatements or alternative versions of, this Plan as it
determines is necessary or appropriate for such purposes. Any such amendment, restatement or alternative versions that the Administrator
approves for purposes of using this Plan in a foreign country will not affect the terms of this Plan for any other country. In addition, all such
supplements, amendments, restatements or alternative versions must comply with the provisions of Section 11(b)(ii) or (iii).
(g) Code Section 409A . The provisions of Code Section 409A are incorporated herein by reference to the extent necessary for any Award
that is subject to Code Section 409A to comply therewith.
12. Taxes.
(a) Withholding . The Company is entitled to withhold the amount of any tax attributable to any amount payable or Shares deliverable under
this Plan, and the Company may defer making payment or delivery if any such tax may be pending unless and until indemnified to its
satisfaction. If Shares are deliverable upon exercise or payment of an Award, the Administrator may permit or require a Participant to satisfy all
or a portion of the federal, state and local withholding tax obligations arising in connection with such Award by electing to (a) have the
Company withhold Shares otherwise issuable under the Award, (b) tender back Shares received in connection with such Award or (c) deliver
other previously owned Shares, in each case having a Fair Market Value equal to the amount to be withheld. However, to the extent that the
limitation in this sentence must apply for the Company to avoid an accounting charge, the amount to be withheld may not exceed the total
minimum federal, state and local tax withholding obligations associated with the transaction. If the Administrator permits an election, the
election must be made on or before the date as of which the amount of tax to be withheld is determined and otherwise as the Administrator
requires.
(b) No Guarantee of Tax Treatment . Notwithstanding any provisions of this Plan, the Company does not guarantee to any Participant or
any other Person with an interest in an Award that any Award intended to be exempt from Code Section 409A shall be so exempt, nor that any
Award intended to comply with Code Section 409A shall so comply, nor will the Company or any Affiliate indemnify, defend or hold harmless
any individual with respect to the tax consequences of any such failure.
9
13. Adjustment Provisions; Change of Control.
(a) Adjustment of Shares . If (i) the Company shall at any time be involved in a merger or other transaction in which the Shares are changed
or exchanged, (ii) the Company shall subdivide or combine its Shares or the Company shall declare a dividend payable in Shares, other
securities, or other property; (iii) the Company shall effect a cash dividend the amount of which exceeds ten percent (10%) of the Fair Market
Value at the time the dividend is declared, or the Company shall effect any other dividend or other distribution on the Shares in the form of
cash, or a repurchase of Shares, that the Board determines by resolution is special or extraordinary in nature or that is in connection with a
transaction that the Company characterizes publicly as a recapitalization or reorganization involving the Shares, or (iv) any other event shall
occur, which, in the case of this clause (iv), in the judgment of the Committee necessitates an adjustment to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under this Plan, then the Board or Committee shall, in such manner as it deems
equitable, adjust any or all of: (i) the number and type of Shares subject to this Plan (including the number and type of Shares described in
Sections 6(a), 6(c) and 6(d)) and which may after the event be made the subject of Awards under this Plan, (ii) the number and type of Shares
subject to outstanding Awards, and (iii) the exercise or grant price with respect to any Award. Without limitation, in the event of any
reorganization, merger, consolidation, combination or other similar corporate transaction or event, whether or not constituting a Change of
Control (other than any such transaction in which the Company is the continuing corporation and in which the outstanding Stock is not being
converted into or exchanged for different securities, cash or other property, or any combination thereof), the Committee may substitute, on an
equitable basis as the Committee determines, for each Share then subject to an Award and the Shares subject to this Plan (if the Plan will
continue in effect), the number and kind of shares of stock, other securities, cash or other property to which holders of Stock are or will be
entitled in respect of each Share pursuant to the transaction.
Unless the Administrator determines otherwise, any such adjustment to an Award that is exempt from Code Section 409A shall be made
in manner that permits the Award to continue to be so exempt, and any adjustment to an Award that is subject to Code Section 409A shall be
made in a manner that complies with the provisions thereof. Further, the number of Shares subject to any Award payable or denominated in
Shares must always be a whole number. Notwithstanding the foregoing, in the case of a stock dividend (other than a stock dividend declared in
lieu of an ordinary cash dividend) or subdivision or combination of the Shares (including a reverse stock split), if no action is taken by the
Board or Committee, adjustments contemplated by this subsection that are proportionate shall nevertheless automatically be made as of the date
of such stock dividend or subdivision or combination of the Shares.
(b) Issuance or Assumption . Notwithstanding any other provision of this Plan, and without affecting the number of Shares otherwise
reserved or available under this Plan, in connection with any merger, consolidation, acquisition of property or stock, or reorganization, the
Administrator may authorize the issuance of Awards under this Plan or the assumption of awards issued under other plans upon such terms and
conditions as it may deem appropriate, subject to the listing requirements of any principal securities exchange or market on which the Shares
are then traded.
(c) Change of Control . If the Participant has in effect an employment, retention, change of control, severance or similar agreement with the
Company or any Affiliate that discusses the effect of a Change of Control on the vesting of a Participant’s Awards, then such
10
agreement shall control the vesting of such Awards upon the occurrence of a Change of Control. In all other cases, unless provided otherwise in
an Award agreement, upon a Change of Control, all Awards then held by Participants who are employed by the Company or an Affiliate shall
be exercisable in full. In addition, upon a Change of Control, the Committee may, in its discretion, cancel each outstanding Award effective on
the date of the Change of Control in exchange for a cash payment to the holder thereof in an amount equal to the number of Options or Stock
Appreciation Rights that have not been exercised multiplied by the excess of the fair market value per Share on the date of the Change of
Control (as determined by the Committee) over the exercise price of the Option or the grant price of the Stock Appreciation Right, as the case
may be.
Except as otherwise expressly provided in any agreement between a Participant and the Company or an Affiliate, if the receipt of any
payment by a Participant under the circumstances described above would result in the payment by the Participant of any excise tax provided for
in Section 280G and Section 4999 of the Code, then the amount of such payment shall be reduced to the extent required to prevent the
imposition of such excise tax.
14. Miscellaneous.
(a) Other Terms and Conditions . Any Award may also be subject to other provisions (whether or not applicable to the Award granted to
any other Participant and whether determined at the time of grant or later) as the Administrator determines appropriate, including, without
limitation, provisions for:
(i) the payment of the purchase price of Options by delivery of cash or other Shares or other securities of the Company (including by
attestation) having a then Fair Market Value equal to the purchase price of such Shares, or by delivery (including by fax) to the Company or
its designated agent of an executed irrevocable option exercise form together with irrevocable instructions to a broker-dealer to sell or
margin a sufficient portion of the Shares and deliver the sale or margin loan proceeds directly to the Company to pay for the exercise price;
(ii) restrictions on resale or other disposition of Shares; and
(iii) compliance with federal or state securities laws and stock exchange requirements.
(b) Employment . The issuance of an Award shall not confer upon a Participant any right with respect to continued employment or service
with the Company or any Affiliate. Unless determined otherwise by the Administrator, for purposes of this Plan and all Awards, the following
rules shall apply:
(i) a Participant who transfers employment between the Company and its Affiliates, or between Affiliates, will not be considered to have
terminated employment;
(ii) a Participant who ceases to be employed by the Company or an Affiliate and immediately thereafter becomes a non-employee
director of the Company or of an Affiliate, or a consultant to the Company or any Affiliate shall not be considered to have terminated
employment until such Participant’s service as a director of, or consultant to, the Company and its Affiliates has ceased;
11
(iii) a Participant employed by an Affiliate will be considered to have terminated employment with the Company and its Affiliates when
such entity ceases to be an Affiliate.
Notwithstanding the foregoing, for purposes of an Award that is subject to Code Section 409A, if a Participant’s termination of
employment triggers the payment of compensation under such Award, then the Participant will be deemed to have terminated employment
upon a “separation from service” within the meaning of Code Section 409A.
(c) No Fractional Shares . No fractional Shares or other securities may be issued or delivered pursuant to this Plan, and the Administrator
may determine whether cash, other securities or other property will be paid or transferred in lieu of any fractional Shares or other securities, or
whether such fractional Shares or other securities or any rights to fractional Shares or other securities will be canceled, terminated or otherwise
eliminated.
(d) Offset . The Company shall have the right to offset, from any amount payable or stock deliverable hereunder, any amount that the
Participant owes to the Company or any Affiliate without the consent of the Participant or any individual with a right to the Participant’s
Award.
(e) Unfunded Plan . This Plan is unfunded and does not create, and should not be construed to create, a trust or separate fund with respect to
this Plan’s benefits. This Plan does not establish any fiduciary relationship between the Company and any Participant or other person. To the
extent any person holds any rights by virtue of an Award granted under this Plan, such rights are no greater than the rights of the Company’s
general unsecured creditors.
(f) Requirements of Law and Securities Exchange . The granting of Awards and the issuance of Shares in connection with an Award are
subject to all applicable laws, rules and regulations and to such approvals by any governmental agencies or national securities exchanges as
may be required. Notwithstanding any other provision of this Plan or any Award agreement, the Company has no liability to deliver any Shares
under this Plan or make any payment unless such delivery or payment would comply with all applicable laws and the applicable requirements
of any securities exchange or similar entity, and unless and until the Participant has taken all actions required by the Company in connection
therewith. The Company may impose such restrictions on any Shares issued under this Plan as the Company determines necessary or desirable
to comply with all applicable laws, rules and regulations or the requirements of any national securities exchanges.
(g) Governing Law . This Plan, and all Awards hereunder, and all determinations made and actions taken pursuant to this Plan, shall be
governed by the internal laws of the State of Wisconsin (without reference to conflict of law principles thereof) and construed in accordance
therewith, to the extent not otherwise governed by the laws of the United States or as otherwise provided hereinafter. Notwithstanding anything
to the contrary herein, if any individual (other than the Company) brings a claim that relates to benefits under this Plan, regardless of the basis
of the claim (including but not limited to wrongful discharge or Title VII discrimination), such claim shall be settled by final binding arbitration
in accordance with the rules of the American Arbitration Association (“AAA”) and the following provisions, and judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction thereof.
12
(i) Initiation of Action . Arbitration must be initiated by serving or mailing a written notice of the complaint to the other party.
Normally, such written notice should be provided to the other party within one year (365 days) after the day the complaining party first
knew or should have known of the events giving rise to the complaint. However, this time frame may be extended if the applicable statute of
limitation provides for a longer period of time. If the complaint is not properly submitted within the appropriate time frame, all rights and
claims that the complaining party has or may have against the other party shall be waived and void. Any notice sent to the Company shall be
delivered to:
Office of General Counsel
Johnson Controls, Inc.
5757 North Green Bay Avenue
P.O. Box 591
Milwaukee, WI 53201-0591
The notice must identify and describe the nature of all complaints asserted and the facts upon which such complaints are based. Notice will be
deemed given according to the date of any postmark or the date of time of any personal delivery.
(ii) Compliance with Personnel Policies . Before proceeding to arbitration on a complaint, the claimant must initiate and participate in
any complaint resolution procedure identified in the personnel policies of the Company or an Affiliate, as applicable. If the claimant has not
initiated the complaint resolution procedure before initiating arbitration on a complaint, the initiation of the arbitration shall be deemed to
begin the complaint resolution procedure. No arbitration hearing shall be held on a complaint until any complaint resolution procedure of the
Company or an Affiliate, as applicable, has been completed.
(iii) Rules of Arbitration . All arbitration will be conducted by a single arbitrator according to the Employment Dispute Arbitration
Rules of the AAA. The arbitrator will have authority to award any remedy or relief that a court of competent jurisdiction could order or
grant including, without limitation, specific performance of any obligation created under the award or policy, the awarding of punitive
damages, the issuance of any injunction, costs and attorney’s fees to the extent permitted by law, or the imposition of sanctions for abuse of
the arbitration process. The arbitrator’s award must be rendered in a writing that sets forth the essential findings and conclusions on which
the arbitrator’s award is based.
(iv) Representation and Costs . Each party may be represented in the arbitration by an attorney or other representative selected by the
party. The Company or Affiliate shall be responsible for its own costs, the AAA filing fee and all other fees, costs and expenses of the
arbitrator and AAA for administering the arbitration. The claimant shall be responsible for his attorney’s or representative’s fees, if any.
However, if any party prevails on a statutory claim which allows the prevailing party costs and/or attorneys’ fees, the arbitrator may award
costs and reasonable attorneys’ fees as provided by such statute.
(v) Discovery; Location; Rules of Evidence . Discovery will be allowed to the same extent afforded under the Federal Rules of Civil
Procedure. Arbitration will be held at a location selected by the Company. AAA rules notwithstanding, the admissibility of
13
evidence offered at the arbitration shall be determined by the arbitrator who shall be the judge of its materiality and relevance. Legal rules of
evidence will not be controlling, and the standard for admissibility of evidence will generally be whether it is the type of information that
responsible people rely upon in making important decisions.
(vi) Confidentiality . The existence, content or results of any arbitration may not be disclosed by a party or arbitrator without the prior
written consent of both parties. Witnesses who are not a party to the arbitration shall be excluded from the hearing except to testify.
(h) Construction . Whenever any words are used herein in the masculine, they shall be construed as though they were used in the feminine
in all cases where they would so apply; and wherever any words are used in the singular or plural, they shall be construed as though they were
used in the plural or singular, as the case may be, in all cases where they would so apply. Title of sections are for general information only, and
this Plan is not to be construed with reference to such titles.
(i) Severability . If any provision of this Plan or any Award agreement or any Award (i) is or becomes or is deemed to be invalid, illegal or
unenforceable in any jurisdiction, or as to any person or Award, or (ii) would disqualify this Plan, any Award agreement or any Award under
any law the Administrator deems applicable, then such provision should be construed or deemed amended to conform to applicable laws, or if
it cannot be so construed or deemed amended without, in the determination of the Administrator, materially altering the intent of this Plan,
Award agreement or Award, then such provision should be stricken as to such jurisdiction, person or Award, and the remainder of this Plan,
such Award agreement and such Award will remain in full force and effect.
14
Exhibit 10.V
JOHNSON CONTROLS, INC.
OPTION OR STOCK APPRECIATION RIGHT AWARD
Name: XXXXXXXXXXXXXX
Grant Date: xx/xx/xxxx
Exercisable Date: xx/xx/xxxx — ####
Exercisable Date: xx/xx/xxxx — ####
Number of Options: ###
Expiration Date: xx/xx/xxxx
Exercise Price Per Share: $ xx.xx
Grant — Terms for Nonqualified Stock Options and Stock Appreciation Rights
Johnson Controls, Inc., has adopted the 2007 Stock Option Plan to permit awards of stock options or stock appreciation rights to be made to
certain key employees of the Company or any Affiliate. The Company desires the employee to remain in employment with the Company or an
Affiliate by providing the Participant with a means to acquire or to increase his/her proprietary interest in the Company’s success.
Definitions . Capitalized terms used in this Agreement have the following meanings:
(a) “Award” means a grant of Options and/or Stock Appreciation Rights.
(b) “Company” means Johnson Controls, Inc., a Wisconsin corporation, or any successor thereto.
(c) “Fair Market Value” means, per Share on a particular date, the closing sales price on such date on the New York Stock Exchange, or if no
sales of Stock occur on the date in question, on the last preceding date on which there was a sale on such market.
(d) “Grant Date” is the date the Award was made to the Participant.
(e) “NSO” is an Award of a Nonqualified Stock Option.
(f) “Option” means the right to purchase Shares at a stated price for a specified period of time.
(g) “Participant” means an individual selected to receive an Award.
(h) “Plan” means the Johnson Controls, Inc. 2007 Stock Option Plan, as may be amended from time to time.
(i) “Retirement” [[has the meaning given in the Plan][means the attainment of age x [and completion of x years of service]].
(j) “SAR” is an Award of Stock Appreciation Rights which will be settled in cash. The Participant will receive the economic equivalent of the
value between the Exercise Price and the Fair Market Value on exercise date.
(k) “Stock” means the Common Stock of the Company, par value of $0.01257 per share.
(l) “Tax Date” means the date income is recognized pursuant to the exercise of the Option or SAR.
Other capitalized terms used in this Agreement have the meaning given in the Plan.
NOW, THEREFORE, in consideration of the premises and of the covenants and agreements herein set forth, the parties hereby mutually
covenant and agree as follows:
1. Subject to the terms and conditions of the Plan, a copy of which has been made available to the Participant and made a part hereof, and this
Agreement, the Company grants to the Participant an Award of Nonqualified Stock Options or an Award of Stock Appreciation Rights, as
specified in the Participant Award letter delivered to the Participant by email from the Chief Executive Officer of the Company.
2. The purchase price payable upon exercise of the NSO Options or used to determine the value of the SARs shall be the Exercise Price per
share indicated in the Participant Award letter, subject to adjustment as described in the terms of the Plan.
3. Subject to the terms and conditions of the Plan and this Agreement, the Award may be exercised by the Participant while in the employ of
the Company or any Subsidiary, in whole or in part in increments of not less
Page 1 of 4
than 50 shares, from time to time, to the extent the Award is vested and prior to the expiration date. The vesting schedule of the Award is as
follows:
(a) Fifty Percent (50%) of the Award shall vest on the two-year anniversary date of the Grant Date.
(b) Fifty Percent (50%) of the Award shall vest on the three-year anniversary date of the Grant Date.
The Award shall expire ten years from the Grant Date.
4. The Award may only be exercised through the Company’s Option/SAR execution service provider.
5. (a) It shall be a condition of the obligation of the Company to issue or transfer shares of Stock upon exercise of the NSO, that the Participant
pay to the Company upon its demand, such amount as may be requested by the Company for the purpose of satisfying its liability to withhold
federal, state or local income or other taxes incurred by reason of the exercise of the NSO. If the amount requested is not paid, the Company
may refuse to issue or transfer shares of Stock upon exercise of the NSO.
(b) The Participant shall be permitted to satisfy the Company’s withholding tax requirements by electing (the “Election”) to have the
Company withhold shares of Stock otherwise issuable to the Participant or to deliver to the Company shares of Stock having a Fair Market
Value on the Tax Date equal to the minimum amount required to be withheld by the Participant. If the number of shares of Stock determined
pursuant to the preceding sentence shall include a fractional share, the number of shares withheld or delivered shall be reduced to the next
lower whole number and the Participant shall deliver to the Company cash in lieu of such fractional share, or otherwise make arrangements
satisfactory to the Company for payment of such amount. The Election shall be irrevocable, and shall be subject to disapproval, in whole or in
part, by the Administrator. The Election shall be made in writing and shall be made according to such rules and regulations and in such form as
the Administrator shall determine.
(c) In the case of the exercise of an SAR, written notice must be provided to the Option/SAR execution service provider, and shall include
the Participant’s local payroll contact for the purpose of processing the payment which will include satisfying the Company’s liability to
withhold payroll taxes designated by local laws.
6. (a) Termination. In the event a Participant’s employment with the Company or any of its Affiliates shall be terminated for any reason,
except Retirement, death or total and permanent disability or Cause, a Participant may exercise his or her Award (to the extent vested and
exercisable as of the date of the Participant’s termination of employment) for a period of thirty (30) days after the date of the Participant’s
termination of employment, but not later than the Award’s expiration date. Thereafter, all rights to exercise the Award shall terminate.
(b) Termination for Retirement. If the Participant ceases to be an employee of the Company or any Affiliate by reason of Retirement, the
Award shall be exercisable in full without regard to any vesting requirements; provided that the Award shall be exercisable in full only if the
Participant retires on or after the last day of the calendar year following the calendar year in which such Award was granted, unless the
Administrator determines otherwise. In such case, the Award may be exercised by the Participant at any time within thirty-six (36) months after
the date of Retirement, but not later than the Award’s expiration date, or if the Participant is an officer of the Company at the time of
Retirement, the Award may be exercised by the Participant at any time through the Award’s expiration date.
For certain participants who are officers of the Company or who are selected by the Compensation Committee of the Board, nonqualified
stock options: (i) shall be exercisable in full without regard to any vesting requirements; provided that an Option of a Participant who retires
shall be exercisable in full only if the Participant retires on or after the last day of the fiscal year in which such Option was granted, unless the
Committee determines otherwise, and (ii) may be exercised for a period selected by the Compensation Committee of either five (5) or ten
(10) years after Retirement, or for five (5) years after the date of such total and permanent disability, as the case may be, and not thereafter,
unless such Option expires earlier under the terms of the award agreement.
Page 2 of 4
(c) Termination for Total and Permanent Disability. If the Participant ceases to be an employee of the Company or any Affiliate by
reason of total and permanent disability, if the Participant is permanently and totally disabled (as defined in the Plan), the Award shall be
exercisable in full without regard to any vesting requirements, and may be exercised by the Participant at any time within thirty-six (36) months
after the date of such termination, or if the Participant is an officer of the Company at the time of the total and permanent disability, the Award
shall exercisable at any time within five (5) years after the date of such termination, but not later than the Award’s expiration date.
(d) Death. In the event of the Participant’s death while actively employed by the Company or any Affiliate, the Award shall be exercisable
immediately to the extent it would have been exercisable had the Participant remained in service in the twelve (12) months after the date of
death, and may be exercised at an time until the first anniversary of the date of the Participant’s death, but not later than the Award’s expiration
date. The Award may be exercised by the person to whom the Award is transferred by will or by applicable laws of the descent and distribution
by giving notice, as provided in paragraph 4. In the event of the death of a retired Participant or a Participant on total and permanent disability,
the Award may be exercised by the person to whom the Option is transferred, by will or by applicable laws of the descent and distribution, as if
the Participant had remained living under paragraphs 6(b) or (c), as applicable.
(e) Termination for Cause (as defined in the Plan) shall cause the cancellation and forfeiture of any Award, regardless of vesting; and any
pending exercises shall be cancelled on that date.
7. If the Administrator determines that a Participant has engaged in Inimical Conduct (as defined in the Plan) whether before or after
termination of employment, the Award shall be cancelled, regardless of vesting; and any pending exercises shall be cancelled on that date.
8. The Participant shall not be deemed for any purposes to be a stockholder of the Company with respect to any shares which may be acquired
hereunder except to the extent that the Option shall have been exercised with respect thereto and shares of Johnson Controls common stock
issued therefor.
9. This Award shall not be transferable (without the Administrator’s consent) other than by will or the laws of descent and distribution or
pursuant to a “Qualified Domestic Relations Order” as defined in Section 414(p) of the U.S. Internal Revenue Code.
Following transfer (if applicable), the Award shall continue to be subject to the same terms and conditions as were applicable immediately
prior to transfer, provided that the Award may be exercised during the life of the Participant only by the Participant or, if applicable, by the
alternate payee designated under a Qualified Domestic Relations Order or the Participant’s permitted transferees.
10. The Participant agrees for himself/herself and the Participant’s heirs, legatees, and legal representatives, with respect to all shares of Stock
acquired pursuant to the terms and conditions of this Agreement (or any shares of Stock issued pursuant to a stock dividend or stock split
thereon or any securities issued in lieu thereof or in substitution or exchange therefor) that the Participant and the Participant’s heirs, legatees,
and legal representatives will not sell or otherwise dispose of such shares except pursuant to an effective registration statement under the
Securities Act of 1933, as amended (“Act”), or except in a transaction which, in the opinion of counsel for the Company, is exempt from
registration under the Act.
11. The existence of the Award herein granted shall not affect in any way the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations, or other changes in the Company’s capital structure or its business, or any
merger or consolidation of the Company, or any issuance of bonds, debentures, preferred, or prior preference stock ahead of or affecting the
Stock or the rights thereof, or dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.
12. As a condition of the granting of the Award, the Participant agrees for himself/herself and his/her legal representatives, that any dispute or
disagreement which may arise under or as a result of or pursuant to this Agreement shall be governed by the internal laws of the State of
Wisconsin and settled by final binding arbitration in accordance with the rules of the American Arbitration Association and the provisions of
the Plan.
Page 3 of 4
13. Notwithstanding the provisions of paragraph 3 of this Agreement, in the event of a Change of Control of the Company (as defined in the
Plan), if the Participant has in effect an employment, retention, change of control, severance or similar agreement with the Company or any
Affiliate that discusses the effect of a Change of Control on the vesting of such Participant’s Awards, then such agreement shall control the
vesting of this Award upon the occurrence of a Change of Control. In all other cases, upon a Change of Control, this Award, if the Participant
is then employed by the Company or an Affiliate, shall be exercisable in full. Further, upon a Change of Control of the Company, the
Committee may, in its discretion, cancel this Award effective on the date of the Change of Control in exchange for a cash payment to the
Participant (or other holder thereof) in an amount equal to the number of Options or SARs that have not been exercised multiplied by the
excess of the Fair Market Value per Share on the date of the Change of Control over the Exercise Price.
This Agreement, and any documents expressly incorporated herein, contain all of the provisions applicable to the Award and no other
statements, documents or practices may modify, waive or alter such provisions unless expressly set forth in writing, signed by an authorized
officer of the Company and delivered to the Participant.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by one of its duly authorized officers as of the date of
Grant.
JOHNSON CONTROLS, INC.
Jerome D. Okarma
Vice President, Secretary and General Counsel
Page 4 of 4
The following table shows our ratio of earnings to fixed charges for the fiscal years ended September 30, 2011 and 2010:
JOHNSON CONTROLS, INC.
RATIO OF EARNINGS TO FIXED CHARGES
EXHIBIT 12
(Dollars in millions)
Net income attributable to Johnson Controls, Inc.
Provision for income taxes
Income attributable to noncontrolling interests
Income from equity affiliates
Distributed income of equity affiliates
Amortization of previously capitalized interest
Fixed charges less capitalized interest
Earnings
Fixed charges:
Interest incurred and amortization of debt expense
Estimated portion of interest in rent expense
Fixed charges
Less: Interest capitalized during the period
Fixed charges less capitalized interest
Ratio of earnings to fixed charges
Year Ended
Year Ended
September 30, 2011 September 30, 2010
1,491
1,624 $
$
197
370
75
117
(254 )
(298 )
212
194
11
10
302
331
2,034
2,348 $
$
$
$
$
224 $
141
365 $
(34 )
331 $
6.4
193
130
323
(21 )
302
6.3
For the purposes of computing this ratio, “earnings” consist of net income attributable to Johnson Controls, Inc. from continuing operations
before income taxes, income attributable to noncontolling interests 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. “Fixed
charges” consist of (i) interest incurred and amortization of debt expense plus (ii) the portion of rent expense representative of the interest
factor.
Following is a list of significant subsidiaries of the Company, as defined by section 1.02(w) of Regulation S-X, as of October 31, 2011.
JOHNSON CONTROLS, INC.
EXHIBIT 21
Name
York International Corporation
Johnson Controls Battery Group, Inc.
Jurisdiction
Where
Subsidiary is
Incorporated
Delaware
Wisconsin
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 and Form S-8 listed below of Johnson
Controls, Inc. of our report dated November 22, 2011 relating to the financial statements, financial statement schedule and the effectiveness of
internal control over financial reporting, which appears in this Form 10-K .
EXHIBIT 23
1. Registration Statement on Form S-8 (Registration No. 333-173326)
2. Registration Statement on Form S-8 (Registration No. 33-30309)
3. Registration Statement on Form S-8 (Registration No. 33-31271)
4. Registration Statement on Form S-3 (Registration No. 33-64703)
5. Registration Statement on Form S-8 (Registration No. 333-10707)
6. Registration Statement on Form S-3 (Registration No. 333-13525)
7. Registration Statement on Form S-3 (Registration No. 333-130714)
8. Registration Statement on Form S-8 (Registration No. 333-66073)
9. Registration Statement on Form S-8 (Registration No. 333-41564)
10. Registration Statement on Form S-3 (Registration No. 333-59594)
11. Registration Statement on Form S-8 (Registration No. 333-117898)
12. Registration Statement on Form S-3 (Registration No. 333-111192)
13. Registration Statement on Form S-8 (Registration No. 333-141578)
14. Registration Statement on Form S-3 (Registration No. 33-57685)
15. Registration Statement on Form S-3 (Registration No. 333-155802)
16. Registration Statement on Form S-3 (Registration No. 333-157502)
/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
November 22, 2011
EXHIBIT 31.1
I, Stephen A. Roell, Chairman and Chief Executive Officer of Johnson Controls, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Johnson Controls, Inc.;
CERTIFICATIONS
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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f)) 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)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c)
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
d)
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 the 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: November 22, 2011
/s/ Stephen A. Roell
Stephen A. Roell
Chairman and
Chief Executive Officer
EXHIBIT 31.2
I, R. Bruce McDonald, Executive Vice President and Chief Financial Officer of Johnson Controls, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Johnson Controls, Inc.;
CERTIFICATIONS
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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f)) 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)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c)
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
d)
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 the 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: November 22, 2011
/s/ R. Bruce McDonald
R. Bruce McDonald
Executive Vice President and
Chief Financial Officer
CERTIFICATION OF PERIODIC FINANCIAL REPORTS
We, Stephen A. Roell, Chairman and Chief Executive Officer, and R. Bruce McDonald, Executive 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 Annual Report on Form 10-K for the year ended September 30, 2011 (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: November 22, 2011
EXHIBIT 32
/s/ Stephen A. Roell
Stephen A. Roell
Chairman and
Chief Executive Officer
/s/ R. Bruce McDonald
R. Bruce McDonald
Executive Vice President and
Chief Financial Officer