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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10–K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year Ended September 30, 2012
OR
(cid:3) 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
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
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 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 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
Non-accelerated filer (cid:3) (Do not check if a smaller reporting company)
(cid:3)
Accelerated filer
Smaller reporting company (cid:3)
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
As of March 31, 2012, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was
approximately $22.1 billion based on the closing sales price as reported on the New York Stock Exchange. As of October 31, 2012,
683,797,753 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 23, 2013 are incorporated by reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
Table of Contents
JOHNSON CONTROLS, INC.
Index to Annual Report on Form 10-K
Year Ended September 30, 2012
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. MINE SAFETY DISCLOSURES
EXECUTIVE OFFICERS OF THE REGISTRANT
PART I.
PART II.
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Page
3
3
7
14
15
18
19
19
21
ITEM 6. SELECTED FINANCIAL DATA
24
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
51
50
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
PART III.
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
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106
107
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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, uncertainties and other factors, some of which are beyond our control, which may cause actual results to differ materially
from those expressed or implied by such forward-looking statements. A detailed discussion of risks, uncertainties and other factors 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. The Company 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.
The 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. The Company also provides residential air conditioning and heating systems and
industrial refrigeration products.
The Automotive Experience business is one of the world’s largest automotive suppliers, providing innovative interior systems through
our design and engineering expertise. The Company’s 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.
The 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. The Company serves both automotive original equipment manufacturers (OEMs) and the general vehicle battery
aftermarket. The Company also supplies advanced battery technologies to power Start-Stop vehicles, hybrid and electric vehicles.
Financial Information About Business Segments
Accounting Standards Codification (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
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segments are presented in the context of its three primary businesses - Building Efficiency, Automotive Experience and Power Solutions.
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 59 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 43% of Building Efficiency’s sales are derived from
HVAC products and installed control systems for construction and retrofit markets, including 13% of total sales related to new
commercial construction. Approximately 57% of its sales originate from its service offerings. In fiscal 2012, Building Efficiency
accounted for 35% 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 original equipment manufacturers
(OEMs) and operates approximately 240 wholly- and majority-owned manufacturing or assembly plants, with operations 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 2012, Automotive Experience accounted for 51% 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 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.
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Power Solutions
Power Solutions services both automotive OEMs and the battery aftermarket by providing energy storage technology, coupled with
systems engineering, marketing and service expertise. The Company is the largest producer of lead-acid automotive batteries in the
world, producing and distributing approximately 135 million lead-acid batteries annually in approximately 60 wholly- and majority-
owned manufacturing or assembly plants and sales offices in 15 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 unit sales worldwide in fiscal 2012 were to the automotive
replacement market, with the remaining sales to the OEM market.
Power Solutions accounted for 14% of the Company’s fiscal 2012 consolidated net sales. Batteries and key components 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
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.
, LTH and Heliar ) to automotive replacement battery retailers and distributors and to automobile
, Varta
®
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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,
2012, the backlog was $5.2 billion, the majority of which relates to fiscal 2013. The backlog as of September 30, 2011 was $5.1 billion.
The increase in backlog was primarily due to market share gains and conditions in Asia, partially offset by a decline in the North America
Service segment. The backlog does not include amounts associated with contracts in the Global Workplace Solutions business because
such contracts are
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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.
Raw Materials
Raw materials used by the businesses in connection with their operations, including lead, steel, tin, aluminum, urethane chemicals,
copper, sulfuric acid and polypropylene, were readily available during the year, and the Company expects such availability to continue. In
fiscal 2013, commodity prices could fluctuate throughout the year and could significantly affect the results of operations.
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 environmental laws and worker safety laws or for the remediation of Company-related 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 2012 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.
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Employees
As of September 30, 2012, the Company employed approximately 170,000 employees, of whom approximately 107,000 were hourly and
63,000 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 Advocacy 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.
ITEM 1A RISK FACTORS
General Risks
General economic, credit and capital market conditions could adversely affect our financial performance, 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
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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 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. Specifically, there is concern regarding the overall stability of the euro and the future of the euro as a single
currency given the diverse economic and political circumstances in individual Eurozone countries. Potential negative developments and
market perceptions related to the euro could adversely affect the value of our euro-denominated assets, as well as those of our customers
and suppliers.
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, or impact trade volumes; unsettled political conditions; government-imposed plant or other
operational shutdowns; corruption; natural and man-made disasters, hazards and losses; violence, civil and labor unrest, 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 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, U.K. Bribery 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.
Global climate change could negatively affect our business.
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 regulatory uncertainty extends to future incentives for energy efficient buildings and vehicles
and costs of compliance, which may impact the demand for our products, obsolescence of our products and our results of operations.
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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.
New regulations related to conflict minerals could adversely impact our business.
The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability
concerning the supply of certain minerals, known as conflict minerals, originating from the Democratic Republic of Congo (DRC) and
adjoining countries. As a result, in August 2012 the SEC adopted annual disclosure and reporting requirements for those companies who
use conflict minerals mined from the DRC and adjoining countries in their products. These new requirements will require due diligence
efforts in fiscal 2013, with initial disclosure requirements beginning in May 2014. There will be costs associated with complying with
these disclosure requirements, including for diligence to determine the sources of conflict minerals used in our products and other
potential changes to products, processes or sources of supply as a consequence of such verification activities. The implementation of
these rules could adversely affect the sourcing, supply and pricing of materials used in our products. As there may be only a limited
number of suppliers offering “conflict free” conflict minerals, we cannot be sure that we will be able to obtain necessary conflict minerals
from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if we determine that
certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all
conflict minerals used in our products through the procedures we may implement.
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.
Risks related to our defined benefit retirement plans may adversely impact our results of operations and cash flow.
Significant changes in actual investment return on defined benefit plan assets, discount rates, and other factors could adversely affect our
results of operations and the amounts of contributions we must make to our defined benefit plans in future periods. U.S. generally
accepted accounting principles require that we calculate income or expense for the plans using actuarial valuations. These valuations
reflect assumptions about financial markets and interest rates, which may change based on economic conditions. Funding requirements
for our defined benefit plans are dependent upon, among other things, interest rates, underlying asset returns and the impact of legislative
or regulatory changes related to defined benefit funding obligations. For a discussion regarding the significant assumptions used to
determine net periodic benefit cost, refer to “Critical Accounting Estimates and Policies” included in Item 7, “Management’s Discussion
and Analysis of Financial Condition 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.
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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.
An investigation by the European Commission (EC) related to European lead recyclers’ procurement practices is currently underway,
with the Company one of several named companies subject to review. The Company cannot predict the ultimate financial impact, as the
investigation is at a very preliminary stage. We will continue to cooperate with the EC in their investigation and monitor related
commercial and financial implications, if any. The Company’s policy is to comply with antitrust and competition laws and, if a violation
of any such laws is found, to take appropriate remedial action and to cooperate fully with any related governmental inquiry. Competition
and antitrust law investigations may continue for several years and can result in substantial fines depending on the gravity and duration of
the violations.
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.
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, successfully acquire identified targets or manage
timing of acquisitions with capital obligations across our businesses. 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.
We have been and are in the process of regionally centralizing certain administrative functions, primarily in North America, Europe and
Asia, 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.
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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 an
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 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.
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
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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 or other guaranteed performance 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 2012, our largest customers globally were
automobile manufacturers Ford Motor Company (Ford), Daimler AG and General Motors Corporation (GM). 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 require additional restructuring actions beyond our current restructuring plans, particularly if any
of the automakers cannot adequately fund their operations or experience financial distress.
Uncertainty related to the economic conditions in Europe may adversely affect our results of operations.
Automakers across Europe are experiencing difficulties from a weakened economy and tightening credit markets. As a result, we have
experienced and may continue to experience reductions in orders from these OEM customers. A prolonged downturn in the European
automotive industry or a significant change in product mix due to consumer demand could require us to shut down additional plants or
result in additional impairment charges, restructuring actions or changes in our valuation allowances against deferred tax assets, which
could be material to our consolidated financial statements. Continued uncertainty relating to the economic conditions in Europe may
continue to have an adverse impact on our business.
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.
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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;
quantity and 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.
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, and the price of lead may be highly volatile. 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, resin and tin, may be 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.
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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 2012. 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; impact of potential increases in lithium-ion battery
volumes on established lead-acid battery volumes as lithium-ion battery technology grows and costs become more competitive; 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; unseasonable weather conditions in various parts of the world;
increasing global environmental and safety regulations related to the manufacturing and recycling of lead-acid batteries, and
transportation of battery materials; our ability to secure sufficient tolling capacity to recycle batteries; price and availability of battery
cores used in recycling; 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, 2012, the Company conducted its operations in 67 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 88 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.
Building Efficiency
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)
Medley (1),(4)
Atlanta (1),(4)
Arlington Heights (4)
Elmhurst (1),(4)
Wheeling (1),(4)
Lenexa (1),(4)
Wichita (2),(3)
Erlanger (1)
Louisville (1),(4)
Baltimore (1),(4)
Capitol Heights (1),(4)
Rossville (1)
Sparks (1),(4)
Lynnfield (4)
Sterling Heights (1),(4)
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)
Austria
Belgium
Brazil
Canada
China
Denmark
France
Germany
Hong Kong
India
Italy
Japan
Mexico
Netherlands
Poland
Russia
South Africa
Spain
Turkey
United Arab Emirates
15
Vienna (4)
Diegem (1),(4)
Pinhais (1),(4)
Ajax (1),(3)
Oakville (1),(4)
Victoria (1),(4)
Beijing (1),(4)
Dalian (1),(4)
Guangzhou (1),(4)
Qingyuan (2),(3)
Wuxi (2),(3)
Hornslet (2),(4)
Viby (2),(3)
Carquefou Cedex (3)
Colombes (1),(3)
Nantes (1)
Essen (1),(3)
Flensburg (1)
Hamburg (1),(3)
Kempen (1)
Mannheim (1),(3)
Hong Kong (1),(3)
Chakan (1),(3)
Pune (1),(3)
Milan (1),(3)
Tokyo (1),(4)
Apodaca (1)
Durango
Juarez (3)
Monterrey (1),(3)
Reynosa (3)
Dordrecht (3)
Gorinchem (1),(3)
Warsaw (1),(3)
Moscow (1),(3)
Johannesburg (1),(4)
Sabadell (1),(3)
Manisa (1)
Dubai (2),(3)
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Automotive Experience
Alabama
Georgia
Illinois
Indiana
Kentucky
Louisiana
Michigan
Missouri
Ohio
Tennessee
Texas
Buenos Aires (1)
Cordoba (1)
Rosario
Adelaide (1)
Graz (1)
Mandling
Assenede (1)
Geel (1),(4)
Gravatai
Pouso Alegre
Quatro Barras (2)
San Bernardo do Campo
Santo Andre (1)
Sao Jose dos Campos
Sao Jose dos Pinhais (1)
Sofia (1),(4)
Milton
Mississauga (1)
Tillsonburg
Whitby (2)
Beijing (3)
Kunshan (1),(3)
Shanghai (1),(3)
Shenyang (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
Calera (1)
Clanton
Cottondale
Eastaboga
McCalla (1)
LaGrange (1)
West Point (1)
Chicago (1)
Sycamore
Kendallville
Cadiz
Georgetown (2)
Louisville (1)
Owensboro (1)
Shelbyville (1)
Winchester (1)
Shreveport
Auburn Hills (1)
Battle Creek
Cascade (1)
Croswell (1)
Detroit
Highland Park (1)
Holland (2),(3)
Kentwood (1)
Lansing (2)
Monroe (1)
Port Huron (1)
Plymouth (2),(4)
Romulus (1)
Taylor (1)
Troy (1)
Warren (1)
Eldon (2)
Kansas City (1)
Riverside (1)
Bryan
Greenfield
Northwood
Wauseon
Columbia (1)
Franklin
Murfreesboro (2)
Pulaski (1)
El Paso (1)
San Antonio (1)
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)
Poland
Portugal
Republic of Slovenia
Romania
Russia
Slovak Republic
South Africa
Spain
Sweden
Thailand
Tunesia
Turkey
United Kingdom
Boblingen (1)
Bochum (2)
Bremen (1)
Burscheid (2),(4)
Dautphe (2)
Espelkamp
Grefrath
Hannover (1)
Hilchenbach (2)
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 (1)
Hamamatsu
Higashiomi
Shibahara (3)
Yokohama (1),(4)
Yokosuka (2)
Ansan (1),(4)
Asan
Skopje
Melaka (1)
Pekan (1)
Perak Darul Redzuan (1)
Selangor Darul Ehsan
Coahuila (1)
Ecapetec Edo (1)
Juarez (2)
Lerma (1)
Matamaros (1)
Monclova
Puebla (2)
Ramos Arizpe
Reynosa (1)
Saltillo (2)
Tlaxcala
Toluca (1)
17
Bierun
Siemianowice
Skarbimierz (1)
Swiebodzin
Zory
Palmela
Novo Mesto (1)
Slovenj Gradec (3)
Bradu
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)
Chloorkop (1)
East London (1)
Korsten
Pretoria
Swartkops (1)
Uitenhage (1)
Wynberg (1)
Abrera
Alagon
Almussafes (2)
Calatorao (1)
Pedrola
Redondela (1)
Valladolid
Goteburg (1)
Chonburi (1)
Rayong
Bi’r al Bay (1)
Bursa (2)
Kocaeli
Birmingham
Burton-Upon-Trent
Ellesmere (1)
Garston (1)
Sunderland
Telford (1)
Wednesbury
Table of Contents
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)
Power Solutions
Austria
Brazil
China
Czech Republic
France
Germany
Korea
Mexico
Spain
Sweden
Corporate
Wisconsin
Milwaukee (4)
(1) Leased facility
(2)
(3)
(4) Administrative facility only
Includes both leased and owned facilities
Includes both administrative and manufacturing facilities
Graz (1)
Vienna (1)
Sorocaba (3)
Changxing (3)
Chongqing (3)
Shanghai (2),(3)
Ceska Lipa (2),(3)
Nersac (1),(4)
Rouen
Sarreguemines (3)
Hannover (3)
Krautscheid (3)
Zwickau (2),(3)
Gumi (2),(3)
Celaya
Cienega de Flores (1)
Escobedo
Flores
Garcia
San Pedro (1),(4)
Tlalnepantla (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 570 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 38 sites in the United States. 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.
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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 $25 million and $30 million at September 30, 2012 and 2011, 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. 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, 2012 and 2011, the Company recorded conditional asset retirement
obligations of $76 million and $91 million, respectively.
The Company is involved in a number of product liability and various other casualty lawsuits incident to the operation of its businesses.
The Company maintains insurance coverages and records estimated costs 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.
ITEM 4
MINE SAFETY DISCLOSURES
Not applicable.
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 14, 2012 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 23, 2013.
Beda Bolzenius , 56, was elected a Corporate Vice President in November 2005 and has served as President - Automotive
Seating since October 2012. He previously served as President of the Automotive Experience business from November 2005 to
October 2012 and 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 , 53, 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 , 59, 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
the Automotive Experience business from August 1993 to April 1994. Ms. Davis joined the Company in 1983.
Charles A. Harvey , 60, 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, 52, was elected Executive Vice President - Operations and Innovation, in July 2011 and has served as
President - Automotive Electronics & Interiors since October 2012. 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, Allen & Hamilton and
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Booz & Company, a strategy and consulting firm, where he led the firm’s Global Automotive, Transportation and Industrials
Practice.
R. Bruce McDonald , 52, 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 , 53, 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 , 49, 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 , 60, 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 , 62, 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 , 56, 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 in which he became partner in 1989. He served several of the firm’s largest clients and also held various office managing
partner roles.
Jacqueline F. Strayer , 58, 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 , 52, 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 duly-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, 2012
40,019
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year
Dividends
Common Stock Price Range
2011
2011
2012
$24.29 - 33.90 $29.95 - 40.15 $ 0.18 $ 0.16
0.16
0.16
0.16
$23.37 - 35.95 $25.91 - 42.92 $ 0.72 $ 0.64
36.95 - 42.42
35.37 - 42.53
25.91 - 42.92
30.81 - 35.95
26.15 - 33.26
23.37 - 29.59
0.18
0.18
0.18
2012
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 was
substantially completed in the fourth quarter of fiscal 2012.
In November 2012, the Company’s Board of Directors authorized a stock repurchase program to acquire up to $500 million of the
Company’s outstanding common stock, which supersedes any prior programs. 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, 2012.
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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, 2012.
Period
7/1/12 - 7/31/12
8/1/12 - 8/31/12
9/1/12 - 9/30/12
Purchases by Company (1)
Purchases by Company (1)
Purchases by Company (1)
7/1/12 - 7/31/12
Purchases by Citibank
8/1/12 - 8/31/12
9/1/12 - 9/30/12
Purchases by Citibank
Purchases by Citibank
Total
Number of
Shares
Purchased
Average
Price
Paid per
Share
Total
Number of
Shares
Purchased as
Part of the
Publicly
Announced
Program
Approximate
Dollar Value
of Shares that
May Yet be
Purchased
under the
Programs
250,000 $ 24.09
250,000 $ 54,242,754
1,656,629 $ 25.86
1,656,629 $ 11,398,755
418,686 $ 27.17
418,686 $
21,366
250,000 $ 24.04
—
—
—
—
—
—
—
NA
NA
NA
(1) Repurchases of the Company’s common stock by the Company pursuant to its publicly announced program may be intended to partially
offset dilution related to the Company’s stock option and restricted stock equity compensation plans.
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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, 2007 and the reinvestment of all dividends since that date.
The Company’s transfer agent’s contact information is as follows:
Wells Fargo Bank, N.A.
Shareowner Services Department
P.O. Box 64874
St. Paul, MN 55164-0874
(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, 2008 through September 30, 2012 (in millions, except per share data and number of employees and
shareholders). Certain amounts have been revised to reflect the retrospective application of the Company’s accounting policy change for
recognizing pension and postretirement benefit expense. Refer to Note 1, “Summary of Significant Accounting Policies,” of the notes to
consolidated financial statements for further details surrounding this accounting policy change.
OPERATING RESULTS
Net sales
Segment income (1)
Net income (loss) attributable to Johnson Controls, Inc. (6)
Earnings (loss) per share (6)
Basic
Diluted
Return on average shareholders’ equity attributable to Johnson
Controls, Inc. (2) (6)
Capital expenditures
Depreciation and amortization
Number of employees
FINANCIAL POSITION
Working capital (3)
Total assets
Long-term debt
Total debt
Shareholders’ equity attributable to Johnson Controls, Inc.
Total debt to total capitalization (4)
Net book value per share (5)
COMMON SHARE INFORMATION
Dividends per share
Market prices
High
Low
Basic
Diluted
Number of shareholders
Weighted average shares (in millions)
2012
Year ended September 30,
2010
2011
2009
2008
$ 41,955
2,567
1,226
$ 40,833
2,347
1,415
$ 34,305
1,948
1,307
$ 28,497
244
(681 )
$ 38,062
2,094
801
$
$
1.80
1.78
2.09
2.06
$
$
1.94
1.92
(1.14 ) $
(1.14 )
1.35
1.33
11 %
13 %
14 %
-7 %
9 %
$ 1,831
824
170,000
$ 1,325
731
162,000
$
777
691
137,000
$
647
745
130,000
$
807
783
140,000
$ 2,300
30,884
5,321
6,068
11,555
$ 1,589
29,676
4,533
5,146
11,042
$
919
25,743
2,652
3,389
10,071
$ 1,147
24,088
3,168
3,966
9,100
$ 1,225
24,987
3,201
3,944
9,406
34 %
32 %
25 %
30 %
30 %
$ 16.94
$ 16.23
$ 14.95
$ 13.56
$ 15.83
$
0.72
$
0.64
$
0.52
$
0.52
$
0.52
$ 35.95
23.37
$ 42.92
25.91
$ 35.77
23.62
$ 30.01
8.35
$ 44.46
26.00
681.5
688.6
40,019
677.7
689.9
43,340
672.0
682.5
44,627
595.3
595.3
46,460
593.1
601.4
47,543
(1) Segment income is calculated as income from continuing operations before income taxes and noncontrolling interests excluding net
financing charges, debt conversion costs, significant restructuring costs and net mark-to-market adjustments on pension and
postretirement plans.
(2) Return on average shareholders’ equity attributable to Johnson Controls, Inc. (ROE) represents net income attributable to Johnson
Controls, Inc. divided by average shareholders’ equity attributable to Johnson Controls, Inc.
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(3) Working capital is defined as current assets less current liabilities, excluding cash, short-term debt and the current portion of long-term
debt.
(4) Total debt to total capitalization represents total debt divided by the sum of total debt and shareholders’ equity attributable to Johnson
Controls, Inc.
(5) 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.
(6) Net income attributable to Johnson Controls, Inc. includes $297 million, $230 million and $495 million of significant restructuring costs
in fiscal year 2012, 2009 and 2008, respectively. It also includes $447 million, $384 million, $269 million, $532 million and $301 million
of net mark-to-market charges on pension and postretirement plans in fiscal year 2012, 2011, 2010, 2009 and 2008, respectively. The
preceding amounts are stated on a pre-tax basis.
ITEM 7
General
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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, 2012. This discussion should be read in conjunction with Item 8, the
consolidated financial statements and the notes to consolidated financial statements.
Certain amounts have been revised to reflect the retrospective application of the Company’s accounting policy change for recognizing
pension and postretirement benefit expense. Refer to Note 1, “Summary of Significant Accounting Policies,” of the notes to consolidated
financial statements for further details surrounding this accounting policy change.
Outlook
On October 30, 2012, the Company gave a preliminary outlook of its market and financial expectations for fiscal 2013, saying it believes
softening end markets will limit its ability to grow revenues and earnings in the upcoming year. In addition, the Company anticipates a
higher effective tax rate of 20% in fiscal 2013 due to an increased percentage of total earnings in the United States. The Company expects
fiscal 2013 first-half earnings to be significantly lower than the same period of fiscal 2012 with higher year over year earnings in the
second half of the year. The Company also expects to incur additional restructuring-related costs in the first half of fiscal 2013
(approximately $0.08 - $0.10 impact on earnings per share) and believes the financial benefits of the restructuring announced in the fiscal
2012 fourth quarter will begin to accrue in the second half of fiscal 2013. The Company plans to be diligent in controlling costs, but will
remain committed to making investments that support its long-term growth and profitability strategies. The Company expects full year
fiscal 2013 earnings to be flat to slightly higher than fiscal 2012.
Effective October 1, 2013, the Company reorganized its Automotive Experience reportable segments to align with its new management
reporting structure and business activities. As a result of this change, Automotive Experience will be comprised of three new reportable
segments for financial reporting purposes: Seating, Electronics and Interiors. This change will be reflected in the Company’s Quarterly
Report on Form 10-Q for the quarter ended December 31, 2012, with comparable periods revised to conform to the new presentation.
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FISCAL YEAR 2012 COMPARED TO FISCAL YEAR 2011
Net Sales
(in millions)
Net sales
Year Ended
September 30,
2012
2011
Change
$ 41,955
$ 40,833
3 %
The increase in consolidated net sales was due to higher sales in the Automotive Experience business ($2.0 billion), Power Solutions
business ($224 million) and Building Efficiency business ($95 million), partially offset by the unfavorable impact of foreign currency
translation ($1.2 billion). Excluding the unfavorable impact of foreign currency translation, consolidated net sales increased 6% as
compared to the prior year. The favorable impacts of increased automotive industry production in North America, strong automotive and
buildings demand in China, and incremental sales from acquisitions were partially offset by the negative impacts of lower automotive
industry production in Europe, weak Building Efficiency markets and mild weather conditions on automotive battery aftermarket
demand. Refer to the segment analysis below within Item 7 for a discussion of net sales by segment.
Cost of Sales / Gross Profit
(in millions)
Cost of sales
Gross profit
% of sales
Year Ended
September 30,
2012
2011
Change
$ 35,737
6,218
$ 34,775
6,058
14.8 %
14.8 %
3 %
3 %
The increase in total cost of sales year over year corresponds to the sales growth noted above, with gross profit percentage remaining
consistent. Gross profit in the Automotive Experience business was favorably impacted by lower purchasing costs offset by higher
operating costs associated with performance at metals facilities and net unfavorable commercial settlements and pricing. The Power
Solutions business experienced favorable pricing and product mix offset by higher operating, battery core and transportation costs. Gross
profit in the Building Efficiency business benefited year over year from improved labor utilization and pricing initiatives, offset by
overall unfavorable gross margin rates. Foreign currency translation had a favorable impact on cost of sales of approximately $1.1 billion.
Net mark-to-market adjustments on pension and postretirement plans had a net favorable year over year impact on cost of sales of $87
million ($33 million charge in fiscal 2012 compared to $120 million charge in fiscal 2011) primarily due to assumption changes for
certain non-U.S. plans partially offset by a decline in year over year discount rates. Refer to the segment analysis below within Item 7 for
a discussion of segment income by segment.
Selling, General and Administrative Expenses
(in millions)
Selling, general and administrative expenses
% of sales
Year Ended
September 30,
2012
2011
Change
$ 4,438
10.6 %
$ 4,393
10.8 %
1 %
Selling, general and administrative expenses (SG&A) increased slightly year over year, but decreased slightly as a percentage of sales.
Automotive Experience business SG&A increased primarily due to the incremental SG&A of acquired businesses, partially offset by
non-recurring prior year costs related to business acquisitions. Power Solutions business SG&A increased primarily due to higher
employee-related costs and incremental SG&A of acquired businesses. Building Efficiency business SG&A decreased primarily due to
cost reduction initiatives, prior year restructuring costs and gains on business divestitures. The unfavorable impact of net mark-to-market
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adjustments on pension and postretirement plans in SG&A increased year over year by $150 million ($414 million charge in fiscal 2012
compared to $264 million charge in fiscal 2011) primarily due to a significant decline in year over year discount rates. Foreign currency
translation had a favorable impact on SG&A of $101 million. Refer to the segment analysis below within Item 7 for a discussion of
segment income by segment.
Significant Restructuring Costs
(in millions)
Restructuring costs
* Measure not meaningful
Year Ended
September 30,
2012
2011
Change
$ 297
$ —
*
To better align its resources with its growth strategies and reduce the cost structure of its global operations to address the softness in
certain underlying markets, the Company committed to a significant restructuring plan (2012 Plan) in the third and fourth quarters of
fiscal 2012 and recorded a $297 million restructuring charge, $52 million in the third quarter and $245 million in the fourth quarter of
fiscal 2012. 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 closures. The restructuring actions are expected to be
substantially complete by the end of fiscal 2014.
Refer to Note 15, “Significant 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,
2012
2011
Change
$ 233
$ 174
34 %
The increase in net financing charges was primarily due to higher debt levels in fiscal 2012 as compared to the prior year.
Equity Income
(in millions)
Equity income
Year Ended
September 30,
2012
2011
Change
$ 340
$ 298
14 %
The increase in equity income was primarily due to a gain on redemption of a warrant for an existing partially-owned affiliate and a gain
on a current year acquisition of a partially-owned affiliate in the Power Solutions business, partially offset by a gain on a prior year
acquisition of a partially-owned affiliate net of acquisition costs and related purchase accounting adjustments and a partially-owned
equity affiliate’s restatement of prior period income in the Power Solutions business. The remaining increase in equity income was
primarily due to higher earnings at certain Building Efficiency partially-owned affiliates. Refer to the segment analysis below within
Item 7 for a discussion of segment income by segment.
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Provision for Income Taxes
(in millions)
Provision for income taxes
Year Ended
September 30,
2012
2011
Change
$ 237
$ 257
-8 %
The effective rate is below the U.S. statutory rate primarily due to continuing global tax planning initiatives and income in certain non-
U.S. jurisdictions with a rate of tax lower than the U.S. statutory tax rate. Refer to Note 17, “Income Taxes,” of the notes to consolidated
financial statements for further details.
Valuation Allowances
The Company reviews the realizability of 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 2012, the Company recorded an overall increase to its valuation allowances of $47 million primarily due to a discrete period
income tax adjustment in the fourth quarter. In the fourth quarter of fiscal 2012, 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 deferred tax assets within Power Solutions in China would not be
utilized. Therefore, the Company recorded a $35 million valuation allowance in the three month period ended September 30, 2012.
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.
Given the current economic uncertainty, it is reasonably possible that over the next twelve months, valuation allowances against deferred
tax assets in certain jurisdictions may result in a net increase to tax expense of up to $400 million.
Uncertain Tax Positions
The Company is subject to income taxes in the U.S. and numerous foreign 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.
As a result of certain recent events related to prior tax planning initiatives, during the third quarter of fiscal 2012, the Company reduced
the reserve for uncertain tax positions by $22 million, including $13 million of interest and penalties.
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, 2012, 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
noncurrent liabilities in the consolidated statements of financial position. Nonetheless, the amounts ultimately paid,
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if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year.
The Company expects that certain tax examinations, appellate proceedings and/or tax litigation will conclude within the next twelve
months, the impact of which could be up to a $200 million benefit to tax expense.
Impacts of Tax Legislation and Change in Statutory Tax Rates
The look-through rule, under subpart F of the U.S. Internal Revenue Code, expired for the Company on September 30, 2012. The look-
through rule had provided an exception to the U.S. taxation of certain income generated by foreign subsidiaries. It is generally thought
that this rule will be extended with the possibility of retroactive application.
During the fiscal year ended September 30, 2012, tax legislation was adopted in Japan which reduces its statutory income tax rate by 5%.
Also, tax legislation was adopted in various jurisdictions to limit the annual utilization of tax losses that are carried forward. None of
these changes had a material impact on the Company’s consolidated financial condition, results of operations or cash flows.
Income Attributable to Noncontrolling Interests
(in millions)
Income attributable to noncontrolling interests
Year Ended
September 30,
2012
2011
Change
$ 127
$ 117
9 %
The increase in income attributable to noncontrolling interests was primarily due to higher earnings at certain Power Solutions and
Building Efficiency partially-owned affiliates, partially offset by the effects of an increase in the Company’s ownership percentage in an
Automotive Experience partially-owned affiliate.
Net Income Attributable to Johnson Controls, Inc.
(in millions)
Net income attributable to Johnson Controls, Inc.
Year Ended
September 30,
2012
2011
Change
$ 1,226
$ 1,415
-13 %
The decrease in net income attributable to Johnson Controls, Inc. was primarily due to higher selling, general and administrative
expenses, restructuring costs, net financing charges and income attributable to noncontrolling interests, and the unfavorable impact of
foreign currency translation, partially offset by higher sales and equity income, and a decrease in the provision for income taxes. Fiscal
2012 diluted earnings per share was $1.78 compared to prior year’s diluted earnings per share of $2.06.
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, significant restructuring costs
and net mark-to-market adjustments on pension and postretirement plans.
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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,
Segment Income
for the Year Ended
September 30,
2012
2011
Change
2012
2011
Change
$ 2,389 $ 2,343
2,145 2,305
4,294 4,153
1,987 1,840
3,900 4,252
$ 14,715 $ 14,893
2 % $ 286 $ 247 16 %
-7 %
164 121 36 %
3 %
*
22
8 %
267 251
6 %
141 105 34 %
-8 %
-1 % $ 910 $ 746 22 %
52
•
•
•
•
•
The increase in North America Systems was primarily due to higher volumes of equipment and controls systems in the commercial
construction and replacement markets ($50 million), partially offset by the unfavorable impact of foreign currency translation ($4
million).
The decrease in North America Service was primarily due to a reduction in truck-based volumes ($130 million) and energy
solutions volumes ($50 million), and the unfavorable impact of foreign currency translation ($4 million), partially offset by the
incremental sales from a prior year business acquisition ($24 million).
The increase in Global Workplace Solutions was primarily due to a net increase in services to new and existing customers ($264
million), partially offset by the unfavorable impact of foreign currency translation ($123 million).
The increase in Asia was primarily due to higher service volumes including the prior year negative impact of the Japan earthquake
and related events ($84 million), higher volumes of equipment and controls systems ($39 million), and the favorable impact of
foreign currency translation ($24 million).
The decrease in Other was primarily due to the unfavorable impact of foreign currency translation ($166 million), lower volumes in
Latin America ($93 million), the Middle East ($41 million) and Europe ($32 million), and lower volumes due to current year
divestitures ($55 million), partially offset by higher volumes in other business areas ($33 million) and unitary products ($2 million).
Segment Income:
•
•
•
•
•
The increase in North America Systems was primarily due to lower selling, general and administrative expenses ($24 million) and
higher volumes ($15 million).
The increase in North America Service was primarily due to lower selling, general and administrative expenses ($40 million) and
favorable margin rates ($38 million), partially offset by lower volumes ($31 million), loss on a business divestiture ($3 million) and
lower equity income ($1 million).
The increase in Global Workplace Solutions was primarily due to higher volumes ($15 million), lower selling, general and
administrative expenses ($14 million) and favorable margin rates ($4 million), partially offset by unfavorable impact of foreign
currency translation ($3 million).
The increase in Asia was primarily due to higher volumes ($30 million) and the favorable impact of foreign currency translation ($6
million), partially offset by higher selling, general and administrative expenses ($18 million) and unfavorable margin rates ($2
million).
The increase in Other was primarily due to gains on business divestitures net of transaction costs ($42 million), prior year
restructuring costs ($35 million), prior year non-recurring charges related to South America indirect taxes ($24 million), lower
selling, general and administrative expenses ($14 million), prior year business distribution costs ($11 million) and higher equity
income ($6 million), partially offset by unfavorable margin rates ($51 million), lower volumes ($20 million), net prior year
warranty accrual adjustment due to favorable experience ($14 million), lower income due to current year divestitures ($10 million)
and the unfavorable impact of foreign currency translation ($1 million).
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Automotive Experience
(in millions)
North America
Europe
Asia
* Measure not meaningful
Net Sales:
Net Sales
for the Year Ended
September 30,
Segment Income (Loss)
for the Year Ended
September 30,
2012
2011
Change
2012
2011
Change
$ 8,721 $ 7,431 17 % $ 487 $ 419 16 %
9,973 10,267
-3 %
2,640 2,367 12 %
$ 21,334 $ 20,065
116
245 50 %
3 %
6 % $ 803 $ 780
(52 )
368
*
•
•
•
The increase in North America was primarily due to higher volumes to major OEM customers ($967 million), the prior year
negative impact of the Japan earthquake and related events ($263 million), and incremental sales due to prior year business
acquisitions ($129 million), partially offset by net unfavorable pricing and commercial settlements ($69 million).
The decrease in Europe was primarily due to the unfavorable impact of foreign currency translation ($773 million), net unfavorable
pricing and commercial settlements ($84 million), and lower volumes despite the prior year negative impact of the Japan earthquake
and related events ($32 million), partially offset by incremental sales due to business acquisitions ($595 million).
The increase in Asia was primarily due to higher volumes and new customer awards including the prior year negative impact of the
Japan earthquake and related events ($182 million), incremental sales due to prior year acquisitions ($144 million) and the
favorable impact of foreign currency translation ($9 million), partially offset by net unfavorable pricing and commercial settlements
($37 million) and the negative impact of the flooding in Thailand and related events ($25 million).
Segment Income:
•
The increase in North America was primarily due to higher volumes ($199 million), the prior year negative impact of the
earthquake in Japan and related events ($61 million), lower purchasing costs ($49 million), higher equity income ($4 million),
lower engineering expenses ($3 million) and incremental operating income of prior year acquisitions ($3 million), partially offset by
higher operating costs ($126 million), net unfavorable commercial settlements and pricing ($91 million), and higher selling, general
and administrative expenses ($34 million).
The decrease in Europe was primarily due to higher operating costs ($131 million), net unfavorable commercial settlements and
pricing ($88 million), lower volumes despite the prior year negative impact of the earthquake in Japan and related events ($65
million), and higher selling, general and administrative expenses ($40 million), partially offset by prior year costs related to
business acquisitions ($64 million), incremental operating income of prior year acquisitions ($42 million), lower purchasing costs
($26 million), lower engineering expenses ($23 million) and the favorable impact of foreign currency translation ($1 million).
The increase in Asia was primarily due to higher volumes including the prior year negative impact of the earthquake in Japan and
•
•
related events ($64 million), lower purchasing costs ($41 million), lower selling, general and administrative expenses ($28 million),
incremental operating income of prior year acquisitions ($19 million), lower operating costs ($14 million) and the favorable impact
of foreign currency translation ($2 million), partially offset by net unfavorable commercial settlements and pricing ($34 million),
the negative impact of the flooding in Thailand and related events ($5 million), higher engineering expenses ($3 million) and lower
equity income ($3 million).
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Power Solutions
Year Ended
September 30,
•
•
2011
2012
Change
$ 5,875
821
$ 5,906
854
(in millions)
Net sales
Segment income
Net sales increased primarily due to favorable pricing and product mix ($156 million), higher volumes including the prior year
negative impact of the earthquake in Japan and related events ($144 million), and incremental sales due to business acquisitions
($38 million), partially offset by the unfavorable impact of foreign currency translation ($193 million) and impact of pass through
pricing ($114 million).
Segment income increased primarily due to favorable pricing and product mix including lead net of higher costs for battery cores
($117 million); a gain on redemption of a warrant for an existing partially-owned affiliate ($25 million); higher volumes including
the prior year negative impact of the earthquake in Japan and related events ($24 million); change in asset retirement obligations
($14 million); an insurance settlement ($12 million); a gain on a current year acquisition of a partially-owned affiliate ($9 million)
and higher equity income ($4 million); partially offset by higher operating and transportation costs ($46 million); higher selling,
general and administrative expenses ($43 million); a gain on a prior year acquisition of a partially-owned affiliate net of acquisition
costs and related purchase accounting adjustments and a partially-owned affiliate’s restatement of prior period income ($37
million); the unfavorable impact of foreign currency translation ($21 million); an impairment of an equity investment ($14 million)
and the unfavorable impact of business acquisitions ($11 million).
1 %
4 %
FISCAL YEAR 2011 COMPARED TO FISCAL YEAR 2010
Net Sales
(in millions)
Net sales
Year Ended
September 30,
2011
2010
Change
$ 40,833
$ 34,305
19 %
The 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)
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. Refer to the segment analysis below within Item 7 for a discussion of
net sales by segment.
Cost of Sales / Gross Profit
(in millions)
Cost of sales
Gross profit
% of sales
Year Ended
September 30,
2011
2010
$ 34,775
6,058
$ 29,084
5,221
14.8 %
15.2 %
Change
20 %
16 %
The increase in total cost of sales year over year corresponds to the sales growth noted above, with gross profit percentage decreasing
slightly. Gross profit in the Automotive Experience business was unfavorably impacted by the earthquake in Japan and related events,
higher operating costs in Europe and unfavorable commercial
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settlements and pricing in Europe, partially offset by the income of acquisitions. Gross profit in the Building Efficiency business reflected
overall unfavorable gross margin rates partially offset by prior year inventory adjustments. The Power Solutions business experienced
favorable pricing and product mix, and income associated with a prior year business acquisition, partially offset by higher operating and
transportation costs. Foreign currency translation had an unfavorable impact on cost of sales of approximately $0.7 billion. The
unfavorable impact of net mark-to-market adjustments on pension and postretirement plans in cost of sales increased year over year by
$52 million ($120 million charge in fiscal 2011 compared to $68 million charge in fiscal 2010) primarily due to a decline in year over
year discount rates. Refer to the segment analysis below within Item 7 for a discussion of segment income by segment.
Selling, General and Administrative Expenses
(in millions)
Selling, general and administrative expenses
% of sales
Year Ended
September 30,
2011
2010
Change
$ 4,393
10.8 %
$ 3,796
11.1 %
16 %
Selling, general and administrative expenses (SG&A) increased year over year, but decreased as a percentage of sales. Automotive
Experience business SG&A increased primarily due to costs related to business acquisitions, incremental SG&A of acquired businesses
and higher engineering expenses. Building Efficiency business SG&A increased primarily due to higher employee-related costs,
restructuring costs and information technology implementation costs. Power Solutions business SG&A increased primarily due to higher
employee-related costs and incremental SG&A of acquired businesses. The unfavorable impact of net mark-to-market adjustments on
pension and postretirement plans in SG&A increased year over year by $63 million ($264 million charge in fiscal 2011 compared to $201
million charge in fiscal 2010) primarily due to a decline in year over year discount rates. Foreign currency translation had an unfavorable
impact on SG&A of $63 million. Refer to the segment analysis below within Item 7 for a discussion of segment income by segment.
Net Financing Charges
(in millions)
Net financing charges
Year Ended
September 30,
2011
2010
Change
$ 174
$ 170
2 %
The increase in net financing charges was primarily due to higher debt levels partially offset by lower interest rates in fiscal 2011.
Equity Income
(in millions)
Equity income
Year Ended
September 30,
2011
2010
Change
$ 298
$ 254
17 %
The increase in equity income was primarily due to a gain on acquisition of partially-owned affiliate net of acquisition costs and purchase
accounting adjustments and a partially-owned equity affiliate’s restatement of prior period income in the Power Solutions business,
partially offset by a prior year gain on consolidation of a Korean partially-owned affiliate in the Power Solutions business. The remaining
increase in equity income was primarily due to higher earnings at certain Automotive Experience and Building Efficiency partially-
owned affiliates.
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Provision for Income Taxes
(in millions)
Provision for income taxes
* Measure not meaningful
Year Ended
September 30,
2011
2010
Change
$ 257
$ 127
*
The effective rate is below the U.S. statutory rate primarily due to continuing global tax planning initiatives and income in certain non-
U.S. jurisdictions with a rate of tax lower than the U.S. statutory tax rate. Refer to Note 17, “Income Taxes,” of the notes to consolidated
financial statements for further details.
Valuation Allowances
The Company reviews the realizability of 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 Experience 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 Experience 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.
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.
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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
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.
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 had 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 was 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
2010
Change
$ 117
$ 75
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.
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Net Income Attributable to Johnson Controls, Inc.
(in millions)
Net income attributable to Johnson Controls, Inc.
Year Ended
September 30,
2011
2010
Change
$ 1,415
$ 1,307
8 %
The increase in net income attributable to Johnson Controls, Inc. was primarily due to higher sales and equity income, and the favorable
impact of foreign currency translation, partially offset by an increase in selling, general and administrative expenses, provision for income
taxes and income attributable to noncontrolling interests. Fiscal 2011 diluted earnings per share was $2.06 compared to prior year’s
diluted earnings per share of $1.92.
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, significant restructuring costs
and net mark-to-market adjustments on pension and postretirement plans.
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,
Segment Income
for the Year Ended
September 30,
2011
2010
Change
2011
2010
Change
9 % $ 247 $ 206 20 %
$ 2,343 $ 2,142
3 %
121 117
8 %
2,305 2,127
4,153 3,288 26 %
40 -45 %
251 180 39 %
1,840 1,422 29 %
4,252 3,823 11 %
105 136 -23 %
$ 14,893 $ 12,802 16 % $ 746 $ 679 10 %
22
•
•
•
•
•
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 of 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).
Segment Income:
•
The increase in North America Systems was primarily due to higher volumes ($38 million), favorable margin rates ($25 million),
prior year reserves for existing customers ($13 million) and the favorable
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•
•
•
•
impact of foreign currency translation ($1 million), partially offset by higher selling, general and administrative expenses ($36
million).
The increase in North America Service was primarily due to prior year inventory adjustments and information technology
implementation costs ($55 million), higher volumes ($25 million), lower selling, general and administrative expenses ($2 million)
and the favorable impact of foreign currency translation ($1 million), partially offset by unfavorable mix and margin rates ($79
million).
The decrease in Global Workplace Solutions was primarily due to unfavorable margin rates ($40 million) and higher selling,
general and administrative expenses ($32 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 ($26 million).
The decrease in Other was primarily due to higher selling, general and administrative expenses ($41 million), restructuring costs
($35 million), non-recurring charges related to South America indirect taxes ($24 million), unfavorable margin rates ($15 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,
Segment Income
for the Year Ended
September 30,
2011
2010
Change
2011
2010
Change
$ 7,431 $ 6,765 10 % $ 419 $ 380 10 %
116 108
10,267 8,019 28 %
7 %
2,367 1,826 30 %
245 109 125 %
$ 20,065 $ 16,610 21 % $ 780 $ 597 31 %
•
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 ($36 million),
higher engineering expenses ($27 million) and higher purchasing costs ($8 million).
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
($16 million) and the favorable impact of
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•
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 ($33 million), unfavorable pricing
($16 million) and higher engineering expenses ($12 million).
Power Solutions
Year Ended
September 30,
•
•
(in millions)
Net sales
Segment income
Net sales increased primarily due to the impact of higher lead costs on pricing ($287 million), higher sales volumes including the
20 %
22 %
$ 4,893
672
$ 5,875
821
Change
2011
2010
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); a gain on acquisition of a partially-owned affiliate net of acquisition costs and 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 ($44 million); higher selling, general and administrative
expenses ($38 million); prior year net gain on acquisition of a Korean partially-owned affiliate ($37 million); and lower equity
income ($8 million).
GOODWILL, LONG-LIVED ASSETS AND OTHER INVESTMENTS
Goodwill at September 30, 2012 was $7.0 billion, $34 million lower than the prior year. The decrease was primarily due to the impact of
foreign currency translation and current year business divestitures, partially offset by business 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 2012, 2011 and 2010
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, 2012, 2011 and 2010. No reporting unit was determined to be at risk of
failing step one of the goodwill impairment test. While at September 30, 2012 the estimated fair value of each reporting unit substantially
exceeded its corresponding carrying amount including recorded goodwill, a prolonged significant decline in the European automotive
industry could put the Company at risk of not achieving future growth assumptions and could
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result in impairment of goodwill or other long-lived assets, or result in additional restructuring actions, within the Automotive Experience
Europe segment, which could be material to the consolidated financial statements.
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, 2012, 2011 and 2010, different assumptions could change the estimated fair values and, therefore,
impairment charges could be required, which could be material to the consolidated financial statements.
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. Given the current economic uncertainty, it is reasonably possible that over the next twelve months, valuation
allowances against deferred tax assets in certain jurisdictions may result in a net increase to tax expense of up to $400 million.
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.
In the third and fourth quarters of fiscal 2012, the Company concluded it had a triggering event requiring assessment of impairment for
certain of its long-lived assets in conjunction with its 2012 restructuring plan. In addition, in the fourth quarter of fiscal 2012, the
Company concluded it had a triggering event requiring assessment of impairment for certain of its long-lived assets due to volume
declines in the European automotive markets. As a result, the Company reviewed the long-lived assets for impairment and recorded a $39
million impairment charge within restructuring costs on the consolidated statement of income, of which $3 million was recorded in the
third quarter and $36 million in the fourth quarter of fiscal 2012. Of the total impairment charge, $14 million related to the Power
Solutions segment, $11 million related to the Automotive Experience Europe segment, $4 million related to the Building Efficiency Other
segment and $10 million related to corporate assets. Refer to Note 15, “Significant Restructuring Costs,” of the notes to consolidated
financial statements for further information regarding the 2012 Plan. The impairment was measured, depending on the asset, either under
an income approach utilizing forecasted discounted cash flows or a market approach utilizing an appraisal to determine fair values of the
impairment assets. These methods are consistent with the methods the Company employed in prior periods to value other long-lived
assets. 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.”
In the second quarter of fiscal 2012, the Company recorded an impairment charge related to an equity investment. Refer to Note 10, “Fair
Value Measurements,” of the notes to consolidated financial statements for additional information.
At September 30, 2012 and 2011, the Company concluded it did not have any other 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
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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 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 restructuring 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
restructuring plan due to lower employee severance and termination benefit cash payments than previously expected. The impairment
was measured under an income approach utilizing forecasted discounted cash flows 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.”
Investments in partially-owned affiliates (“affiliates”) at September 30, 2012 were $948 million, $137 million higher than the prior year.
The increase was primarily due to positive earnings by affiliates in all businesses, primarily in the Automotive Experience Asia and
Power Solutions segments, and an acquisition of additional interests in a Power Solutions affiliate, partially offset by dividends paid by
affiliates and the acquisition of the controlling interest in a formerly unconsolidated Power Solutions affiliate.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
(in millions)
Current assets
Current liabilities
September 30,
September 30,
2012
2011
Change
$ 12,673
(10,855 )
1,818
$ 12,015
(10,782 )
1,233
47 %
Less: Cash
Add: Short-term debt
Add: Current portion of long-term debt
Working capital
Accounts receivable
Inventories
Accounts payable
The Company defines working capital as current assets less current liabilities, excluding cash, short-term debt, and the current
portion of long-term debt. Management believes that this measure of working capital, which excludes financing-related items,
provides a more useful measurement of the Company’s operating performance.
The increase in working capital at September 30, 2012 as compared to September 30, 2011 was primarily due to higher accounts
257
596
17
1,589
265
323
424
2,300
7,308
2,227
6,114
7,151
2,316
6,159
2 %
-4 %
-1 %
45 %
$
$
•
•
receivable from higher sales volumes, lower accounts payable primarily due to timing of supplier payments, lower accrued
compensation and benefits primarily due to lower incentive compensation, and higher other current assets, partially offset by lower
inventory levels based on increased turnover.
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•
The Company’s days sales in accounts receivable increased to 55 at September 30, 2012 from 52 for the prior year. The increase in
accounts receivable compared to September 30, 2011 was primarily due to increased sales in the current year and timing of
customer receipts. 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 2012 were higher compared to the prior year primarily due to increased sales volumes
and improvements in inventory management.
Days in accounts payable at September 30, 2012 increased to 72 days from 71 days at September 30, 2011 primarily due to the
timing of supplier payments.
•
•
Cash Flows
(in millions)
Cash provided by operating activities
Cash used by investing activities
Cash provided by financing activities
Capital expenditures
Year Ended September 30,
2011
2012
$ 1,559
(1,792 )
207
(1,831 )
$ 1,076
(2,637 )
1,239
(1,325 )
•
The increase in cash provided by operating activities was primarily due to changes in accounts receivable, inventory and
•
•
•
restructuring reserves; partially offset by changes in accounts payable and accrued liabilities, other assets and accrued income taxes;
and lower net income.
The decrease in cash used by investing activities was primarily due to lower cash paid for acquisitions of businesses and cash
received for business divestitures, partially offset by higher capital expenditures.
The decrease in cash provided by financing activities was primarily due to a prior year $1.6 billion bond issuance, and current year
cash paid to repurchase stock and acquire noncontrolling interests, partially offset by a current year $1.1 billion bond issuance and
lower repayments of debt. Refer to Note 8, “Debt and Financing Arrangements,” of the notes to consolidated financial statements
for further discussion on debt issuances and debt levels.
The increase in capital expenditures in the current year primarily related to capacity increases and vertical integration efforts in the
Power Solutions business, program spending for new customer launches in the Automotive Experience business, and increased
investments to support customer growth and enhance the Company’s strategic footprint primarily in Southeast Asia.
Capitalization
(in millions)
Short-term debt
Current portion of long-term debt
Long-term debt
Total debt
Shareholders’ equity attributable to Johnson Controls, Inc.
Total capitalization
September 30,
2012
September 30,
2011
Change
$
323
424
5,321
6,068
11,555
$ 17,623
$
$
596
17
4,533
5,146
11,042
$ 16,188
$
18 %
5 %
9 %
Total debt as a % of total capitalization
34 %
32 %
•
•
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.
At September 30, 2012 and 2011, the Company had committed bilateral euro denominated revolving credit facilities totaling
237 million euro and 223 million euro, respectively. Additionally, at September 30, 2012 and 2011, the Company had committed
bilateral U.S. dollar denominated revolving credit facilities totaling $185
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•
•
•
•
•
•
•
•
•
•
•
•
million and $50 million, respectively. There were no draws on any of the revolving facilities for the respective periods. As of
September 30, 2012, facilities for $185 million and 137 million euro are scheduled to expire in fiscal 2013, and a facility for
100 million euro is scheduled to expire in fiscal 2014.
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.
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, 2012, 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.
In November 2011, the Company issued $400 million aggregate principal amount of 2.6% senior unsecured fixed rate notes due in
fiscal 2017, $450 million aggregate principal amount of 3.75% senior unsecured fixed rate notes due in fiscal 2022 and $250
million aggregate principal amount of 5.25% senior unsecured fixed rate notes due in fiscal 2042. Aggregate net proceeds of $1.1
billion from the issues were used for general corporate purposes, including the retirement of short-term debt and contributions to the
Company’s pension and postretirement plans.
In December 2011, the Company entered into a five-year, 75 million euro, floating rate credit facility scheduled to mature in
February 2017. The Company drew on the credit facility during the second quarter of fiscal 2012. Proceeds from the facility were
used for general corporate purposes.
In March 2012, the Company remarketed $46 million aggregate principal amount of 11.5% subordinated notes due in fiscal 2042,
on behalf of holders of Corporate Units and holders of separate notes, by issuing $46 million aggregate principal amount of 2.355%
senior notes due on March 31, 2017.
The Company also selectively makes use of short-term credit lines. The Company estimates that, as of September 30, 2012, it could
borrow up to $1.9 billion at its current debt ratings on committed credit lines.
The Company believes its capital resources and liquidity position at September 30, 2012 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 potential acquisitions in fiscal 2013 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, 2012. 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. The Company currently does not intend nor foresee a need to repatriate these funds. 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. The Company expects existing domestic cash and liquidity to continue to be sufficient to fund the Company’s
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 the Company’s foreign operating activities and cash
commitments for investing activities, such as material capital
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•
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 operations domestically, the Company 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 the Company’s earnings. The Company has
borrowed funds domestically and continues 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,
2012, consolidated shareholders’ equity attributable to Johnson Controls, Inc. as defined per the Company’s debt financial
covenants was $11.2 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.
A summary of the Company’s significant contractual obligations as of September 30, 2012 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
2013
2014-2015
2016-2017
2018
and Beyond
$ 5,745 $ 424 $ 1,072 $ 1,645 $ 2,604
2,566
233
978
315
2,175
1,732
413
402
396
305
1,615
174
40
87
7
382
187
$ 11,846 $ 2,798 $ 2,330 $ 2,218 $ 4,500
94
47
54
* 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
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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.
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 2012, 2011 and 2010
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, 2012, 2011 and 2010. No reporting unit was determined to be at risk of
failing step one of the goodwill impairment test. While at September 30, 2012 the estimated fair value of each reporting unit substantially
exceeded its corresponding carrying amount including recorded goodwill, a prolonged significant decline in the European automotive
industry could put the Company at risk of not achieving future growth assumptions and could result in impairment of goodwill or other
long-lived assets, or result in additional restructuring actions, within the Automotive Experience Europe segment, which could be
material to the consolidated financial statements.
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, 2012, 2011 and 2010, different assumptions could change the estimated fair values and, therefore,
impairment charges could be required, which could be material to the consolidated financial statements.
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Employee Benefit Plans
The Company provides a range of benefits to its employees and retired employees, including pensions and postretirement 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. The Company reviews its actuarial assumptions on an annual basis and
makes modifications to the assumptions based on current rates and trends when appropriate.
In the fourth quarter of fiscal 2012, the Company changed its accounting policy for recognizing pension and postretirement benefit
expenses. The Company’s historical accounting treatment smoothed asset returns and amortized deferred actuarial gains and losses over
future years. By adopting the new mark-to-market accounting method, the Company recognizes these gains and losses in the fourth
quarter of each fiscal year or at the date of a remeasurement event. The Company believes this new policy is preferable and provides
greater transparency to on-going operational results. The change has no impact on future pension and postretirement funding or benefits
paid to participants. These changes have been reported through retrospective application of the new policy to all periods presented.
U.S. GAAP requires that companies recognize in the 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 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 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 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 4.15% and 5.25% at September 30, 2012 and 2011, respectively. The Company’s weighted average
discount rate on non-U.S. plans was 3.40% and 4.00% at September 30, 2012 and 2011, respectively.
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, 2012 and 2011, 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 above 8.50% in fiscal 2012 and below 8.50% in fiscal 2011. For the years ending September 30, 2012 and 2011, the
Company’s weighted average expected long-term return on non-U.S. pension plan assets was 5.15% and 5.50%, respectively. Plan assets
for the Company’s postretirement plans were contributed at the end of fiscal 2011 and were not contemplated in fiscal 2011 net periodic
benefit costs. For the year ending September 30, 2012, the Company’s weighted average expected long-term return on postretirement
plan assets was 6.30%. The actual rate of return on postretirement plan assets was above 6.30% in fiscal 2012.
Beginning in fiscal 2013, the Company believes the long-term rate of return will approximate 8.00%, 4.55% and 5.80% for U.S. pension,
non-U.S. pension and postretirement plans, respectively. Any differences between actual investment results and the expected long-term
asset returns will be reflected in net periodic benefit costs in the fourth quarter of each fiscal year. If the Company’s actual returns on plan
assets are less than the Company’s expectations, additional contributions may be required.
In fiscal 2012, total employer and employee contributions to the defined benefit pension plans were $364 million, of which $266 million
were voluntary contributions made by the Company. The Company expects to contribute approximately $100 million in cash to its
defined benefit pension plans in fiscal year 2013. In fiscal 2012, total employer and employee contributions to the postretirement plans
were $63 million, of which $60 million were voluntary contributions made by the Company. The Company does not expect to make any
significant contributions to its postretirement plans in fiscal year 2013.
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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,
2012, the Company had recorded $278 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, periodic adjustments to the Company’s valuation
allowance may be necessary. At September 30, 2012, the Company had a valuation allowance of $766 million, of which $619 million
relates to net operating loss carryforwards primarily in France and Spain, for which sustainable taxable income has not been
demonstrated; and $147 million for other deferred tax assets. Given the current economic uncertainty, it is reasonably possible that over
the next twelve months, valuation allowances against deferred tax assets in certain jurisdictions may result in a net increase to tax expense
of up to $400 million.
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, 2012, the Company had unrecognized tax benefits of $1,465 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 July 2012, the FASB issued Accounting Standards Update (ASU) No. 2012-02, “Intangibles - Goodwill and Other (Topic 350):
Testing Indefinite-Lived Intangible Assets for Impairment.” ASU No. 2012-02 provides companies an option first to assess qualitative
factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived
intangible asset is impaired. If, as a result of the qualitative assessment, it is determined that it is not more likely than not that the
indefinite-lived intangible assets is impaired, then the Company is not required to take further action. ASU No. 2012-02 will be effective
for the Company for impairment tests of indefinite-lived intangible assets performed in the fiscal year ending September 30, 2013, with
early adoption permitted. The adoption of this guidance will have no impact on the Company’s consolidated financial condition and
results of operations.
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In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and
Liabilities.” ASU No. 2011-11 requires additional quantitative and qualitative disclosures of gross and net information regarding financial
instruments and derivative instruments that are offset or eligible for offset in the consolidated statement of financial position. ASU
No. 2011-11 will be effective for the Company for the quarter ending December 31, 2013. 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. 2011-09, “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 was effective for
the Company for the fiscal year ending September 30, 2012. The adoption of this guidance had no impact on the Company’s consolidated
financial condition and results of operations. Refer to Note 14, “Retirement Plans,” of the notes to consolidated financial statements for
disclosures surrounding the Company’s participation in multiemployer pension plans.
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 will 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. 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 was effective for the Company beginning in the second quarter of
fiscal 2012 (January 1, 2012). The adoption of this guidance had 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.
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. All other derivatives not designated as hedging instruments under ASC 815, “Derivatives and Hedging,” are
revalued in the consolidated statements of income.
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
47
Table of Contents
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.
Equity swaps and any other derivative instruments not designated as hedging instruments under ASC 815 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 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, 2012 and 2011, the Company estimates that an unfavorable 10% change in the exchange rates would have
decreased net unrealized gains by approximately $23 million and $54 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, 2012, 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 $3 million and $5 million at September 30, 2012 and 2011, respectively.
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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 2012 related
solely to environmental compliance were not material. At September 30, 2012 and 2011, the Company recorded environmental liabilities
of $25 million and $30 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, 2012 and 2011, the Company recorded conditional asset retirement obligations of $76
million and $91 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. The Company maintains insurance coverages and records estimated costs 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 20, “Commitments and Contingencies,” of the notes to consolidated financial statements). Costs related to such
matters were not material to the periods presented.
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QUARTERLY FINANCIAL DATA
Previously reported quarterly amounts have been updated to reflect the retrospective application of the Company’s accounting policy
change for recognizing pension and postretirement benefit expense. Refer to Note 1, “Summary of Significant Accounting Policies,” of
the notes to consolidated financial statements for further details surrounding this accounting policy change.
(in millions, except per share data)
(unaudited)
2012
Net sales
Gross profit
Net income (loss) attributable to Johnson Controls, Inc. (1)
Earnings (loss) per share (3)
Basic
Diluted
2011
Net sales
Gross profit
Net income attributable to Johnson Controls, Inc. (2)
Earnings per share (3)
Basic
Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Full
Year
$ 10,417 $ 10,565 $ 10,581 $ 10,392 $ 41,955
6,218
1,226
1,553 1,541
431
1,588
(8 )
1,536
424
379
0.62
0.62
0.56
0.55
0.63
0.63
(0.01 )
(0.01 )
1.80
1.78
$ 9,537 $ 10,144 $ 10,364 $ 10,788 $ 40,833
6,058
1,415
1,476 1,552
367
1,614
234
1,416
400
414
0.59
0.58
0.61
0.60
0.54
0.53
0.34
0.34
2.09
2.06
(1) The fiscal 2012 first quarter net income includes a $25 million gain on redemption of a warrant for an existing Power Solutions partially-
owned affiliate. The fiscal 2012 second quarter net income includes a $35 million gain on business divestitures net of transaction costs in
the Building Efficiency business and a $14 million impairment of an equity investment in the Power Solutions segment. The fiscal 2012
third quarter net income includes $52 million of significant restructuring costs. The fiscal 2012 fourth quarter net income includes $447
million of net mark-to-market charges on pension and postretirement plans and $245 million of significant restructuring costs. The
preceding amounts are stated on a pre-tax basis.
(2) The fiscal 2011 first quarter net income includes a $27 million net actuarial gain due to a pension plan curtailment. The fiscal 2011
second quarter net income includes a $68 million net actuarial gain due to a pension plan curtailment and $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 $479 million of net mark-to-market charges on pension and postretirement plans; a $37 million gain on acquisition of
a Power Solutions partially-owned affiliate net of acquisition costs and 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.
(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, 2012, 2011 and 2010
Consolidated Statements of Financial Position as of September 30, 2012 and 2011
Consolidated Statements of Cash Flows for the years ended September 30, 2012, 2011 and 2010
Consolidated Statements of Shareholders’ Equity Attributable to Johnson Controls, Inc. for the years ended September 30, 2012, 2011
and 2010
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts
51
Page
52
54
55
56
57
58
106
Table of Contents
R eport of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Johnson Controls, Inc.
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, 2012 and 2011, and the results of their operations and their cash
flows for each of the three years in the period ended September 30, 2012 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, 2012, 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.
As discussed in Note 1 to the consolidated financial statements, in 2012 the Company has changed its method of accounting for pension
and postretirement benefits. All periods have been retroactively revised for this accounting change.
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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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.
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
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
November 19, 2012
53
J ohnson 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
Net financing charges
Equity income
Income before income taxes
Provision for income taxes
Net income
Income attributable to noncontrolling interests
Net income attributable to Johnson Controls, Inc.
Earnings per share
Basic
Diluted
Year ended September 30,
2011
2012
2010
$ 33,561 $ 32,420 $ 27,204
7,101
34,305
8,394
41,955
8,413
40,833
28,839
6,898
35,737
27,675
7,100
34,775
23,263
5,821
29,084
6,218
6,058
5,221
(4,438 )
(297 )
(233 )
340
(4,393 )
—
(174 )
298
(3,796 )
—
(170 )
254
1,590
1,789
1,509
237
257
127
1,353
1,532
1,382
127
117
75
$ 1,226 $ 1,415 $ 1,307
$ 1.80 $ 2.09 $ 1.94
$ 1.78 $ 2.06 $ 1.92
* 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.
54
Table of Contents
J ohnson 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 $78 and $89, 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 and postretirement benefits
Other noncurrent liabilities
Long-term liabilities
Commitments and contingencies (Note 20)
Redeemable noncontrolling interests
Common Stock, $.01 7/18 par value shares authorized: 1,800,000,000 shares issued: 2012 - 688,483,873; 2011 -
682,634,236
Capital in excess of par value
Retained earnings
Treasury stock, at cost (2012 - 6,176,266; 2011 - 2,470,168 shares)
Accumulated other comprehensive income
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,
2012
2011
$
265 $ 257
7,151
2,316
2,291
12,015
7,308
2,227
2,873
12,673
6,440
6,982
947
948
2,894
5,616
7,016
945
811
3,273
$ 30,884 $ 29,676
$
323 $ 596
17
424
6,159
6,114
1,315
1,090
2,695
2,904
10,782
10,855
5,321
1,248
1,504
8,073
4,533
1,102
1,819
7,454
253
260
10
2,725
8,541
(179 )
458
11,555
148
11,703
9
2,620
7,838
(74 )
649
11,042
138
11,180
$ 30,884 $ 29,676
Table of Contents
J ohnson Controls, Inc.
Consolidated Statements of Cash Flows
(in millions)
Operating Activities
Net income attributable to Johnson Controls, Inc.
Income attributable to noncontrolling interests
Net income
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation
Amortization of intangibles
Pension and postretirement benefit expense
Pension and postretirement contributions
Equity in earnings of partially-owned affiliates, net of dividends received
Deferred income taxes
Impairment charges
Gain on divestitures - net
Fair value adjustment of equity investment
Equity-based compensation
Other
Changes in assets and liabilities, excluding acquisitions and divestitures:
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
Business divestitures
Settlement of cross-currency interest rate swaps
Changes in long-term investments
Warrant redemption
Cash used by investing activities
Financing Activities
Increase (decrease) in short-term debt - net
Increase in long-term debt
Repayment of long-term debt
Stock repurchases
Payment of cash dividends
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
Year Ended September 30,
2011
2012
2010
$ 1,226 $ 1,415 $ 1,307
75
1,382
127
1,353
117
1,532
768
56
479
(414 )
(138 )
(206 )
53
(40 )
(12 )
56
(11 )
(114 )
39
(367 )
196
(64 )
(75 )
1,559
678
53
410
(451 )
(15 )
(257 )
—
—
(89 )
59
2
(721 )
(387 )
(118 )
(94 )
343
131
1,076
(1,831 )
58
(30 )
105
(19 )
(100 )
25
(1,792 )
(1,325 )
54
(1,226 )
—
—
(140 )
—
(2,637 )
648
43
378
(695 )
5
(155 )
41
—
(47 )
49
13
(608 )
(260 )
274
(195 )
812
(247 )
1,438
(777 )
47
(61 )
—
—
(101 )
—
(892 )
(302 )
1,260
(36 )
(102 )
(477 )
40
—
(115 )
(61 )
207
34
8
257
(575 )
515
(526 )
—
(339 )
52
—
—
(22 )
(895 )
148
(201 )
761
$ 265 $ 257 $ 560
510
1,852
(787 )
—
(413 )
105
24
(23 )
(29 )
1,239
19
(303 )
560
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J ohnson Controls, Inc.
Consolidated Statements of Shareholders’ Equity Attributable to Johnson Controls, Inc.
(in millions, except per share data)
At September 30, 2009 (previously reported)
Pension and postretirement policy change (Note 1)
At September 30, 2009 (revised)
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
Comprehensive income:
Net income attributable to Johnson Controls, Inc.
Foreign currency translation adjustments
Realized and unrealized gains on derivatives
Unrealized losses on marketable common stock
Employee retirement plans
Other comprehensive loss
Comprehensive income
Cash dividends
Common ($0.72 per share)
Capital in
Common
Excess of
Retained
Stock
Par Value
Earnings
9 $ 2,354 $ 6,615
(691 )
5,924
—
2,354
$
—
9
—
—
—
—
—
—
—
—
—
—
1,307
—
—
—
—
Treasury
Stock,
at Cost
$ (70 )
—
(70 )
—
—
—
—
—
Total
$ 9,100
—
9,100
1,307
(115 )
13
3
14
(85 )
1,222
(350 )
—
—
(350 )
—
9
90
10,071
—
—
9
—
94
2,448
9
—
6,890
—
(4 )
(74 )
—
—
—
—
—
—
—
—
—
—
1,415
—
—
—
—
—
—
—
—
—
1,415
(109 )
(47 )
3
4
(149 )
1,266
(435 )
—
—
(435 )
—
(32 )
172
11,042
—
—
9
—
172
2,620
(32 )
—
7,838
—
—
(74 )
—
—
—
—
—
—
—
—
—
—
1,226
—
—
—
—
—
—
—
—
—
1,226
(221 )
39
(1 )
(8 )
(191 )
1,035
(492 )
—
—
(492 )
—
Redemption value adjustment attributable to redeemable
noncontrolling interests
Repurchases of common stock
Other, including options exercised
At September 30, 2012
(35 )
(102 )
107
$ 11,555
—
—
1
(35 )
—
—
—
4
105
10 $ 2,725 $ 8,541
$
—
(102 )
(3 )
$ (179 )
$
The accompanying notes are an integral part of the financial statements.
57
Accumulated
Other
Comprehensive
Income (Loss)
192
$
691
883
—
(115 )
13
3
14
—
—
—
798
—
(109 )
(47 )
3
4
—
—
—
649
—
(221 )
39
(1 )
(8 )
—
—
—
—
458
Table of Contents
J ohnson Controls, Inc.
Notes to Consolidated Financial Statements
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
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.
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 variable interest entity (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.
If the entity is not considered a VIE, then the Company applies the voting interest model to determine whether or not the Company shall
consolidate the partially-owned affiliate.
Consolidated VIEs
Based upon the criteria set forth in ASC 810, the Company has determined that it was the primary beneficiary in three VIEs for the
reporting period ended September 30, 2012 and two VIEs for the reporting period ended September 30, 2011, 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.
Two of the VIEs manufacture products in North America for the automotive industry. 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.
During the three month period ended December 31, 2011, a pre-existing VIE accounted for under the equity method was reorganized into
three separate investments as a result of the counterparty exercising its option to put its interest to the Company. The Company acquired
additional interests in two of the reorganized group entities. The reorganized group entities are considered to be VIEs as the other owner
party has been provided decision making rights but does not have equity at risk. The Company is considered the primary beneficiary of
one of the entities due to the Company’s power pertaining to decisions over significant activities of the entity. As such, the VIE has been
consolidated within the Company’s consolidated statements of financial position. The impact of the consolidation of the entity on the
Company’s consolidated statements of income for the year ended September 30, 2012 was not material. The VIE is named as a co-obligor
under a third party debt agreement of $135 million, maturing in fiscal 2019, in which it could become subject to paying more than its
allocated share of the third party debt in the event of bankruptcy of one or more of the other co-obligors. The other co-obligors, all related
parties in which the Company is an equity investor, consist of the remaining group entities involved in the reorganization. As part of the
overall reorganization transaction, the Company has also provided financial support to the group entities in the form of loans totaling
$101 million, which are subordinate to the third party debt agreement. The Company is a significant customer of certain co-obligors,
resulting in a remote possibility of loss. Additionally, the Company is subject to a floor guaranty expiring in fiscal 2022; in the event that
the other owner party no longer owns any part of the group entities due to sale or transfer, the Company has guaranteed that the proceeds
received from the sale or transfer will not be less than $25 million. The Company has partnered with the group entities to design and
manufacture battery components for the Power Solutions business.
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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
Nonconsolidated VIEs
September 30,
2012
2011
$ 199
144
$ 343
$ 172
25
$ 197
$ 207
55
$ 262
$ 144
—
$ 144
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, 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, 2012 and 2011 was $55
million and $49 million, respectively, 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.
As mentioned previously within the “Consolidated VIEs” section above, during the three month period ended December 31, 2011, a pre-
existing VIE was reorganized into three separate investments as a result of the counterparty exercising its option to put its interest to the
Company. The reorganized group entities are considered to be VIEs as the other owner party has been provided decision making rights
but does not have equity at risk. The Company is not considered to be the primary beneficiary of two of the entities as the Company
cannot make key operating decisions considered to be most significant to the VIEs. Therefore, the entities are 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 included the partially-owned affiliate investment balance and a note receivable,
approximated $43 million at September 30, 2011. The Company’s maximum exposure to loss at September 30, 2012 includes the
partially-owned affiliate investment balance of $52 million as well as the subordinated loan from the Company, third party debt
agreement and floor guaranty mentioned previously within the “Consolidated VIEs” section above. Current liabilities due to the VIEs are
not material and represent normal course of business trade payables for all presented periods.
The Company did not have a significant variable interest in any other unconsolidated 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.
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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 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 contractually assured. Income related to recovery of these costs is recorded within selling, general and administrative expense
in the consolidated statements of income. At September 30, 2012 and 2011, the Company recorded within the consolidated statements of
financial position approximately $286 million and $215 million, respectively, of engineering and research and development costs for
which customer reimbursement is contractually 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, 2012 and 2011, approximately $113 million and $109 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, 2012 and 2011, the Company recorded within the consolidated statements of financial position in other
current assets approximately $284 million and $254 million, respectively, of costs for molds, dies and other tools for which customer
reimbursement is contractually 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 3 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.
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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 2012, 2011 and 2010
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, 2012, 2011 and 2010. No reporting unit was determined to be at risk of
failing step one of the goodwill impairment test. While at September 30, 2012 the estimated fair value of each reporting unit substantially
exceeded its corresponding carrying amount including recorded goodwill, a prolonged significant decline in the European automotive
industry could put the Company at risk of not achieving future growth assumptions and could result in impairment of goodwill or other
long-lived assets, or result in additional restructuring actions, within the Automotive Experience Europe segment, which could be
material to the consolidated financial statements.
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, 2012, 2011 and 2010, different assumptions could change the estimated fair values and, therefore,
impairment charges could be required, which could be material to the consolidated financial statements.
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,” of the notes to consolidated financial statements for disclosure of the
impairment analyses performed by the Company during fiscal 2012, 2011 and 2010.
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 $548 million and $476
million at September 30, 2012 and 2011, respectively. Amounts included within other current liabilities were $365 million and $359
million at September 30, 2012 and 2011, respectively.
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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, 2012, 2011 and 2010 were $1,025 million, $876 million and $723 million, respectively.
A portion of the costs associated with these activities is reimbursed by customers and, for the fiscal years ended September 30, 2012,
2011 and 2010 were $516 million, $366 million and $315 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, 2012, 2011 and 2010. See Note
12, “Earnings per Share,” of the notes to consolidated financial statements for the calculation of earnings per share.
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
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transaction gains (losses), net of the impact of foreign currency hedges, included in net income for the years ended September 30, 2012,
2011 and 2010 were $12 million, $(22) million and $50 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.
Pension and Postretirement Benefits
In the fourth quarter of fiscal 2012, the Company changed its accounting policy for recognizing pension and postretirement benefit
expenses. The Company’s historical accounting treatment smoothed asset returns and amortized deferred actuarial gains and losses over
future years. The new mark-to-market approach includes measuring the market related value of plan assets at fair value instead of
utilizing a three-year smoothing approach. In addition, the Company has elected to completely eliminate the corridor approach and
recognize actuarial gains and losses in the fourth quarter of each fiscal year or at the date of a remeasurement event. The Company
believes this new policy is preferable and provides greater transparency to on-going operational results. The change has no impact on
future pension and postretirement funding or benefits paid to participants. These changes have been reported through retrospective
application of the new policy to all periods presented.
This change resulted in a $14 million increase in net income attributable to Johnson Controls, Inc. ($0.02 per diluted share) in each of the
quarters ended December 31, 2011, March 31, 2012 and June 30, 2012.
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The impact of all adjustments made to the consolidated financial statements presented is summarized in the following table (in millions,
except per share data):
Consolidated Statement of Income
Cost of sales
Products and systems
Services
Gross profit
Selling, general and administrative expenses
Income before income taxes
Provision for income taxes
Net income
Net income attributable to Johnson Controls, Inc.
Earnings per share
Basic
Diluted
Consolidated Statement of Financial Position
Retained earnings
Accumulated other comprehensive income (loss)
Consolidated Statement of Cash Flows
Cash provided by operating activities
Net income attributable to Johnson Controls,
Inc.
Net income
Pension and postretirement benefit expense
(1)
Pension and postretirement contributions (2)
Deferred income taxes
Other
Accounts payable and accrued liabilities
Consolidated Statement of Shareholders’ Equity
Attributable to Johnson Controls, Inc.
Retained earnings at September 30, 2011
Net income attributable to Johnson Controls, Inc.
Retained earnings at September 30, 2012
Accumulated other comprehensive income (loss) at
September 30, 2011
Employee retirement plans
Accumulated other comprehensive income (loss) at
September 30, 2012
64
Previous Method
2012
As Reported
Effect of Change
$
$
$
$
28,796
6,922
6,237
4,102
1,945
378
1,567
1,440
2.11
2.09
$ 28,839
6,898
6,218
4,438
1,590
237
1,353
1,226
1.80
1.78
9,839
(840 )
$ 8,541
458
1,440
1,567
$ 1,226
1,353
—
—
(65 )
75
(440 )
8,922
1,440
9,839
(435 )
(222 )
(840 )
479
(414 )
(206 )
(11 )
(64 )
$ 7,838
1,226
8,541
649
(8 )
458
$
$
$
$
43
(24 )
(19 )
336
(355 )
(141 )
(214 )
(214 )
(0.31 )
(0.31 )
(1,298 )
1,298
(214 )
(214 )
479
(414 )
(141 )
(86 )
376
(1,084 )
(214 )
(1,298 )
1,084
214
1,298
Table of Contents
Consolidated Statement of Income
Cost of sales
Products and systems
Services
Gross profit
Selling, general and administrative expenses
Income before income taxes
Provision for income taxes
Net income
Net income attributable to Johnson Controls, Inc.
Earnings per share
Basic
Diluted
Consolidated Statement of Financial Position
Retained earnings
Accumulated other comprehensive income (loss)
Consolidated Statement of Cash Flows
Cash provided by operating activities
Net income attributable to Johnson Controls, Inc.
Net income
Pension and postretirement benefit expense (1)
Pension and postretirement contributions (2)
Deferred income taxes
Other
Accounts payable and accrued liabilities
Consolidated Statement of Shareholders’ Equity Attributable to Johnson
Controls, Inc.
Retained earnings at September 30, 2010
Net income attributable to Johnson Controls, Inc.
Retained earnings at September 30, 2011
Accumulated other comprehensive income (loss) at September 30, 2010
Employee retirement plans
Accumulated other comprehensive income (loss) at September 30, 2011
65
Previously
2011
Reported Revised Effect of Change
$ 27,631 $ 27,675 $
7,032 7,100
6,170 6,058
4,183 4,393
2,111 1,789
257
1,741 1,532
1,624 1,415
370
44
68
(112 )
210
(322 )
(113 )
(209 )
(209 )
2.40
2.36
2.09
2.06
(0.31 )
(0.30 )
$ 8,922 $ 7,838 $
649
(435 )
(1,084 )
1,084
$ 1,624 $ 1,415 $
1,741 1,532
410
—
(451 )
—
(257 )
(144 )
2
37
343
(55 )
(209 )
(209 )
410
(451 )
(113 )
(35 )
398
$ 7,765 $ 6,890 $
1,624 1,415
8,922 7,838
798
4
649
(77 )
(205 )
(435 )
(875 )
(209 )
(1,084 )
875
209
1,084
Table of Contents
Consolidated Statement of Income
Cost of sales
Products and systems
Services
Gross profit
Selling, general and administrative expenses
Income before income taxes
Provision for income taxes
Net income
Net income attributable to Johnson Controls, Inc.
Earnings per share
Basic
Diluted
Consolidated Statement of Cash Flows
Cash provided by operating activities:
Net income attributable to Johnson Controls, Inc.
Net income
Pension and postretirement benefit expense (1)
Pension and postretirement contributions (2)
Deferred income taxes
Other
Accounts payable and accrued liabilities
Consolidated Statement of Shareholders’ Equity Attributable
to Johnson Controls, Inc.
Retained earnings at September 30, 2009
Net income attributable to Johnson Controls, Inc.
Retained earnings at September 30, 2010
Accumulated other comprehensive income (loss) at
September 30, 2009
Employee retirement plans
Accumulated other comprehensive income (loss) at
September 30, 2010
Previously
2010
Reported
Revised
Effect of Change
$ 23,226
5,790
5,289
3,610
1,763
197
1,566
1,491
2.22
2.19
$ 1,491
1,566
—
—
(85 )
36
218
$ 23,263
5,821
5,221
3,796
1,509
127
1,382
1,307
1.94
1.92
$ 1,307
1,382
378
(695 )
(155 )
13
812
$ 6,615
1,491
7,765
$ 5,924
1,307
6,890
192
(170 )
(77 )
883
14
798
$
$
$
37
31
(68 )
186
(254 )
(70 )
(184 )
(184 )
(0.28 )
(0.27 )
(184 )
(184 )
378
(695 )
(70 )
(23 )
594
(691 )
(184 )
(875 )
691
184
875
(1) Pension and postretirement benefit expense was previously included in different lines on the consolidated statement of cash flows. The
amortization of amounts from accumulated other comprehensive income was previously included in the other line. The remaining
expense was included in the accounts payable and accrued liabilities line.
(2) Pension and postretirement contributions were previously included in the accounts payable and accrued liabilities line on the consolidated
statement of cash flows.
New Accounting Pronouncements
In July 2012, the FASB issued Accounting Standards Update (ASU) No. 2012-02, “Intangibles - Goodwill and Other (Topic 350):
Testing Indefinite-Lived Intangible Assets for Impairment.” ASU No. 2012-02 provides companies an option first to assess qualitative
factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived
intangible asset is impaired. If, as a result of the qualitative assessment, it is determined that it is not more likely than not that the
indefinite-lived intangible assets is impaired, then the Company is not required to take further action. ASU No. 2012-02 will be effective
for the Company for impairment tests of indefinite-lived intangible assets performed in the fiscal year ending September 30, 2013, with
early adoption permitted. The adoption of this guidance will have no impact on the Company’s consolidated financial condition and
results of operations.
In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and
Liabilities.” ASU No. 2011-11 requires additional quantitative and qualitative disclosures of gross and net information regarding financial
instruments and derivative instruments that
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are offset or eligible for offset in the consolidated statement of financial position. ASU No. 2011-11 will be effective for the Company for
the quarter ending December 31, 2013. 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. 2011-09, “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 was effective for
the Company for the fiscal year ending September 30, 2012. The adoption of this guidance had no impact on the Company’s consolidated
financial condition and results of operations. Refer to Note 14, “Retirement Plans,” of the notes to consolidated financial statements for
disclosures surrounding the Company’s participation in multiemployer pension plans.
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 will 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. 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 was effective for the Company beginning in the second quarter of
fiscal 2012 (January 1, 2012). The adoption of this guidance had 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.
2. ACQUISITIONS AND DIVESTITURES
During fiscal 2012, the Company completed three acquisitions for a combined purchase price, net of cash acquired, of $38 million, all of
which was paid as of September 30, 2012. 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 $50 million. As a result of two of the acquisitions,
each of which increased the Company’s ownership from a noncontrolling to controlling interest, the Company recorded an aggregate non-
cash gain of $12 million, of which $9 million was recorded within Power Solutions equity income and $3 million was recorded in
Automotive Experience Europe equity income, to adjust the Company’s existing equity investments in the partially-owned affiliates to
fair value. The purchase price allocations may be subsequently adjusted to reflect final valuation studies.
During fiscal 2012, the Company completed three divestitures for a combined sales price of $105 million, all of which was received as of
September 30, 2012. The divestitures in the aggregate were not material to the Company’s consolidated financial statements. In
connection with the divestitures, the Company recorded a gain, net of transaction costs, of $40 million and reduced goodwill by $34
million in the Building Efficiency business.
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
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adjust the Company’s existing equity investment in the partially-owned affiliate to fair value. Goodwill of $100 million was recorded as
part of the transaction, of which $6 million was recorded in fiscal 2012.
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 $442 million, of which $450 million was paid as of
September 30, 2011 and $8 million was received in the three months ended December 31, 2011 as a result of a true-up to the purchase
price. In connection with the Keiper/Recaro Automotive acquisition, the Company recorded goodwill of $128 million primarily in the
Automotive Experience Europe segment, of which $2 million was recorded in fiscal 2012.
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 $200 million primarily in the Automotive Experience Europe segment,
of which $7 million was recorded in fiscal 2012.
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 $119 million, of which $14 million was recorded in fiscal 2012.
During the fourth quarter of fiscal 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.
There were no business divestitures for the years ended September 30, 2011 and 2010.
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,
2012
2011
$ 1,118
417
806
2,341
(114 )
$ 2,227
$ 1,136
434
867
2,437
(121 )
$ 2,316
Inventories valued using the LIFO method of accounting were approximately 19% and 18% of total inventories at September 30, 2012
and 2011, respectively.
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Table of Contents
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,
2012
2011
$ 2,716
7,827
1,722
375
12,640
(6,200 )
$ 6,440
$ 2,488
7,205
1,419
360
11,472
(5,856 )
$ 5,616
Interest costs capitalized during the fiscal years ended September 30, 2012, 2011 and 2010 were $55 million, $34 million and $21
million, respectively. Accumulated depreciation related to capital leases at September 30, 2012 and 2011 was $56 million and $44
million, respectively.
5. GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill in each of the Company’s reporting segments for the fiscal years ended September 30,
2012 and 2011 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,
2010
Business
Acquisitions
Business
Divestitures
Currency
Translation and
September 30,
Other
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
September 30,
2011
Business
Acquisitions
Business
Divestitures
Currency
Translation and
September 30,
Other
2012
$
$
519
710
184
391
1,065
1,379
1,503
261
1,004
7,016
69
$ —
—
—
—
—
13
14
7
45
79
$
$ —
(2 )
—
—
(32 )
—
—
—
—
(34 )
$
$
$
2
—
3
5
(39 )
27
(70 )
2
(9 )
(79 )
$
$
521
708
187
396
994
1,419
1,447
270
1,040
6,982
Table of Contents
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
September 30, 2012
September 30, 2011
Gross
Carrying
Accumulated
Gross
Carrying
Accumulated
Amount
Amortization Net
Amount
Amortization Net
$ 188 $
517
204
909
(113 ) $ 75 $ 298 $
400 487
(117 )
157 184
(47 )
632 969
(277 )
(209 ) $ 89
396
146
631
(91 )
(38 )
(338 )
315
$ 1,224 $
—
315 314
(277 ) $ 947 $ 1,283 $
—
314
(338 ) $ 945
Amortization of other intangible assets for the fiscal years ended September 30, 2012, 2011 and 2010 was $56 million, $53 million and
$43 million, respectively. Excluding the impact of any future acquisitions, the Company anticipates amortization for fiscal 2013, 2014,
2015, 2016 and 2017 will be approximately $60 million, $58 million, $55 million, $49 million and $49 million, respectively.
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 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 statements 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, 2012 and
2011 were as follows (in millions):
Balance at beginning of period
Accruals for warranties issued during the period
Accruals from acquisitions and divestitures
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
70
Year Ended
September 30,
2012
$ 301
224
(1 )
(21 )
(221 )
(4 )
$ 278
2011
$ 337
217
12
(32 )
(233 )
—
$ 301
Table of Contents
7. LEASES
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 $96 million and $68 million at September 30, 2012 and 2011,
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, 2012, 2011 and 2010 was $454 million, $424 million and $389 million, respectively.
Future minimum capital and operating lease payments and the related present value of capital lease payments at September 30, 2012 were
as follows (in millions):
2013
2014
2015
2016
2017
After 2017
Total minimum lease payments
Interest
Present value of net minimum lease payments
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
Capital
Operating
Leases
$ 315
234
168
105
69
87
$ 978
Leases
$ 14
16
12
7
7
43
99
(19 )
$ 80
September 30,
2012
$ 323
2011
$ 596
2.5 %
2.4 %
During the quarter ended March 31, 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. There were no draws on the committed credit facilities during the fiscal years
ended September 30, 2012 and 2011. Average outstanding commercial paper for the fiscal year ended September 30, 2012 was $1,287
million, and $186 million was outstanding at September 30, 2012. Average outstanding commercial paper for the fiscal year ended
September 30, 2011 was $955 million, and $409 million was outstanding at September 30, 2011.
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Table of Contents
Long-term debt consisted of the following (in millions; due dates by fiscal year):
Unsecured notes
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)
2.6% due in 2017 ($400 million par value)
2.355% due in 2017 ($46 million par value)
5.0% due in 2020 ($500 million par value)
4.25% due 2021 ($500 million par value)
3.75% due in 2022 ($450 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 equity units in fiscal 2011)
11.5% notes due in 2042 ($8 million par value)
5.25% due in 2042 ($250 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,
2012
2011
$ 100
310
350
456
125
800
162
400
46
498
497
447
395
299
—
—
250
125
80
377
28
5,745
424
$ 5,321
$ 101
321
350
462
125
800
164
—
—
498
497
—
395
299
38
8
—
125
70
286
11
4,550
17
$ 4,533
At September 30, 2012, the Company’s euro-denominated long-term debt was at fixed rates with a weighted-average interest rate of
3.6%. 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%.
The installments of long-term debt maturing in subsequent fiscal years are: 2013 - $424 million; 2014 - $937 million; 2015 - $135
million; 2016 - $806 million; 2017 - $839 million; 2018 and thereafter - $2,604 million. The Company’s long-term debt includes various
financial covenants, none of which are expected to restrict future operations.
Total interest paid on both short and long-term debt for the fiscal years ended September 30, 2012, 2011 and 2010 was $283 million,
$216 million and $181 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,” of the notes to consolidated financial
statements). These instruments affect the weighted average interest rate of the Company’s debt and interest expense.
Financing Arrangements
During the quarter ended September 30, 2012, two 37 million euro revolving credit facilities and a 50 million euro revolving credit
facility expired. The Company entered into a new 50 million euro revolving credit facility scheduled to expire in August 2013. The
Company also entered into a new 37 million euro and a new 50 million euro revolving credit facility both scheduled to expire in
September 2013. There were no draws on the facilities during fiscal 2012.
During the quarter ended September 30, 2012, a $50 million revolving credit facility expired. The Company entered into a new $50
million revolving credit facility scheduled to expire in September 2013. There were no draws on this facility during fiscal 2012.
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Table of Contents
During the quarter ended March 31, 2012, the Company remarketed $46 million aggregate principal amount of 11.5% subordinated notes
due in fiscal 2042, on behalf of holders of Corporate Units and holders of separate notes, by issuing $46 million aggregate principal
amount of 2.355% senior notes due on March 31, 2017.
During the quarter ended December 31, 2011, the Company issued $400 million aggregate principal amount of 2.6% senior unsecured
fixed rate notes due in fiscal 2017, $450 million aggregate principal amount of 3.75% senior unsecured fixed rate notes due in fiscal 2022
and $250 million aggregate principal amount of 5.25% senior unsecured fixed rate notes due in fiscal 2042. Aggregate net proceeds of
$1.1 billion from the issuances were used for general corporate purposes, including the retirement of short-term debt and contributions to
the Company’s pension and postretirement plans.
During the quarter ended December 31, 2011, the Company entered into two committed, one-year revolving credit facilities totaling $135
million in aggregate. There were no draws on either facility during fiscal 2012.
During the quarter ended December 31, 2011, the Company entered into a five-year, 75 million euro, floating rate credit facility
scheduled to mature in fiscal 2017. The Company drew on the credit facility during the quarter ended March 31, 2012. Proceeds from the
facility were used for general corporate purposes.
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 37 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.
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 March 31, 2011, the Company retired its $100 million committed revolving facility prior to its scheduled
maturity date of December 2011. There were no draws on the facility.
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.
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.
73
Table of Contents
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. At September 30, 2012 and 2011, the Company had three cross-currency interest rate swaps outstanding totaling 20
billion yen.
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
Units
Pounds
Metric Tons
Metric Tons
Metric Tons
Volume Outstanding as of
September 30, 2012
13,135,000
21,200
2,868
1,344
September 30, 2011
18,760,000
25,600
5,398
260
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, 2012 and 2011, the Company had hedged
approximately 4.5 million and 4.3 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. 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% bond maturing November 15, 2012, two fixed to floating interest rate swaps totaling $300 million to hedge the coupon of its
4.875% bond maturing September 15, 2013 and five fixed to floating interest rate swaps totaling $450 million to hedge the coupon of its
1.75% bond maturing March 1, 2014. These eight interest rate swaps were outstanding as of September 30, 2012 and 2011.
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 Corp.
(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 notes. 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 treasury lock agreements were
terminated.
74
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
Interest rate swaps
Cross-currency interest rate swaps
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
Current portion of long-term debt
Fixed rate debt swapped to floating
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
September 30,
September 30,
2012
2011
Derivatives and Hedging Activities Not
Designated as Hedging Instruments
under ASC 815
September 30,
2012
September 30,
2011
$
$
$
$
$
$
14
11
2
1
6
—
—
34
17
—
—
401
456
—
874
$
$
28
—
—
—
15
—
11
54
49
32
20
—
865
19
985
$
$
$
$
8
—
—
—
—
123
—
131
9
—
—
—
—
—
9
$
$
$
$
18
—
—
—
—
112
16
146
21
—
—
—
—
11
32
The following tables present the location and amount of the effective portion of gains and losses gross of tax on derivative instruments
and related hedge items reclassified from AOCI into the Company’s consolidated statements of income for the fiscal years ended
September 30, 2012 and 2011 and amounts recorded in AOCI net of tax in the consolidated statements of financial position (in millions):
Derivatives in ASC 815 Cash Flow Hedging Relationships
Foreign currency exchange derivatives
Commodity derivatives
Forward treasury locks
Total
Location of Gain (Loss)
Reclassified from AOCI into Income
Cost of sales
Cost of sales
Net financing charges
Amount of Gain (Loss) Reclassified
from AOCI into Income
Year Ended September 30,
2012
2011
$
$
(19 )
(25 )
2
(42 )
$
$
3
28
1
32
Amount of Gain (Loss) Recognized
in AOCI on Derivative
September 30,
September 30,
Derivatives in ASC 815 Cash Flow Hedging Relationships
2012
2011
Foreign currency exchange derivatives
Commodity derivatives
Forward treasury locks
Total
$
$
(3 )
7
8
12
$
$
(16 )
(20 )
9
(27 )
Derivatives in ASC 815 Fair Value Hedging Relationships
Interest rate swap
Fixed rate debt swapped to floating
Total
Location of Gain (Loss)
Recognized in Income on Derivative
Net financing charges
Net financing charges
75
Amount of Gain (Loss)
Recognized
in Income on Derivative
Year Ended September 30,
2011
2012
$
$
(8 )
9
1
$
15
(15 )
$ —
Table of Contents
Derivatives Not Designated as Hedging Instruments under ASC 815
Foreign currency exchange derivatives
Foreign currency exchange derivatives
Foreign currency exchange derivatives
Equity swap
Total
Location of Gain (Loss)
Recognized in Income on Derivative
Cost of sales
Net financing charges
Provision for income taxes
Selling, general and administrative
Amount of Gain (Loss)
Recognized
in Income on Derivative
Year Ended September 30,
2011
2012
$
$
23
(19 )
1
6
11
$
5
3
—
(23 )
(15 )
$
The amount of gains (losses) recognized in cumulative translation adjustment (CTA) within AOCI on the effective portion of outstanding
net investment hedges was $1 million and $(12) million at September 30, 2012 and 2011, respectively. For the years ended September 30,
2012 and 2011, no gains or losses were reclassified from CTA into income for the Company’s outstanding net investment hedges, and no
gains or losses were recognized in income for the ineffective portion of cash flow hedges.
10. FAIR VALUE MEASUREMENTS
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.
76
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,
2012 and 2011 (in millions):
Fair Value Measurements Using:
Other current assets
Foreign currency exchange derivatives
Commodity derivatives
Interest rate swaps
Cross-currency interest rate swaps
Other noncurrent assets
Interest rate swaps
Investments in marketable common stock
Equity swap
Total assets
Other current liabilities
Foreign currency exchange derivatives
Current portion of long-term debt
Fixed rate debt swapped to floating
Long-term debt
Fixed rate debt swapped to floating
Total liabilities
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 debt swapped to floating
Other noncurrent liabilities
Foreign currency exchange derivatives
Total liabilities
Total as of
September 30, 2012
Quoted Prices
in Active
Markets
(Level 1)
—
—
—
—
—
32
123
155
$
$
$
$
22
11
2
1
6
32
123
197
26
401
456
883
$
$
$
$
Significant
Other
Observable
Significant
Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
$
22
11
2
1
6
—
—
42
$
$ —
—
—
—
—
—
—
$ —
—
$
26
$ —
—
—
—
401
456
883
$
—
—
$ —
Fair Value Measurements Using:
Total as of
September 30, 2011
Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Significant
Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
$
46
$
—
$
46
$ —
15
34
112
27
234
70
20
32
865
30
1,017
$
$
$
77
—
34
112
—
146
—
—
—
—
—
—
$
$
$
15
—
—
27
88
$
$
70
20
32
865
—
—
—
—
$ —
$ —
—
—
—
30
$ 1,017
—
$ —
Table of Contents
Valuation Methods
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 hedges under ASC 815, 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 were highly effective in hedging the variability in future cash flows attributable to
changes in currency exchange rates at September 30, 2012 and 2011. The fair value of foreign currency exchange derivatives that are
designated as fair value hedges under ASC 815, as well as those 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, 2012 and 2011.
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 bonds. 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. In the second quarter of fiscal 2011, the Company entered into a fixed to floating interest rate swap
totaling $100 million to hedge the coupons of its 5.80% 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% bond maturing March 1, 2014. These eight interest rate swaps were outstanding as
of September 30, 2012 and 2011.
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 observable market data.
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. At September 30, 2012
and 2011, the Company had three cross-currency interest rate swaps outstanding totaling 20 billion yen.
Investments in marketable common stock - The Company invests in certain marketable common stock, which is valued under a market
approach using publicized share prices. As of September 30, 2012 and 2011, the Company recorded unrealized gains of $5 million and $9
million, respectively, in accumulated other comprehensive income. The Company also recorded unrealized losses of $3 million in
accumulated other comprehensive income on these investments as of September 30, 2011, and no unrealized losses as of September 30,
2012. In the second quarter of fiscal 2012, the Company recorded an impairment charge related to an investment in marketable common
stock due to the investee’s bankruptcy announcement in March 2012. As a result, the Company recorded a $14 million impairment charge
within selling, general, and administrative expenses in the Power Solutions segment. The impairment reduced the investment to zero and
was measured under a market approach using the publicized share price. The inputs utilized in the analysis are classified as Level 1 inputs
within the fair value hierarchy as defined in ASC 820.
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
equal to 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.
The fair values 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 $6.3 billion and $4.9 billion at September 30, 2012 and 2011, respectively, was
determined using market quotes classified as Level 1 inputs within the ASC 820 fair value hierarchy.
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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 $55 million, $47 million and $52 million for the fiscal years ended September 30, 2012, 2011 and 2010,
respectively. The total income tax benefit recognized in the consolidated statements of income for share-based compensation
arrangements was approximately $22 million, $19 million and $21 million for the fiscal years ended September 30, 2012, 2011 and 2010,
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 40 million shares of new common stock as of September 30, 2012. 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 16 million shares of common stock remained available to be
granted at September 30, 2012).
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
0.54% - 1.61%
2012
4.8 - 6.4
40.00%
1.81%
Year Ended September 30,
2011
4.5 - 6.0
1.10% - 1.58%
38.00%
1.74%
2010
4.3 - 5.0
1.91% - 2.20%
40.00%
1.73%
A summary of stock option activity at September 30, 2012, and changes for the year then ended, is presented below:
Outstanding, September 30, 2011
Granted
Exercised
Forfeited or expired
Outstanding, September 30, 2012
Exercisable, September 30, 2012
Weighted
Average
Option Price
$ 25.87
28.54
21.00
30.28
$ 26.39
$ 25.35
Shares
Subject to
Option
34,224,012
5,017,870
(1,933,069 )
(840,310 )
36,468,503
24,885,923
Weighted
Average
Remaining
Contractual
Life (years)
Aggregate
Intrinsic
Value
(in millions)
5.3
3.9
$
$
101
95
The weighted-average grant-date fair value of options granted during the fiscal years ended September 30, 2012, 2011 and 2010 was
$8.92, $9.09 and $7.70, respectively.
The total intrinsic value of options exercised during the fiscal years ended September 30, 2012, 2011 and 2010 was approximately $19
million, $101 million and $33 million, respectively.
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In conjunction with the exercise of stock options granted, the Company received cash payments for the fiscal years ended September 30,
2012, 2011 and 2010 of approximately $40 million, $105 million and $52 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 $3 million, $30 million and $7
million for the fiscal years ended September 30, 2012, 2011 and 2010, respectively. The Company does not settle equity instruments
granted under share-based payment arrangements for cash.
At September 30, 2012, the Company had approximately $32 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, 2012 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
0.05 - 4.0
0.07% - .47%
40.00%
1.81%
A summary of SAR activity at September 30, 2012, and changes for the year then ended, is presented below:
Outstanding, September 30, 2011
Granted
Exercised
Forfeited or expired
Outstanding, September 30, 2012
Exercisable, September 30, 2012
Weighted
Average
SAR Price
$ 26.24
28.54
19.28
29.47
$ 26.93
$ 25.91
Shares
Subject to
SAR
3,463,975
669,824
(218,607 )
(139,314 )
3,775,878
2,311,820
Weighted
Average
Remaining
Contractual
Life (years)
Aggregate
Intrinsic
Value
(in
millions)
5.8
4.2
$
$
8
8
In conjunction with the exercise of SARs granted, the Company made payments of $2 million, $4 million and $3 million during the fiscal
years ended September 30, 2012, 2011 and 2010, respectively.
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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.
A summary of the status of the Company’s nonvested restricted stock awards at September 30, 2012, and changes for the fiscal year then
ended, is presented below:
Nonvested, September 30, 2011
Granted
Vested
Forfeited
Nonvested, September 30, 2012
Weighted
Average
Price
$ 32.85
27.69
33.44
28.54
Shares/Units
Subject to
Restriction
1,064,405
409,459
(474,205 )
(2,600 )
$ 30.46
997,059
At September 30, 2012, the Company had approximately $12 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 1.3 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
attributable to Johnson Controls, Inc. by the weighted average number of common shares outstanding during the reporting period. Diluted
EPS is calculated by dividing net income attributable to Johnson Controls, Inc. 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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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 available to common shareholders
Interest expense, net of tax
Diluted income 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
Year Ended September 30,
2011
2010
2012
$ 1,226
1
$ 1,227
$ 1,415
3
$ 1,418
$ 1,307
5
$ 1,312
681.5
677.7
672.0
5.2
1.9
—
688.6
8.1
4.1
—
689.9
5.9
4.5
0.1
682.5
2.2
0.4
0.8
During the three months ended September 30, 2012 and 2011, the Company declared a dividend of $0.18 and $0.16, respectively, per
common share. During the twelve months ended September 30, 2012 and 2011, the Company declared four quarterly dividends totaling
$0.72 and $0.64, respectively, per common share. The Company paid all dividends in the month subsequent to the end of each fiscal
quarter.
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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
Johnson Controls,
Inc.
Equity Attributable
to
Noncontrolling
Interests
Total Equity
$
9,100 $
84 $ 9,184
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
Total comprehensive income:
Net income
Foreign currency translation adjustments
Realized and unrealized gains on derivatives
Unrealized losses on marketable common stock
Employee retirement plans
Other comprehensive loss
Comprehensive income
Other changes in equity:
Cash dividends - common stock ($0.72 per share)
Dividends attributable to noncontrolling interests
Redemption value adjustment attributable to redeemable
noncontrolling interests
Repurchases of common stock
Other, including options exercised
At September 30, 2012
$
83
1,307
(115 )
13
3
14
(85 )
1,222
(350 )
—
9
90
10,071
1,415
(109 )
(47 )
3
4
(149 )
1,266
(435 )
—
(32 )
—
172
11,042
1,226
(221 )
39
(1 )
(8 )
(191 )
1,035
(492 )
—
(35 )
(102 )
107
11,555 $
43
—
—
—
—
—
43
1,350
(115 )
13
3
14
(85 )
1,265
—
(22 )
(350 )
(22 )
—
1
9
91
106 10,177
53
(1 )
—
—
—
(1 )
52
1,468
(110 )
(47 )
3
4
(150 )
1,318
—
(32 )
(435 )
(32 )
(32 )
—
12
12
—
172
138 11,180
58
—
—
—
—
—
58
1,284
(221 )
39
(1 )
(8 )
(191 )
1,093
—
(48 )
(492 )
(48 )
(35 )
—
(102 )
—
—
107
148 $ 11,703
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
September 30,
2012
$ 413
12
5
28
$ 458
2011
$ 634
(27 )
6
36
$ 649
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
Foreign currency translation adjustments
Change in noncontrolling interest share
Dividends
Redemption value adjustment
Ending balance, September 30
14. RETIREMENT PLANS
Year Ended
September 30, 2012
Year Ended
September 30, 2011
Year Ended
September 30, 2010
$
$
260 $
69
(1 )
(95 )
(15 )
35
253 $
196 $
64
—
(21 )
(11 )
32
260 $
155
32
1
17
—
(9 )
196
As discussed in Note 1, “Summary of Significant Accounting Policies,” the Company elected to change its policy for recognizing pension
and postretirement benefit expenses. The historical accounting treatment smoothed asset returns and amortized deferred actuarial gains
and losses over future years. The new mark-to-market accounting method recognizes those gains and losses in the fourth quarter of each
fiscal year or at the date of a remeasurement event. The Company believes this new policy will provide greater transparency to on-going
operational results. The change has no impact on pension and postretirement funding or benefits paid to participants. This change in
accounting policy has been applied retrospectively, revising all periods presented. See Note 1, “Summary of Significant Accounting
Policies,” of the notes to consolidated financial statements for further information on the change in accounting policy and the impact of
the Company’s consolidated financial statements.
Pension Benefits
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 $4,450 million, $4,242 million and $3,279 million, respectively, as of September 30, 2012
and $4,339 million, $4,185 million and $3,346 million, respectively, as of September 30, 2011.
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In fiscal 2012, total employer and employee contributions to the defined benefit pension plans were $364 million, of which $266 million
were voluntary contributions made by the Company. The Company expects to contribute approximately $100 million in cash to its
defined benefit pension plans in fiscal year 2013. Projected benefit payments from the plans as of September 30, 2012 are estimated as
follows (in millions):
2013
2014
2015
2016
2017
2018-2022
Postretirement Benefits
$ 281
287
283
288
292
1,555
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, 2012 postretirement 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, decreasing one half percent each year to an ultimate rate of 5% and 7.5% for non-U.S. plans,
decreasing three twentieths of one percent each year to an ultimate rate of 4.5%. The prescription drug trend rates used were 7.5% for
U.S. plans, decreasing one half percent each year to an ultimate rate of 5% and 8.5% for non-U.S. plans, decreasing one fifth of one
percent each year to an ultimate rate of 4.5%. The September 30, 2011 PBO for both pre-65 and post-65 years of age employees was
determined using medical care cost trend rates of 7.5% for U.S. plans, decreasing one half percent each year to an ultimate rate of 5% and
a flat 5% for non-U.S. plans. The prescription drug trend rates used were 7.5% for U.S. plans and non-U.S. plans, decreasing one half
percent each year to an ultimate rate of 5%. The health care cost trend assumption does not have a significant effect on the amounts
reported.
In fiscal 2012, total employer and employee contributions to the postretirement plans were $63 million, of which $60 million were
voluntary contributions made by the Company. The Company does not expect to make any significant contributions to its postretirement
plans in fiscal year 2013. Projected benefit payments from the plans as of September 30, 2012 are estimated as follows (in millions):
2013
2014
2015
2016
2017
2018-2022
$ 22
22
23
23
23
91
In December 2003, the U.S. Congress enacted the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Act) for
employers sponsoring postretirement 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
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specified conditions, the Company will contribute to certain savings plans based on the employees’ eligible pay and/or will match a
percentage of the employee contributions up to certain limits. Matching contributions charged to expense amounted to $65 million, $67
million and $42 million for the fiscal years ended 2012, 2011 and 2010, respectively.
Multiemployer Benefit Plans
The Company contributes to multiemployer benefit plans based on obligations arising from collective bargaining agreements related to
certain of its hourly employees in the U.S. These plans provide retirement benefits to participants based on their service to contributing
employers. The benefits are paid from assets held in trust for that purpose. The trustees typically are responsible for determining the level
of benefits to be provided to participants as well as for such matters as the investment of the assets and the administration of the plans.
The risks of participating in these multiemployer benefit plans are different from single-employer benefit plans in the following aspects:
•
•
•
Assets contributed to the multiemployer benefit plan by one employer may be used to provide benefits to employees of other
participating employers.
If a participating employer stops contributing to the multiemployer benefit plan, the unfunded obligations of the plan may be borne
by the remaining participating employers.
If the Company stops participating in some of its multiemployer benefit plans, the Company may be required to pay those plans an
amount based on its allocable share of the underfunded status of the plan, referred to as a withdrawal liability.
The Company participates in over 300 multiemployer benefit plans, primarily related to its Building Efficiency business in the U.S., none
of which are individually significant to the Company. The number of employees covered by the Company’s multiemployer benefit plans
has remained consistent over the past three years, and there have been no significant changes that affect the comparability of fiscal 2012,
2011 and 2010 contributions. The Company recognizes expense for the contractually-required contribution for each period. The
Company contributed $47 million, $51 million and $46 million to multiemployer benefit plans in fiscal 2012, 2011 and 2010,
respectively.
Based on the most recent information available, the Company believes that the present value of actuarial accrued liabilities in certain of
these multiemployer benefit plans may exceed the value of the assets held in trust to pay benefits. Currently, the Company is not aware of
any significant multiemployer benefits plans for which it is probable or reasonably possible that the Company will be obligated to make
up any shortfall in funds. Moreover, if the Company were to exit certain markets or otherwise cease making contributions to these funds,
the Company could trigger a withdrawal liability. Currently, the Company is not aware of any significant multiemployer benefit plans for
which it is probable or reasonably possible that the Company will withdraw from the plan. Any accrual for a shortfall or withdrawal
liability will be recorded when it is probable that a liability exists and it can be reasonably estimated.
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 and a target duration close to that of the plan liability. 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.
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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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The Company’s plan assets at September 30, 2012 and 2011, 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
Hedge Fund
Real Estate
Total
Postretirement
Cash
Equity Securities
Large-Cap
Small-Cap
International - Developed
International - Emerging
Fixed Income Securities
Government
Corporate/Other
Commodities
Real Estate
Total
Fair Value Measurements Using:
Total as of
September 30, 2012
Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Significant
Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
$
25
$
25
$ —
$ —
$
$
$
$
781
324
617
685
219
94
240
781
324
617
685
219
—
—
—
—
—
—
—
—
—
2,985
$
2,651
$ —
$
—
—
—
—
—
94
240
334
61
$
61
$ —
$ —
134
383
46
334
540
12
56
91
134
383
46
334
540
12
—
83
—
—
—
—
—
—
—
—
1,657
$
1,593
$ —
$
—
—
—
—
—
—
56
8
64
6
$
6
$ —
$ —
35
11
25
14
26
74
20
12
35
11
25
14
26
74
20
12
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
223
$
223
$ —
$ —
88
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
Postretirement
Equity Securities
Large-Cap
Small-Cap
International - Developed
International - Emerging
Fixed Income Securities
Government
Corporate/Other
Commodities
Real Estate
Total
Fair Value Measurements Using:
Total as of
September 30, 2011
Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Significant
Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
$
25
$
25
$ —
$ —
$
$
$
$
734
230
429
162
494
94
204
734
230
429
162
494
—
—
—
—
—
—
—
—
—
2,372
$
2,074
$ —
$
—
—
—
—
—
94
204
298
57
$
57
$ —
$ —
141
347
47
276
499
11
93
141
347
47
276
499
11
86
—
—
—
—
—
—
—
1,471
$
1,464
$ —
$
—
—
—
—
—
—
7
7
$
25
8
19
9
19
53
14
9
25
8
19
9
19
53
14
9
$ —
—
—
—
—
—
—
—
$ —
—
—
—
—
—
—
—
$
156
$
156
$ —
$ —
89
Table of Contents
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 direct or indirect quoted market prices. If indirect quoted market
prices are utilized, 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 direct or indirect quoted market prices. If indirect
quoted market prices are utilized, 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 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.
90
Table of Contents
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
Asset value as of September 30, 2010
Additions net of redemptions
Realized gain
Unrealized gain
Asset value as of September 30, 2011
Additions net of redemptions
Unrealized gain
Asset value as of September 30, 2012
Non-U.S. Pension
Asset value as of September 30, 2010
Unrealized gain
Asset value as of September 30, 2011
Additions net of redemptions
Unrealized gain
Asset value as of September 30, 2012
91
Total
Hedge Funds
Real Estate
$ 232
$
91
$
141
41
10
15
—
—
3
41
10
12
$ 298
$
94
$
204
11
25
—
—
11
25
$ 334
$
94
$
240
$ 6
$ —
$
1
—
$ 7
$ —
$
6
1
7
48
9
$ 64
$
48
8
56
—
1
$
8
Table of Contents
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):
September 30,
Accumulated Benefit Obligation
Change in Projected Benefit Obligation
Projected benefit obligation at beginning of year
Service cost
Interest cost
Plan participant contributions
Acquisitions
Divestitures
Actuarial loss
Amendments made during the year
Benefits paid
Estimated subsidy received
Curtailment gain
Settlement
Other
Currency translation adjustment
Projected benefit obligation at end of year
Change in Plan Assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Acquisitions
Divestitures
Employer and employee contributions
Benefits paid
Settlement payments
Other
Currency translation adjustment
Fair value of plan assets at end of year
Funded status
Amounts recognized in the statement of financial position consist of:
Prepaid benefit cost
Accrued benefit liability
Net amount recognized
Weighted Average Assumptions (1)
Discount rate (2)
Rate of compensation increase
Pension Benefits
U.S. Plans
Non-U.S. Plans
Postretirement
Benefits
2012
2011
2012
2011
2012
2011
$ 3,586
$ 2,850
$ 1,904
$ 1,774
$ —
$ —
2,953
69
150
—
—
—
722
—
(158 )
—
—
—
—
—
2,717
66
145
—
—
—
177
—
(150 )
—
—
(2 )
—
—
1,852
41
73
6
6
(2 )
109
(6 )
(74 )
—
(2 )
(19 )
41
—
1,725
34
70
6
76
—
9
(32 )
(67 )
—
(30 )
(12 )
40
33
259
5
13
7
—
—
7
—
(31 )
2
—
—
2
2
256
5
13
6
—
—
5
—
(27 )
1
—
—
—
—
$ 3,736
$ 2,953
$ 2,025
$ 1,852
$ 266
$ 259
$ 2,372
504
—
—
267
(158 )
—
—
—
$ 2,471
44
—
—
9
(150 )
(2 )
—
—
$ 1,471
155
—
(1 )
97
(74 )
(19 )
16
12
$ 1,216
29
12
—
271
(67 )
(12 )
1
21
$ 156
35
—
—
63
(31 )
—
—
—
$ —
—
—
—
183
(27 )
—
—
—
$ 2,985
$ 2,372
$ 1,657
$ 1,471
$ 223
$ 156
$ (751 ) $ (581 ) $ (368 ) $ (381 ) $ (43 ) $ (103 )
3
$
(754 )
$ — $
(581 )
61
(429 )
$
40
(421 )
$ 39
(82 )
$ 15
(118 )
$ (751 ) $ (581 ) $ (368 ) $ (381 ) $ (43 ) $ (103 )
4.15 %
3.25 %
5.25 %
3.30 %
3.40 %
2.40 %
4.00 %
2.50 %
4.15 %
NA
5.25 %
NA
92
Table of Contents
(1)
(2)
Plan assets and obligations are determined based on a September 30 measurement date at September 30, 2012 and 2011.
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 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 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, 2012 are as follows (in millions):
Accumulated other comprehensive loss (income)
Net transition obligation
Net prior service credit
Total
Pension
Benefits
Postretirement Benefits
$
2
(16 )
$ (14 )
$
$
—
(26 )
(26 )
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 transition obligation
Net prior service credit
Total
93
Pension
Benefits
Postretirement Benefits
$ —
(1 )
(1 )
$
$
$
—
(17 )
(17 )
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
Net actuarial (gain) loss
Amortization of prior service cost (credit)
Curtailment gain
Settlement loss
Net periodic benefit cost
Expense Assumptions:
Discount rate
Expected return on plan assets
Rate of compensation increase
2012
U.S. Plans
2011
2010
2012
Non-U.S. Plans
2011
2010
Pension Benefits
Postretirement Benefits
2011
2012
2010
$ 41
73
$ 66
145
$ 67
152
$
4
$ 34
$ 69
150
14
70
(214 ) (203 ) (156 ) (75 ) (75 ) (63 ) (11 ) — —
134
43
432
24
— (17 ) (17 ) (17 )
2
1
(1 ) — — —
— — —
2
336
1
— — —
— — — —
(1 )
(2 ) (19 )
111
1
$
5
13
$ 38
68
$
5
13
(15 )
30
4
5
$ 438
$ 345
$ 175
$ 66
$ 59
$ 178
$ (25 ) $
6
$ 25
5.25 % 5.50 % 6.25 % 4.00 % 4.00 % 4.75 % 5.25 % 5.50 % 6.25 %
8.50 % 8.50 % 8.50 % 5.15 % 5.50 % 6.00 % 6.30 % NA NA
3.30 % 3.20 % 4.20 % 2.45 % 3.00 % 3.20 % NA NA NA
15. SIGNIFICANT RESTRUCTURING COSTS
To better align its resources with its growth strategies and reduce the cost structure of its global operations to address the softness in
certain underlying markets, the Company committed to a significant restructuring plan (2012 Plan) in the third and fourth quarters of
fiscal 2012 and recorded a $297 million restructuring charge, $52 million in the third quarter and $245 million in the fourth quarter of
fiscal 2012. 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 closures. The restructuring actions are expected to be
substantially complete by the end of fiscal 2014.
The following table summarizes the changes in the Company’s 2012 Plan reserve, included within other current liabilities in the
consolidated statements of financial position (in millions):
Original reserve
Utilized - cash
Utilized - noncash
Balance at September 30, 2012
Employee
Severance and
Termination
Benefits
Fixed Asset
Impairment
Other
Total
$
$
237
(16 )
—
221
$
39
—
(39 )
$ —
$ 21
(6 )
(8 )
$ 7
$ 297
(22 )
(47 )
$ 228
The 2012 Plan included workforce reductions of approximately 7,500 employees (5,100 for the Automotive Experience business, 1,700
for the Building Efficiency business and 700 for the Power Solutions business). Restructuring charges associated with employee
severance and termination benefits are paid over the severance period granted to each employee or on a lump sum basis in accordance
with individual severance agreements. As of September 30, 2012, approximately 800 of the employees have been separated from the
Company pursuant to the 2012 Plan. In addition, the 2012 Plan included nine plant closures (six for Automotive Experience, two for
Power Solutions and one for Building Efficiency). As of September 30, 2012, two of the nine plants have been closed. The restructuring
charge for the impairment of long-lived assets was measured, depending on the asset, either under an income approach utilizing
forecasted discounted cash flows or a market approach utilizing an appraisal to determine
94
Table of Contents
fair values of the impairment assets. Refer to Note 16, “Impairment of Long-Lived Assets,” of the notes to consolidated financial
statements for further information regarding the impairment of long-lived assets.
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.
In the third and fourth quarters of fiscal 2012, the Company concluded it had a triggering event requiring assessment of impairment for
certain of its long-lived assets in conjunction with its 2012 restructuring plan. In addition, in the fourth quarter of fiscal 2012, the
Company concluded it had a triggering event requiring assessment of impairment for certain of its long-lived assets due to volume
declines in the European automotive markets. As a result, the Company reviewed the long-lived assets for impairment and recorded a $39
million impairment charge within restructuring costs on the consolidated statement of income, of which $3 million was recorded in the
third quarter and $36 million in the fourth quarter of fiscal 2012. Of the total impairment charge, $14 million related to the Power
Solutions segment, $11 million related to the Automotive Experience Europe segment, $4 million related to the Building Efficiency Other
segment and $10 million related to corporate assets. Refer to Note 15, “Significant Restructuring Costs,” of the notes to consolidated
financial statements for further information regarding the 2012 Plan. The impairment was measured, depending on the asset, either under
an income approach utilizing forecasted discounted cash flows or a market approach utilizing an appraisal to determine fair values of the
impairment assets. These methods are consistent with the methods the Company employed in prior periods to value other long-lived
assets. 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.”
In the second quarter of fiscal 2012, the Company recorded an impairment charge related to an equity investment. Refer to Note 10, “Fair
Value Measurements,” of the notes to consolidated financial statements for additional information.
At September 30, 2012 and 2011, the Company concluded it did not have any other triggering events requiring assessment of impairment
of its long-lived assets. Refer to Note 1, “Summary of Significant Accounting Policies,” of the notes to consolidated financial statements
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 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.”
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Table of Contents
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 restructuring 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
restructuring plan due to lower employee severance and termination benefit cash payments than previously expected. The impairment
was measured under an income approach utilizing forecasted discounted cash flows 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.”
17.
INCOME TAXES
In the fourth quarter of fiscal 2012, the Company changed its accounting policy for recognizing pension and postretirement benefit
expenses. Certain amounts have been revised to reflect the retrospective application of this accounting policy change. The $691 million
adjustment to the opening balance of retained earnings as of September 30, 2009 was net of a tax benefit of $411 million. Refer to Note 1,
“Summary of Significant Accounting Policies,” of the notes to consolidated financial statements for further details surrounding this
accounting policy change.
The more significant components of the Company’s income tax provision from continuing operations are as follows (in millions):
Tax expense 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
U.S. credits and incentives
Other
Provision for income taxes
Year Ended September 30,
2012
$ 557
20
(300 )
(20 )
13
—
(13 )
(20 )
2011
$ 626
(10 )
(351 )
28
(30 )
—
(7 )
1
2010
$ 528
28
(311 )
(3 )
(138 )
16
(3 )
10
$ 237
$ 257
$ 127
The effective rate is below the U.S. statutory rate primarily due to continuing global tax planning initiatives and income in certain non-
U.S. jurisdictions with a rate of tax lower than the U.S. statutory tax rate.
Valuation Allowances
The Company reviews the realizability of 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 2012, the Company recorded an overall increase to its valuation allowances of $47 million primarily due to a discrete period
income tax adjustment in the fourth quarter. In the fourth quarter of fiscal 2012, 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 deferred tax assets within Power Solutions in China would not be
utilized. Therefore, the Company recorded a $35 million valuation allowance in the three month period ended September 30, 2012.
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
96
Table of Contents
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 Experience 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.
Given the current economic uncertainty, it is reasonably possible that over the next twelve months, valuation allowances against deferred
tax assets in certain jurisdictions may result in a net increase to tax expense of up to $400 million.
Uncertain Tax Positions
The Company is subject to income taxes in the U.S. and numerous foreign 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, 2012, the Company had gross tax effected unrecognized tax benefits of $1,465 million of which $1,274 million, if
recognized, would impact the effective tax rate. Total net accrued interest at September 30, 2012 was approximately $72 million (net of
tax benefit).
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) .
97
Table of Contents
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(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
Year Ended
September 30, 2012
Year Ended
September 30, 2011
Year Ended
September 30, 2010
$
1,357
$
1,262
$
1,049
143
36
(58 )
—
(13 )
150
20
(62 )
(5 )
(8 )
253
257
(158 )
(109 )
(30 )
Ending balance, September 30
$
1,465
$
1,357
$
1,262
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
Brazil
Canada
Czech Republic
France
Germany
Italy
Mexico
Poland
Slovakia
Tax Years Covered
2004 - 2008
2007 - 2010
2007 - 2009
2002 - 2010
2001 - 2010
2005 - 2009
2003 - 2004
2008 - 2009
2009 - 2010
The Company expects that certain tax examinations, appellate proceedings and/or tax litigation will conclude within the next twelve
months, the impact of which could be up to a $200 million benefit to tax expense.
As a result of certain recent events related to prior tax planning initiatives, during the third quarter of fiscal 2012, the Company reduced
the reserve for uncertain tax positions by $22 million, including $13 million of interest and penalties.
Based on published case law in a foreign 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 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.
Impacts of Tax Legislation and Change in Statutory Tax Rates
The look-through rule, under subpart F of the U.S. Internal Revenue Code, expired for the Company on September 30, 2012. The look-
through rule had provided an exception to the U.S. taxation of certain income generated by foreign subsidiaries. It is generally thought
that this rule will be extended with the possibility of retroactive application.
During the fiscal year ended September 30, 2012, tax legislation was adopted in Japan which reduces its statutory income tax rate by 5%.
Also, tax legislation was adopted in various jurisdictions to limit the annual utilization of tax losses that are carried forward. None of
these changes had a material impact on the Company’s consolidated financial condition, results of operations or cash flows.
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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.
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
Provision for income taxes
Year Ended September 30,
2012
2011
2010
$ 118
12
313
443
119
21
(346 )
(206 )
$ 56
—
458
514
94
(9 )
(342 )
(257 )
$ 112
29
141
282
55
2
(212 )
(155 )
$ 237
$ 257
$ 127
Consolidated domestic income from continuing operations before income taxes and noncontrolling interests for the fiscal years ended
September 30, 2012, 2011 and 2010 was income of $1,131 million, $1,012 million and $538 million, respectively. Consolidated foreign
income from continuing operations before income taxes and noncontrolling interests for the fiscal years ended September 30, 2012, 2011
and 2010 was income of $459 million, $777 million and $971 million, respectively.
Income taxes paid for the fiscal years ended September 30, 2012, 2011 and 2010 were $496 million, $384 million and $535 million,
respectively.
The Company has not provided additional U.S. income taxes on approximately $6.4 billion of undistributed earnings of consolidated
foreign subsidiaries included in shareholders’ equity attributable to Johnson Controls, Inc. Such earnings could become taxable upon the
sale or liquidation of these foreign 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
99
September 30,
2012
$ 564
1,783
(10 )
(95 )
2011
$ 558
1,855
(4 )
(56 )
$ 2,242
$ 2,353
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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,
2012
2011
$ 534
444
2,582
79
3,639
(766 )
2,873
119
349
163
631
$ 2,242
$ 793
390
2,314
103
3,600
(719 )
2,881
130
345
53
528
$ 2,353
At September 30, 2012, the Company had available net operating loss carryforwards of approximately $4.1 billion, of which $1.6 billion
will expire at various dates between 2013 and 2031, and the remainder has an indefinite carryforward period. The Company had available
U.S. foreign tax credit carryforwards at September 30, 2012 of $1.1 billion, which will expire at various dates between 2016 and 2022.
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
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.
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.
•
•
•
•
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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.
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, significant restructuring costs and net mark-
to-market adjustments on pension and postretirement plans. 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
101
Year Ended September 30,
2011
2010
2012
$ 2,389
2,145
4,294
1,987
3,900
14,715
8,721
9,973
2,640
21,334
5,906
$ 41,955
$ 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
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Segment Income (Loss)
Building Efficiency
North America Systems (1)
North America Service (2)
Global Workplace Solutions (3)
Asia (4)
Other (5)
Automotive Experience
North America (6)
Europe (7)
Asia (8)
Power Solutions (9)
Total segment income
Net financing charges
Restructuring costs
Net mark-to-market adjustments on pension and postretirement plans
Income before income taxes
Assets
Building Efficiency
North America Systems
North America Service
Global Workplace Solutions
Asia
Other
Automotive Experience
North America
Europe
Asia
Power Solutions
Unallocated
Total
102
Year Ended September 30,
2011
2012
2010
$ 286
164
52
267
141
910
487
(52 )
368
803
854
$ 2,567
(233 )
(297 )
(447 )
$ 247
121
22
251
105
746
419
116
245
780
821
$ 2,347
(174 )
—
(384 )
$ 206
117
40
180
136
679
380
108
109
597
672
$ 1,948
(170 )
—
(269 )
$ 1,590
$ 1,789
$ 1,509
2012
September 30,
2011
2010
$ 1,326
1,523
1,234
1,316
3,947
9,346
4,254
6,742
1,757
12,753
7,242
1,543
$ 30,884
$ 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
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Depreciation/Amortization
Building Efficiency
North America Systems
North America Service
Global Workplace Solutions
Asia
Other
Automotive Experience
North America
Europe
Asia
Power Solutions
Total
Capital Expenditures
Building Efficiency
North America Systems
North America Service
Global Workplace Solutions
Asia
Other
Automotive Experience
North America
Europe
Asia
Power Solutions
Total
Year Ended September 30,
2011
2012
2010
$
12
25
24
19
66
146
141
284
39
464
214
$ 824
$
10
25
18
15
69
137
138
254
27
419
175
$ 731
$ 11
23
16
15
73
138
147
213
31
391
162
$ 691
Year Ended September 30,
2011
2012
2010
$
6
25
7
38
103
179
232
463
82
777
875
$ 1,831
$
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
(1) Building Efficiency - North America Systems segment income for the year ended September 30, 2012 excludes $2 million of
restructuring costs.
(2) Building Efficiency - North America Service segment income for the year ended September 30, 2012 excludes $6 million of restructuring
costs. For the years ended September 30, 2012 and 2011 North America Service segment income includes $1 million and $2 million,
respectively, of equity income.
(3) Building Efficiency - Global Workplace Solutions segment income for the year ended September 30, 2012 excludes $16 million of
restructuring costs.
(4) Building Efficiency - Asia segment income for the year ended September 30, 2012 excludes $1 million of restructuring costs. For the
years ended September 30, 2012, 2011 and 2010, Asia segment income includes $3 million, $3 million and $2 million, respectively, of
equity income.
(5) Building Efficiency - Other segment income for the year ended September 30, 2012 excludes $64 million of restructuring costs. For the
years ended September 30, 2012, 2011 and 2010, Other segment income includes $23 million, $17 million and $2 million, respectively,
of equity income.
(6) Automotive Experience - North America segment income for the year ended September 30, 2012 excludes $14 million of restructuring
costs. For the years ended September 30, 2012, 2011 and 2010, North America segment income includes $23 million, $20 million and
$14 million, respectively, of equity income.
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(7) Automotive Experience - Europe segment income for the year ended September 30, 2012 excludes $145 million of restructuring costs.
For the years ended September 30, 2012, 2011 and 2010, Europe segment income includes $5 million, $7 million and $7 million,
respectively, of equity income.
(8) Automotive Experience - Asia segment income for the year ended September 30, 2012 excludes $2 million of restructuring costs. For the
years ended September 30, 2012, 2011 and 2010, Asia segment income includes $185 million, $187 million and $132 million,
respectively, of equity income.
(9) Power Solutions segment income for the year ended September 30, 2012 excludes $37 million of restructuring costs. For the years ended
September 30, 2012, 2011 and 2010, Power Solutions segment income includes $100 million, $62 million and $97 million, respectively,
of equity income.
The Company has significant sales to the automotive industry. In fiscal years 2012, 2011 and 2010, no customer exceeded 10% of
consolidated net sales.
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
Year Ended September 30,
2011
2010
2012
$ 15,484
4,790
2,189
10,663
8,829
$ 41,955
$ 14,367
4,590
1,869
10,212
9,795
$ 40,833
$ 2,521
879
588
1,557
895
$ 6,440
$ 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
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.
Effective October 1, 2013, the Company reorganized its Automotive Experience reportable segments to align with its new management
reporting structure and business activities. As a result of this change, Automotive Experience will be comprised of three new reportable
segments for financial reporting purposes: Seating, Electronics and Interiors. This change will be reflected in the Company’s Quarterly
Report on Form 10-Q for the quarter ended December 31, 2012, with comparable periods revised to conform to the new presentation.
19. NONCONSOLIDATED PARTIALLY-OWNED AFFILIATES
Investments in the net assets of nonconsolidated partially-owned affiliates are stated in the “Investments in partially-owned affiliates” line
in the consolidated statements of financial position as of September 30, 2012 and 2011. Equity in the net income of nonconsolidated
partially-owned affiliates are stated in the “Equity income” line in the consolidated statements of income for the years ended
September 30, 2012, 2011 and 2010.
The following table presents summarized financial data for the Company’s nonconsolidated partially-owned affiliates. The amounts
included in the table below represent 100% of the results of operations of such nonconsolidated partially-owned affiliates accounted for
under the equity method.
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Summarized balance sheet data as of September 30 is as follows (in millions):
Current assets
Noncurrent assets
Total assets
Current liabilities
Noncurrent liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
2012
2011
$ 3,339
1,648
4,987
$ 2,501
553
1,933
4,987
$ 3,000
1,120
4,120
$ 2,188
378
1,554
4,120
Summarized income statement data for the years ended September 30 is as follows (in millions):
Net sales
Gross profit
Net income attributable to the entity
20. COMMITMENTS AND CONTINGENCIES
2012
2011
2010
$ 9,261
1,423
664
$ 8,468
1,154
526
$ 7,378
1,086
477
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 $25 million and $30 million at September 30, 2012 and 2011, 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. 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, 2012 and 2011, the Company recorded conditional asset retirement
obligations of $76 million and $91 million, respectively.
The Company is involved in a number of product liability and various other casualty lawsuits incident to the operation of its businesses.
The Company maintains insurance coverages and records estimated costs 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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J OHNSON CONTROLS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In millions)
Year Ended September 30,
2012
2011
2010
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
$ 89
47
(15 )
(42 )
—
(1 )
$ 78
$ 719
119
—
(72 )
$ 766
$ 96
37
(23 )
(24 )
4
(1 )
$ 89
$ 739
95
18
(133 )
$ 719
$ 99
42
(24 )
(25 )
4
—
$ 96
$ 816
70
—
(147 )
$ 739
ITEM 9
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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, 2012, 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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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, 2012 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, 2012, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
The Company is 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, 2012.
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 2013 Annual Meeting of Shareholders (fiscal 2012 Proxy Statement), dated and to
be filed with the SEC on or about December 10, 2012, as follows:
ITEM 10
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Incorporated by reference to the sections entitled “Q: Where can I find Corporate Governance materials for Johnson Controls?,”
“Proposal One: Election of Directors,” “Board Information,” “Audit Committee Report” and “Section 16(a) Beneficial Ownership
Reporting Compliance” of the fiscal 2012 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 “Board Information,” “Compensation Committee Report,” “Compensation Discussion
and Analysis,” “Director Compensation during Fiscal Year 2012,” “Potential Payments and Benefits Upon Termination or Change of
Control,” “Johnson Controls Share Ownership” and “Shareholder Information Summary” of the fiscal 2012 Proxy Statement.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Incorporated by reference to section entitled “Securities Authorized for Issuance Under Equity Compensation Plans” under “Proposal
Four: Approve the Johnson Controls, Inc. 2012 Omnibus Incentive Plan” and the section entitled “Johnson Controls Share Ownership” of
the fiscal 2012 Proxy Statement.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Incorporated by reference to sections entitled “Board Information - Board Independence” and “Board Information - Related Person
Transactions” of the fiscal 2012 Proxy Statement.
ITEM 14
PRINCIPAL ACCOUNTING FEES AND SERVICES
Incorporated by reference to the section entitled “Relationship with Independent Auditors” under “Audit Committee Report” of the fiscal
2012 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, 2012, 2011 and 2010
Consolidated Statements of Financial Position at September 30, 2012 and 2011
Consolidated Statements of Cash Flows for the years ended September 30, 2012, 2011 and 2010
Consolidated Statements of Shareholders’ Equity Attributable to Johnson Controls, Inc. for the years ended
September 30, 2012, 2011 and 2010
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
For the years ended September 30, 2012, 2011 and 2010:
Schedule II - Valuation and Qualifying Accounts
(3) Exhibits
Page in
Form 10-K
52
54
55
56
57
58
106
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. 33-30309, 33-31271, 333-10707, 333-66073, 333-41564, 333-141578, 333-117898 and 333-173326.
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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SIGNATURES
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.
JOHNSON CONTROLS, INC.
By /s/ R. Bruce McDonald
R. Bruce McDonald
Executive Vice President and Chief Financial Officer
Date: November 19, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of November 19, 2012, 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/ R. Bruce McDonald
R. Bruce McDonald
Executive Vice President and Chief Financial Officer
/s/ Brian J. Stief
Brian J. Stief
Vice President and Corporate 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/ Dennis W. Archer
Dennis W. Archer
Director
/s/ Robert L. Barnett
Robert L. Barnett
Director
/s/ Robert A. Cornog
Robert A. Cornog
Director
/s/ Jeffrey A. Joerres
Jeffrey A. Joerres
Director
/s/ Mark P. Vergnano
Mark P. Vergnano
Director
Julie L. Bushman
Director
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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.’s Current Report on Form 8-K filed February 1, 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.’s Current Report on Form 8-K filed February 1, 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
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.’s 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.’s Registration Statement on Form S-3ASR
[Reg. No. 333-130714]).
4.E
[RESERVED].
4.F
4.G
4.H
4.I
4.J
4.K
4.L
4.M
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.’s Current Report on Form 8-K/A filed March 20, 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.’s Current Report on Form 8-K/A filed March 20, 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.’s Current Report on Form 8-K/A filed March 20, 2009)
(Commission File No. 1-5907).
Supplemental Indenture No. 2, dated March 1, 2012, between Johnson Controls, Inc. and U.S. Bank National Association, as
Trustee (incorporated by reference to Exhibit 4.1 to Johnson Controls, Inc.’s Current Report on Form 8-K filed March 1, 2012)
(Commission File No. 1-5097).
Officers’ Certificate, dated December 2, 2011, establishing the 2.600% Senior Notes due 2016, 3.750% Senior Notes due 2021
and 5.250% Senior Notes due 2041 (incorporated by reference to Exhibit 4.1 to Johnson Controls, Inc.’s Current Report on Form
8-K filed December 2, 2011) (Commission File No. 1-5097).
Form of Corporate Unit (incorporated by reference to Exhibit 4.6 to Johnson Controls, Inc.’s Current Report on Form 8-K/A filed
March 20, 2009) (Commission File No. 1-5907).
Form of Treasury Unit (incorporated by reference to Exhibit 4.7 to Johnson Controls, Inc.’s Current Report on Form 8-K/A filed
March 20, 2009) (Commission File No. 1-5907).
Form of Subordinated Note (incorporated by reference to Exhibit 4.8 to Johnson Controls, Inc.’s Current Report on Form 8-K/A
filed March 20, 2009) (Commission File No. 1-5907).
110
Table of Contents
Exhibit
4.N
4.O
4.P
10.B
10.C
10.D
Johnson Controls, Inc.
Index to Exhibits
Title
Officers’ Certificate, dated March 9, 2010 creating 5.000% Senior Notes due 2020 (incorporated by reference to Exhibit 4.1 to
Johnson Controls, Inc.’s Current Report on Form 8-K filed March 10, 2010) (Commission File No. 1-5907).
Credit Agreement, dated as of February 17, 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 filed February 18, 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 filed 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.’s 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.’s 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.’s Annual Report on Form 10-K for the year ended September 30, 2009)
(Commission File No. 1-5097).**
10.E
[RESERVED].
10.F
[RESERVED].
10.G
10.H
10.I
10.J
10.K
10.L
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.’s Annual Report on Form 10-K for the year ended
September 30, 2007) (Commission File No. 1-5097).**
Johnson Controls, Inc. Director Share Unit Plan, as amended and restated effective September 20, 2011 (incorporated by reference
to Exhibit 10.H to Johnson Controls, Inc.’s Annual Report on Form 10-K for the year ended September 30, 2011) (Commission File
No. 1-5097).**
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.’s Annual Report on Form 10-K for the year ended September 30, 2009) (Commission File
No. 1-5097).**
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 to Exhibit 10.1 to Johnson Controls, Inc.’s Current Report on Form 8-K
filed November 15, 2005) (Commission File No. 1-5097).**
Johnson Controls, Inc. 2001 Restricted Stock Plan, as amended and restated effective September 20, 2011 (incorporated by
reference to Exhibit 10.K to Johnson Controls, Inc.’s Annual Report on Form 10-K for the year ended September 30, 2011)
(Commission File No. 1-5097).**
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 (incorporated by reference to Exhibit
10.L to Johnson Controls,
111
Table of Contents
Exhibit
10.M
10.N
10.O
10.P
10.Q
10.S
10.T
10.U
10.V
10.W
10.X
10.Y
12
Johnson Controls, Inc.
Index to Exhibits
Title
Inc.’s Annual Report on Form 10-K for the year ended September 30, 2011) (Commission File No. 1-5097).**
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.’s 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.’s 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.’s Current Report Form 8-K filed February 1, 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.’s Annual Report on Form 10-K for the year ended September 30, 2009)
(Commission File No. 1-5097).**
Johnson Controls, Inc. Compensation Summary for Non-Employee Directors as amended and restated effective January 1, 2012,
filed herewith.**
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.’s 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.’s Current Report on Form 8-K filed February 1, 2011) (Commission File
No. 1-5097).**
Johnson Controls, Inc. 2007 Stock Option Plan, amended as of September 20, 2011 (incorporated by reference to Exhibit 10.U to
Johnson Controls, Inc.’s Annual Report on Form 10-K for the year ended September 30, 2011) (Commission File No. 1-5097).**
Form of stock option award agreement for Johnson Controls, Inc. 2007 Stock Option Plan effective September 20, 2011
(incorporated by reference to Exhibit 10.V to Johnson Controls, Inc.’s Annual Report on Form 10-K for the year ended
September 30, 2011) (Commission File No. 1-5097).**
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.’s 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, as amended through
September 25, 2012, filed herewith.**
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 by reference to Exhibit 10.Y to Johnson Controls, Inc.’s Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2010) (Commission File No. 1-5097).**
Computation of ratio of earnings to fixed charges for the years ended September 30, 2012, 2011, 2010, 2009 and 2008, filed
herewith.
112
Table of Contents
Johnson Controls, Inc.
Index to Exhibits
Title
Preferability Letter on Change in Accounting Principle, filed herewith.
Subsidiaries of the Registrant, filed herewith.
Consent of Independent Registered Public Accounting Firm dated November 19, 2012, filed herewith.
Exhibit
18
21
23
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, 2012,
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.
COMPENSATION SUMMARY FOR NON-EMPLOYEE DIRECTORS
Exhibit 10.Q
Compensation for non-employee members of the Board of Directors (the “Board”) of Johnson Controls, Inc. (the “Company”),
effective January 1, 2012, 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”),
(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”), and
(iii) a Lead Director fee at the annual rate of $25,000 in cash to a non-employee lead director and successor lead director providing
that the non-employee director is not subject to a Committee Chair Fee as described above.
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 or Lead Director Fee . The Company will pay the cash portion of
the Retainer and the Committee Chair or Lead Director 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 or Lead Director 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) or Lead Director (or successor to a Lead Director) 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 or Lead Director 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 or Lead Director 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.
2
Exhibit 10.X
Executive Compensation Incentive Recoupment Policy
JOHNSON CONTROLS, INC.
EXECUTIVE COMPENSATION INCENTIVE RECOUPMENT POLICY
I. Scope of this Policy. This policy applies to all performance incentives awarded on or after September 15, 2009 (the “Effective Date”) to all
persons (“Covered Recipients”) who, at the time of such award, are Section 16(b) officers of Johnson Controls, Inc. (the “Company”) elected
by the Board of Directors of the Company (the “Board”). Performance incentives awarded prior to the Effective Date are not subject to this
policy, but remain subject to the Company’s ability to recover amounts pursuant to applicable legal or equitable remedies under state and
federal law.
For purposes of this policy, “performance incentive” means any compensation payable in cash tied to performance metrics that is intended to
serve as incentive for performance to occur over a period of a year or more and any performance units granted under the Company’s 2012
Omnibus Incentive Plan, whether settled in cash, shares of the Company’s common stock (“Shares”) or a combination thereof. A performance
incentive is “awarded” on the date the Company grants the award, not on the date the award amount is ultimately determined or paid.
While in effect, this policy overrides any contrary provisions of any compensation plans or arrangements that the Company adopted or
implemented before the Effective Date and any such plans or arrangements subsequently adopted or implemented, as well as any contrary
provisions in any award agreements under such plans or arrangements.
The Company may recoup incentive compensation under this policy regardless of whether the Covered Recipient who received the
compensation that is subject to recoupment is still employed by the Company or an affiliate on the date reimbursement or other payment is
required.
II. Recoupment of Incentive Compensation. All performance incentives awarded after the Effective Date are subject to recoupment under this
policy. The Compensation Committee of the Board (the “Committee”) will, unless prohibited by applicable law, require reimbursement from
any Covered Recipient of (a) an amount equal to the amount of any overpayment of any such incentive paid to such Covered Recipient or
(b) any excess number of Shares delivered to such Covered Recipient (or the fair market value of such excess number of Shares), with respect
to a performance period if the following conditions are met:
•
•
•
The payment or the delivery of Shares was predicated upon the achievement of certain financial results with respect to the applicable
performance period that were subsequently the subject of a material restatement other than a restatement due to changes in accounting
policy;
In the Committee’s view the Covered Recipient engaged in conduct that caused or partially caused the need for the restatement; and
A lower payment would have been made, or fewer Shares delivered, to the Covered Recipient based upon the restated financial results.
The amount required to be reimbursed shall be, in the case of a performance incentive payable in cash, the excess of the gross incentive
payment made over the gross payment that would have been made if the original payment had been determined based on the restated financial
results or, in the case of a performance unit payable in Shares, the excess number of Shares delivered over the number of Shares that would
have been delivered if the original number had been determined based on the restated financial results (or a cash amount equal to the fair
market value of such excess number of Shares at the time of the reimbursement).
Unless prohibited by applicable law, the Company will also be entitled to, and the Committee will seek, payment by the Covered Recipient of
(i) a reasonable rate of interest on any incentive that becomes subject to reimbursement under this policy and (ii) the costs of collection.
Following any accounting restatement that the Company is required to prepare due to its material noncompliance, as a result of misconduct,
with any financial reporting requirement under the securities laws, the Company will also seek to recover any compensation received by its
Chief Executive Officer and Chief Financial Officer that is required to be reimbursed under Section 304 of the Sarbanes-Oxley Act of 2002.
The Company will determine, in its sole discretion, the method for obtaining reimbursement and other payment from the Covered Recipient,
which may include, but is not limited to: (i) by offsetting the amount from any compensation owed by the Company to the Covered Recipient
(including without limitation amounts payable under a deferred compensation plan at such time as is permitted by Section 409A of the Internal
Revenue Code of 1986, as amended), (ii) by reducing or eliminating future salary increases, cash incentive awards or equity awards, or (iii) by
requiring the Covered Recipient to pay the amount or deliver an amount of Shares to the Company upon its written demand for such payment
or delivery of Shares.
III. Administration of this Policy. The Committee will have sole discretion in making all determinations under this policy, including whether
the conduct of a Covered Recipient has or has not caused or partially caused the need for a restatement.
IV. Binding on Successors. The terms of this policy shall be binding upon and enforceable against the Covered Recipients and their heirs,
executors, administrators and legal representatives.
V. Amendment of this Policy. The Committee and the Board, in their discretion, may modify or amend, in whole or in part, any or all of the
provisions of this policy, and may suspend this policy from time to time.
VI. Governing Law. This policy and all 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.
* * *
JOHNSON CONTROLS, INC.
RATIO OF EARNINGS TO FIXED CHARGES
EXHIBIT 12
The following table shows our ratio of earnings to fixed charges for the fiscal years ended September 30, 2012, 2011, 2010, 2009 and
2008. Certain amounts have been revised to reflect the retrospective application of the Company’s accounting policy change for
recognizing pension and postretirement benefit expense.
2012
Year Ended September 30,
2010
2011
2009
2008
(Dollars in millions)
Net income (loss) attributable to Johnson Controls, Inc.
Provision for income taxes
Income (loss) attributable to noncontrolling interests
(Income) loss 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
$ 1,226 $ 1,415 $ 1,307 $ (681 ) $ 801
215
237
24
127
(116 )
(340 )
101
190
10
9
409
409
$ 1,858 $ 2,026 $ 1,780 $ (130 ) $ 1,444
127
75
(254 )
212
11
302
257
117
(298 )
194
10
331
(175 )
(12 )
77
158
11
492
141
$ 313 $ 224 $ 193 $ 375 $ 291
133
151
$ 464 $ 365 $ 323 $ 509 $ 424
(15 )
$ 409 $ 331 $ 302 $ 492 $ 409
130
(17 )
134
(21 )
(34 )
(55 )
4.0
5.6
5.5
*
3.4
* The ratio coverage for the year ended September 30, 2009 was less than 1:1. The Company must generate additional earnings of $639
million to achieve a coverage ratio of 1:1.
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 noncontrolling 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.
EXHIBIT 18
November 19, 2012
Board of Directors of Johnson Controls, Inc.
5757 N. Green Bay Avenue
Milwaukee, WI 53209
Dear Directors:
We are providing this letter to you for inclusion as an exhibit to your Form 10-K filing pursuant to Item 601 of Regulation S-K.
We have audited the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended
September 30, 2012 and issued our report thereon dated November 19, 2012. Note 1 to the financial statements describes a change in
accounting principle for pension and other postretirement benefits. It should be understood that the preferability of one acceptable method of
accounting over another for pension and other postretirement benefits has not been addressed in any authoritative accounting literature, and in
expressing our concurrence below we have relied on management’s determination that this change in accounting principle is preferable. Based
on our reading of management’s stated reasons and justification for this change in accounting principle in the Form 10-K, and our discussions
with management as to their judgment about the relevant business planning factors relating to the change, we concur with management that
such change represents, in the Company’s circumstances, the adoption of a preferable accounting principle in conformity with Accounting
Standards Codification 250, Accounting Changes and Error Corrections .
Very truly yours,
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
Following is a list of significant subsidiaries of the Company, as defined by section 1.02(w) of Regulation S-X.
JOHNSON CONTROLS, INC.
Name
York International Corporation
Johnson Controls Battery Group, Inc.
EXHIBIT 21
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 19, 2012 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. 33-30309)
2. Registration Statement on Form S-8 (Registration No. 33-31271)
3. Registration Statement on Form S-3 (Registration No. 33-64703)
4. Registration Statement on Form S-8 (Registration No. 333-10707)
5. Registration Statement on Form S-3 (Registration No. 333-13525)
6. Registration Statement on Form S-3 (Registration No. 333-130714)
7. Registration Statement on Form S-8 (Registration No. 333-66073)
8. Registration Statement on Form S-8 (Registration No. 333-41564)
9. Registration Statement on Form S-3 (Registration No. 333-59594)
10. Registration Statement on Form S-8 (Registration No. 333-117898)
11. Registration Statement on Form S-3 (Registration No. 333-178148)
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)
17. Registration Statement on Form S-8 (Registration No. 333-173326)
18. Registration Statement on Form S-3 (Registration No. 333-179613)
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
November 19, 2012
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 19, 2012
/s/ Stephen A. Roell
Stephen A. Roell
Chairman and Chief Executive Officer
CERTIFICATIONS
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.;
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 19, 2012
/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, 2012 (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 19, 2012
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