UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10–K
(cid:1) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 2013
OR
(cid:1) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From To
Commission File Number 1-5097
JOHNSON CONTROLS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin
(State of Incorporation)
5757 North Green Bay Avenue
Milwaukee, Wisconsin
(Address of principal executive offices)
39-0380010
(I.R.S. Employer Identification No.)
53209
(Zip Code)
Registrant’s telephone number, including area code:
(414) 524-1200
Securities Registered Pursuant to Section 12(b) of the Exchange Act:
Title of Each Class
Common Stock
Corporate Units
Name of Each Exchange on Which Registered
New York Stock Exchange
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:1) No (cid:1)
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:1) No (cid:1)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes (cid:1) No (cid:1)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes (cid:1) No (cid:1)
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:1)
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:1)
Accelerated filer
(cid:1) Smaller reporting company
(Do not check if a smaller reporting company)
(cid:1)
(cid:1)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:1) No (cid:1)
As of March 31, 2013 , the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was approximately
$24.0 billion based on the closing sales price as reported on the New York Stock Exchange. As of October 31, 20 13, 685,160,911 sh ares of the registrant’s
Common Stock, par value $1.00 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 29, 2014
are incorporated by reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
JOHNSON CONTROLS, INC.
Index to Annual Report on Form 10-K
Year Ended September 30, 2013
CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION
PART I.
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 II.
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
ITEM 6.
SELECTED FINANCIAL DATA
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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
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ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV.
SIGNATURES
INDEX TO EXHIBITS
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112
113
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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.
The Company has made statements in this document that are forward-looking and, therefore, are subject to risks and uncertainties. All statements
in this document other than statements of historical fact are statements that are, or could be, deemed "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. In this document, statements regarding future financial position, sales, costs,
earnings, cash flows, other measures of results of operations, capital expenditures or debt levels and plans, objectives, outlook, targets, guidance
or goals are forward-looking statements. Words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “should,”
“forecast,” “project” or “plan” or terms of similar meaning are also generally intended to identify forward-looking statements. Johnson Controls
cautions that these statements are subject to numerous important risks, uncertainties, assumptions and other factors, some of which are beyond
Johnson Controls' control, that could cause Johnson Controls' actual results to differ materially from those expressed or implied by such forward-
looking statements. A detailed discussion of risks is included in the section entitled "Risk Factors" (refer to Part I, Item IA, of this Annual Report
on Form 10-K). The forward-looking statements included in this document are only made as of the date of this document, unless otherwise
specified, and Johnson Controls assumes no obligation, and disclaims any obligation, to update forward-looking statements to reflect events or
circumstances occurring after the date of this document.
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, the
Company 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 certain 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 segments are presented in the context of its three primary businesses - Building Efficiency,
Automotive Experience and Power Solutions.
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Refer to Note 19, “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 14% of total sales related to new commercial construction.
Approximately 57% of its sales originate from its service offerings. In fiscal 2013 , Building Efficiency accounted for 34% 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 food service, 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 220 wholly- and majority-owned manufacturing or assembly plants, with operations in 35 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 2013 , 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 55 wholly- and majority-owned manufacturing or assembly
plants, distribution centers and sales offices in 20 countries worldwide. Investments in new product and process technology have expanded
product offerings to absorbent glass mat (AGM) and enhanced flooded battery (EFB) technologies that power Start-Stop vehicles, as well as
lithium-ion battery technology for certain hybrid and electric vehicles. The business has also invested to develop sustainable lead and poly
recycling operations in the North American and European markets. Approximately 75% of unit sales worldwide in fiscal 2013 were to the
automotive replacement market, with the remaining sales to the OEM market.
Power Solutions accounted for 15% of the Company’s fiscal 2013 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 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 HVAC 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.; GC Midea Holding Co, Ltd. and Gree Electric Appliances, Inc. In addition to HVAC equipment, Building
Efficiency competes in a highly fragmented HVAC services market, which is dominated by local providers. The facilities management market,
including Global Workplace Solutions, is also fragmented at the local level with many regional companies servicing specific geographies. The
largest competition comes from ISS A/S; Sodexo SA and Jones Lang LaSalle, Inc. 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, DAISA S.A., Costco, NAPA, O’Reilly/CSK, Interstate Battery System of America, Sears, Roebuck & Co. and
Wal-Mart stores. Automotive batteries are sold throughout the world under private labels and under the Company’s brand names (Optima®,
Varta®, LTH® and Heliar®) to automotive replacement battery retailers and distributors and to automobile manufacturers as original
equipment. The Power Solutions business competes with a number of major domestic and international manufacturers and distributors of lead-
acid batteries, as well as a large number of smaller, regional competitors. The Power Solutions business primarily competes in the battery market
with Exide Technologies, GS Yuasa Corporation, Camel Group Company Limited, East Penn Manufacturing Company and Banner Batteries GB
Limited. 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.
Backlog
The Company’s backlog relating to the Building Efficiency business is applicable to its sales of systems and services. At September 30, 2013 ,
the backlog was $4.8 billion, the majority of which relates to fiscal 2014. The backlog as of September 30, 2012 was $5.2 billion. The decrease
in backlog was primarily due to the divestiture impacts in Europe and decline in the North
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America Service, Other and Asia segments, partially offset by an increase in the North America Systems segment. The backlog does not include
amounts associated with contracts in the Global Workplace Solutions business because such contracts are typically multi-year service awards,
nor does it include unitary products within the Other segment. The backlog amount outstanding at any given time is not necessarily indicative of
the amount of revenue to be earned in the upcoming fiscal year.
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 2014,
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 2013 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, 2013 , 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 19, “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 our access to capital
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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.
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.
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 some of our 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.
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;
backlash from foreign labor organizations related to our restructuring actions; 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.
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 in
their products. Accordingly, we began our reasonable country of origin inquiries in fiscal
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2013, with initial disclosure requirements beginning in May 2014. There are 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. As we mark-to-market our defined
benefit plan assets and liabilities on an annual basis, large non-cash gains or losses could be recorded in the fourth quarter of each fiscal year.
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.”
We may be unable to realize the expected benefits of our restructuring actions, which could adversely affect our profitability and
operations.
In order to align our resources with our growth strategies, operate more efficiently and control costs, we periodically announce restructuring
plans, which include workforce reductions, global plant closures and consolidations, long-lived asset impairments and other cost reduction
initiatives. We may undertake additional restructuring actions and workforce reductions in the future. As these plans and actions are complex,
unforeseen factors could result in expected savings and benefits to be delayed or not realized to the full extent planned, and our operations and
business may be disrupted.
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, and the future sale of certain
businesses could potentially result in the repatriation of accumulated foreign earnings 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 provision for income taxes.
We are also subject to tax audits by governmental authorities in the U.S. and in non-U.S. jurisdictions. Negative unexpected results from one or
more such tax audits could adversely affect our results of operations.
Legal proceedings in which we are, or may be, a party may adversely affect us.
We are currently and may in the future become subject to legal proceedings and commercial or contractual disputes. These are typically claims
that arise in the normal course of business including, without limitation, commercial or contractual disputes with our suppliers, intellectual
property matters, third party liability, including product liability claims and employment claims. There exists the possibility that such claims may
have an adverse impact on our results of operations that is greater than we anticipate.
9
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 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.
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
10
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, trade secrets or customer information. To the extent that any disruptions or security breach results in a loss or damage to
our data, or an inappropriate disclosure of confidential or customer 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. Organizational and reporting changes as a result of our leadership transition could result in increased
turnover. Additionally, 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 decline, it may result in a
decline in the residential housing construction market and construction of new commercial buildings. Such conditions could have an adverse
effect on our results of operations and result in potential liabilities or additional costs, including impairment charges.
A variety of other factors could adversely affect the results of operations of our Building Efficiency business.
Any of the following could materially and adversely impact the results of operations of our Building Efficiency business: loss of, changes in, or
failure to perform under facility management supply contracts 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.
11
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 2013, 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.
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.
Financial distress of the automotive supply chain could harm our results of operations.
Automotive industry conditions could adversely affect the original equipment supplier base. Lower production levels for key customers,
increases in certain raw material, commodity and energy costs and global credit market conditions could result in financial distress among many
companies within the automotive supply base. Financial distress within the supplier base may lead to commercial disputes and possible supply
chain interruptions, which in turn could disrupt our production. In addition, an adverse industry environment may require us to provide financial
support to distressed suppliers or take other measures to ensure uninterrupted production, which could involve additional costs or risks. If any of
these risks materialize, we are likely to incur losses, or our results of operations, financial position or liquidity could otherwise be adversely
affected.
Change in consumer demand may adversely affect our results of operations.
Increases in energy costs or other factors (e.g., climate change concerns) may shift consumer demand away from motor vehicles that typically
have higher interior content that we supply, such as light trucks, cross-over vehicles, minivans and SUVs, to smaller vehicles having less interior
content. The loss of business with respect to, or a lack of commercial success of, one or more particular vehicle models for which we are a
significant supplier could reduce our sales and harm our profitability, thereby adversely affecting our results of operations.
We may not be able to successfully negotiate pricing terms with our customers in the Automotive Experience business, which may
adversely affect our results of operations.
We negotiate sales prices annually with our automotive customers. Cost-cutting initiatives that our customers have adopted generally result in
increased downward pressure on pricing. In some cases our customer supply agreements require reductions in component pricing over the period
of production. If we are unable to generate sufficient production cost savings in the future to offset price reductions, our results of operations
may be adversely affected. In particular, large commercial settlements with our customers may adversely affect our results of operations or cause
our financial results to vary on a quarterly basis.
Volatility in commodity prices may adversely affect our results of operations.
Commodity prices can be volatile from year to year. If commodity prices rise, and if we are not able to recover these cost increases from our
customers, these increases will have an adverse effect on our results of operations.
12
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, sourcing strategies or customer claims 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 and
integration; 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; global overcapacity and vehicle platform proliferation;
divestiture of the businesses held for sale could result in a gain or loss on sale to the extent the ultimate selling price differs from the current
carrying value of the net assets; and potential complications and complexities encountered during the intended divestiture of our Electronics
business.
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.
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 25% of the total sales of the Power Solutions business in fiscal 2013 . Declines in the North American, European and Asian
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 adversely impact the lead-acid battery
13
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; slower than projected market development in emerging markets; 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.
14
ITEM 2 PROPERTIES
At September 30, 2013 , the Company conducted its operations in 66 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 87 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
Oklahoma
Oregon
Pennsylvania
Texas
Washington
Wisconsin
Phoenix (1),(4)
Fremont (1),(4)
Roseville (1),(4)
Simi Valley (1),(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)
Louisville (1),(4)
Baltimore (1),(4)
Capitol Heights (1),(4)
Rossville (1)
Sparks (1),(4)
Lynnfield (4)
Austria
Belgium
Brazil
Canada
China
Denmark
France
Germany
Sterling Heights (1),(4)
Hong Kong
Plymouth (1),(4)
Hattiesburg (1)
Albany
St. Louis (1),(4)
Hainesport (1),(4)
Charlotte (1),(4)
Norman (3)
Portland (1),(4)
Audubon (1),(4)
Waynesboro (3)
York (1)
Houston (1),(4)
Irving (4)
San Antonio
Fife (1),(4)
Milwaukee (2),(4)
Waukesha (1),(4)
India
Italy
Japan
Mexico
Netherlands
Russia
South Africa
Spain
Thailand
Turkey
United Arab Emirates
15
Vienna (4)
Diegem (1),(4)
Curitiba (4)
Ajax (1),(3)
Markham (2),(4)
Oakville (1),(4)
Guangzhou (1),(4)
Qingyuan (2),(3)
Wuxi (2),(3)
Hojbjerg (3)
Hornslet (1),(3)
Viby (2),(3)
Carquefou Cedex (2),(3)
Colombes (1),(3)
Essen (1),(3)
Flensburg (1)
Hamburg (1),(3)
Kempen (1)
Mannheim (1),(3)
Hong Kong (1),(4)
Pune (1)
Milan (1),(3)
Tokyo (1),(4)
Apodaca (1)
Durango (1)
Juarez (3)
Reynosa (3)
Dordrecht (3)
Gorinchem (1),(3)
Moscow (1),(3)
Isando (1),(4)
Sabadell (1),(3)
Samutsakorn (1),(4)
Manisa (1)
Dubai (1),(3)
Alabama
Georgia
Illinois
Indiana
Kentucky
Louisiana
Michigan
Missouri
Ohio
Tennessee
Texas
Bessemer (1)
Clanton
Cottondale
Eastaboga
McCalla (1)
West Point (1)
Sycamore
Kendallville
Cadiz
Georgetown (2)
Louisville (1)
Shelbyville (1)
Winchester (1)
Shreveport
Auburn Hills (1)
Battle Creek
Cascade (1)
Detroit
Highland Park (1)
Holland (2),(3)
Lansing (2)
Monroe (1)
Port Huron (1)
Plymouth (2),(3)
Romulus (1)
Taylor (1)
Warren (1)
Eldon (2)
Riverside (1)
Bryan
Greenfield
Northwood
Wauseon
Murfreesboro (2)
Pulaski (1)
El Paso (1)
San Antonio (1)
Automotive Experience
Argentina
Buenos Aires (1)
Australia
Austria
Belgium
Brazil
Bulgaria
Canada
China
Czech Republic
France
Cordoba (1)
Rosario
Adelaide (1)
Graz (1)
Mandling
Assenede (1)
Gravatai
Pouso Alegre
Quatro Barras (2)
Sao Bernardo do Campo
Santo Andre
Sao Jose dos Campos
Sao Jose dos Pinhais (1)
Sofia (1),(4)
Milton
Mississauga (1)
Tillsonburg
Whitby (2)
Beijing (3)
Changchun (1)
Shanghai (1),(3)
Wuhu (1)
Bezdecin (1)
Ceska Lipa (4)
Mlada Boleslav (1)
Roudnice
Rychnov (1)
Strakonice (4)
Straz pod Ralskem
Zatec
Cergy (1),(4)
Conflans-sur-Lanterne
Creutzwald
Fesches-le-Chatel (1)
La Ferte Bernard
Rosny
Strasbourg
16
Germany
India
Italy
Japan
Korea
Macedonia
Malaysia
Mexico
Boblingen (1)
Bochum (2)
Burscheid (2),(4)
Dautphe (2)
Espelkamp
Grefrath
Hannover (1)
Hilchenbach (2)
Holzgerlingen (1)
Karlsruhe (1),(4)
Luneburg
Markgroningen (1)
Neustadt
Rastatt (1)
Remchingen
Rockenhausen
Saarlouis (1)
Solingen
Uberherrn
Waghausel (3)
Zwickau
Pune (1),(3)
Grugliasco (1)
Melfi
Ogliastro Cilento
Rocca D'Evandro
Hamamatsu
Higashiomi
Yokohama (1),(4)
Yokosuka (2)
Ansan (1),(4)
Asan
Skopje
Melaka (1)
Pekan (1)
Selangor Darul Ehsan
Coahuila (1)
Juarez (2)
Lerma (1)
Matamaros (1)
Monclova
Puebla (2)
Ramos Arizpe
Reynosa (1)
Saltillo (2)
Tlaxcala
Toluca (1)
Automotive Experience (continued)
Poland
Portugal
Romania
Russia
Bierun
Siemianowice
Skarbimierz (1)
Swiebodzin
Zory
Palmela
Bradu
Craiova (1)
Jimbolia (1)
Mioveni (1)
Pitesti (1)
Ploesti
Timisoara (1)
St. Petersburg (1)
Togliatti (1)
Slovak Republic
Kostany nad Turcom (2)
Lozorno (1)
Lucenec (2)
Namestovo (1)
Trencin (1)
Zilina (2)
Novo Mesto (1)
Slovenj Gradec (3)
Chloorkop (1)
East London (1)
Korsten
Pretoria
Swartkops (1)
Uitenhage (1)
Abrera
Alagon
Almussafes (2)
Calatorao (1)
Pedrola
Redondela (1)
Valladolid
Goteburg (1)
Rayong
Chonburi (1)
Bi'r al Bay (1)
Bursa (2)
Kocaeli
Slovenia
South Africa
Spain
Sweden
Thailand
Tunesia
Turkey
United Kingdom
Birmingham
Burton-Upon-Trent
Ellesmere (1)
Garston (1)
Liverpool (1)
Sunderland
Telford (1)
Wednesbury
17
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)
Canby (2),(3)
Portland (2),(3)
Florence (3)
Oconee (3)
San Antonio (3)
Milwaukee (4)
Power Solutions
Austria
Brazil
China
Graz (1),(3)
Vienna (1),(3)
Sorocaba (3)
Changxing (3)
Chongqing (3)
Shanghai (2)
Czech Republic
Ceska Lipa (2),(3)
France
Germany
Korea
Mexico
Spain
Sweden
Corporate
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
Wisconsin
Milwaukee (4)
China
Mexico
Singapore
Slovak Republic
Dalian (1),(4)
Monterrey (1),(4)
Singapore (1),(4)
Bratislava (1),(4)
(1)
(2)
(3)
(4)
Leased facility
Includes both leased and owned facilities
Includes both administrative and manufacturing facilities
Administrative facility only
In addition to the above listing, which identifies large properties (greater than 25,000 square feet), there are approximately 560 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 approxim ately 35 si tes 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
18
of liability at additional sites in the future. Where potential liabilities are alleged, the Company pursues a course of action intended to mitigate
them.
The Company accrues for potential environmental liabilities in a manner consistent with accounting principles generally accepted in the United
States; that is, when it is probable a liability has been incurred and the amount of the liability is reasonably estimable. Reserves for
environmental liabilities totaled $25 million at September 30, 2013 and 2012 . 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, 2013 and 2012 , the Company recorded
conditional asset retirement obligations of $56 million and $76 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 20, 2013 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 29, 2014.
Beda Bolzenius , 57, 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 2006 to October 2012 and as
Executive Vice President and General Manager Europe, Africa and South America for Automotive Experience from November 2004 to
November 2006. 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 , 54, 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 , 60, 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. Ms. Davis is a Director of
Quanex Building Products Corporation, where she is the Chairwoman of the Compensation and Management Development Committee and
serves on the Nominating and Corporate Governance Committee.
Charles A. Harvey , 61, 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 , 53, was named Executive Vice President, Corporate Development, in September 2013 and has served as President -
Automotive Electronics & Interiors since March 2012. Mr. Jackson also served as Executive Vice President - Operations and Innovation,
from May 2011 to September 2013. 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
19
Vice President and board member of Booz, Allen & Hamilton and Booz & Company, a strategy and consulting firm, where he led the firm’s
Global Automotive, Transportation and Industrials Practice.
Brian Kesseler , 47, was elected a Corporate Vice President and President of the Power Solutions business in January 2013. He
previously served as the Chief Operating Officer of the Power Solutions business from May 2012 to January 2013. He served as Vice
President and General Manager, Europe Systems & Service, North America Service & Unitary Products Group for the Building Efficiency
business from 2009 to April 2012, as Vice President and General Manager, Americas for the Power Solutions business from 2006 to 2009
and as Vice President and General Manager, North America for the Automotive business from 2003 to 2006. Mr. Kesseler joined the
Company in 1994.
R. Bruce McDonald , 53, 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.
Kim Metcalf-Kupres , 52, was elected a Corporate Vice President and Chief Marketing Officer in May 2013. She served as Vice
President, Strategy, Marketing and Sales in the Power Solutions business from 2007 to May 2013. Previously, she served as Vice President,
Sales and Marketing for Building Efficiency Systems in North America and has held positions of increasing responsibility since joining the
Company in 1994.
Alex A. Molinaroli , 54, was elected Chief Executive Officer and President effective October 2013. He was also elected to the Board of
Directors in October 2013. He previously served as Vice Chairman from January 2013 to October 2013, as a Corporate Vice President from
May 2004 to January 2013 and as President of the Company’s Power Solutions business from January 2007 to January 2013. Mr. Molinaroli
served as Vice President and General Manager for North America Systems & the Middle East for the Company’s 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.
John Murphy , 50, was elected a Corporate Vice President and President of the Global Workplace Solutions business in July 2013. He
previously served as the Vice President and General Manager of North America-Systems, Latin America, Middle East and Global Security
for the Building Efficiency business from October 2009 to July 2013. He has held several global management roles within the Building
Efficiency business since joining the Company in 1999.
C. David Myers , 50, 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 , 61, 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 , 63, was elected Chairman effective in January 2008 and was first elected to the Board of Directors in October 2004.
He served as Chief Executive Officer from October 2007 through September 2013 and as President from May 2009 through September
2013. Mr. Roell previously served as Executive Vice President from October 2004 through September 2007, 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. Mr. Roell has announced his intention to retire December 31, 2013.
Brian J. Stief , 57, 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.
Frank A. Voltolina , 53, 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.
20
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.
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, $1.00 par value
Number of Record Holders
as of September 30, 2013
38,067
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year
Common Stock Price Range
2012
2013
Dividends
2013
2012
$ 24.75 - 30.74
30.30 - 35.17
31.95 - 38.33
35.43 - 43.49
$ 24.75 - 43.49
$ 24.29 - 33.90 $
30.81 - 35.95
26.15 - 33.26
23.37 - 29.59
$ 23.37 - 35.95 $
0.19 $
0.19
0.19
0.19
0.76 $
0.18
0.18
0.18
0.18
0.72
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. In September 2013, the Company’s Board of Directors authorized up to an
additional $500 million in stock repurchases of the Company’s outstanding common stock, and in November 2013, the Company's Board of
Directors authorized an additional $3.0 billion under the stock repurchase program, both incremental to prior authorizations. Stock repurchases
under the stock repurchase program may be made through open market, privately negotiated, or structured 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. As of November 21, 2013, the Company has spent
approximately $400 million on repurchases under the stock repurchase program in fiscal 2014. In addition, in November 2013 the Company
announced an $800 million accelerated stock repurchase agreement with Goldman Sachs that will be funded in November 2013.
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, 2013 .
21
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, 2013 .
Period
7/1/13 - 7/31/13
Purchases by Company (1)
8/1/13 - 8/31/13
Purchases by Company (1)
9/1/13 - 9/30/13
Purchases by Company (1)
7/1/13 - 7/31/13
Purchases by Citibank
8/1/13 - 8/31/13
Purchases by Citibank
9/1/13 - 9/30/13
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
1,827,045
1,216,976
—
—
—
—
$41.05
$41.09
—
—
—
—
1,827,045
$200,006,026
1,216,976
$150,006,536
—
—
—
—
$650,006,536
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.
22
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, 2008 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
23
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, 2009 through September 30, 2013 (in millions, except per share data, percentages, and number of employees and
shareholders). Certain amounts have been revised to reflect the retrospective application of the Company’s change in inventory costing method
for certain inventory in its Power Solutions business to the first-in first-out (FIFO) method from the last-in first-out (LIFO). Refer to Note 1,
“Summary of Significant Accounting Policies,” of the notes to consolidated financial statements for further details surrounding this accounting
policy change.
2013
Year ended September 30,
2011
2010
2012
2009
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 capitalization (4)
Net book value per share (5)
COMMON SHARE INFORMATION
Dividends per share
Market prices
High
Low
Weighted average shares (in millions)
Basic
Diluted
Number of shareholders
$
$
$
$
$
$
$
$
42,730
3,293
$
41,955
2,497
$
40,833
2,348
$
34,305
2,025
28,497
277
1,178
1,184
1,415
1,354
$
1.72
1.71
$
1.74
1.72
$
2.09
2.06
$
2.01
1.99
(661 )
(1.11 )
(1.11 )
10 %
10 %
13 %
$
1,377
952
170,000
1,831
824
170,000
$
$
1,325
731
162,000
$
14 %
777
691
137,000
(7 )%
647
745
130,000
$
$
1,062
31,518
4,560
5,498
12,314
2,370
30,954
5,321
6,068
11,625
$
1,701
29,788
4,533
5,146
11,154
$
1,031
25,855
2,652
3,389
10,183
1,212
24,153
3,168
3,966
9,165
31 %
34 %
32 %
25 %
30 %
17.99
$
17.04
$
16.40
$
15.11
$
13.66
0.76
$
0.72
$
0.64
$
0.52
$
0.52
$
43.49
24.75
$
35.95
23.37
$
42.92
25.91
$
35.77
23.62
30.01
8.35
683.7
689.2
38,067
681.5
688.6
40,019
677.7
689.9
43,340
672.0
682.5
44,627
595.3
595.3
46,460
(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 and impairment 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.
24
(3) Working capital is defined as current assets less current liabilities, excluding cash, short-term debt, the current portion of long-term debt,
and assets and liabilities held for sale.
(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 $985 million, $297 million and $230 million of significant restructuring and
impairment costs in fiscal year 2013, 2012, and 2009, respectively. It also includes $(405) million, $447 million, $384 million, $269
million and $532 million of net mark-to-market charges (gains) on pension and postretirement plans in fiscal year 2013, 2012, 2011,
2010 and 2009, 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, 2013 . 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 change in inventory costing method for certain
inventory in its Power Solutions business to the first-in first-out (FIFO) method from the last-in first-out (LIFO). Refer to Note 1, “Summary of
Significant Accounting Policies,” of the notes to consolidated financial statements for further details surrounding this accounting policy change.
Effective October 1, 2012, the Company reorganized the reportable segments within its Automotive Experience business to align with its new
management reporting structure and business activities. Prior to this reorganization, Automotive Experience was comprised of three reportable
segments for financial reporting purposes: North America, Europe and Asia. As a result of this change, Automotive Experience is now
comprised of three new reportable segments for financial reporting purposes: Seating, Interiors and Electronics. Historical information has been
revised to reflect the new Automotive Experience reportable segment structure.
Outlook
On October 29, 2013, the Company gave a preliminary outlook of its market and financial expectations for fiscal 2014, saying it believes
improving end markets will enable the Company to modestly grow revenues in the upcoming year. Additionally, the Company said it expects
first quarter fiscal 2014 earnings per diluted share to increase by approximately 30% (35% adjusting for the impact of the HomeLink® product
line divestiture). The Company will provide further detailed guidance at an analyst meeting on December 18, 2013, which will be accessible to
the public in a manner that the Company will disclose in advance.
An announcement regarding the potential sale of the remaining Automotive Experience Electronics business is expected to be made by the end
of the calendar year. Additionally, on October 29, 2013, the Company announced its intention to explore strategic options to enhance the
position and financial capacity of its Automotive Experience Interiors business as a part of the Company's previously stated intention to build its
multi-industry business portfolio.
25
FISCAL YEAR 2013 COMPARED TO FISCAL YEAR 2012
Net Sales
(in millions)
Net sales
Year Ended
September 30,
2013
2012
Change
$
42,730 $
41,955
2 %
The increase in consolidated net sales was due to higher sales in the Automotive Experience business ($596 million) and Power Solutions
business ($459 million), partially offset by the unfavorable impact of foreign currency translation ($245 million) and lower sales in the Building
Efficiency business ($35 million). Excluding the unfavorable impact of foreign currency translation, consolidated net sales increased 2% as
compared to the prior year. The favorable impacts of higher Automotive Experience volumes in North America and Europe, higher global
battery shipments and improved pricing in the Power Solutions business, and improved market conditions in the North America residential
market were partially offset by softness in global building 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,
2013
2012
Change
$
$
35,952
6,778
15.9 %
35,807
6,148
14.7 %
0 %
10 %
The increase in total cost of sales year over year corresponds to the sales growth noted above, with gross profit as a percentage of sales
increasing by 120 basis points. Gross profit in the Automotive Experience business was favorably impacted by higher volumes and lower
purchasing costs, partially offset by higher operating costs, and net unfavorable commercial settlements and pricing. The Power Solutions
business experienced favorable pricing and product mix, higher volumes and increased benefits of vertical integration including the incremental
contribution of the Company's battery recycling facility. Gross profit in the Building Efficiency business experienced favorable margin rates, and
benefited year over year from improved labor utilization and pricing initiatives. Foreign currency translation had a favorable impact on cost of
sales of approximately $212 million. Net mark-to-market adjustments on pension and postretirement plans had a net favorable year over year
impact on cost of sales of $217 million ($184 million gain in fiscal 2013 compared to a $33 million charge in fiscal 2012) primarily due to an
increase in year over year discount rates and favorable asset return experience, partially offset by assumption changes for certain non-U.S. plans.
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
2013
2012
Change
$
3,965
$
9.3 %
4,478
10.7 %
-11 %
Year Ended
September 30,
Selling, general and administrative expenses (SG&A) decreased by $513 million year over year, and SG&A as a percentage of sales decreased
by 140 basis points. The favorable impact of net mark-to-market adjustments on pension and postretirement plans in SG&A increased year over
year by $635 million ($221 million gain in fiscal 2013 compared to a $414 million charge in fiscal 2012) primarily due to an increase in year
over year discount rates and favorable asset return experience, partially offset by assumption changes for certain non-U.S. plans. In addition, a
pension settlement gain recorded in the fourth quarter of fiscal 2013 related to a lump-sum buyout of deferred vested participants in the U.S.
pension plan had a favorable impact on SG&A of $69 million. Power Solutions business SG&A decreased primarily due to favorable legal
settlements and a prior year impairment of an equity investment, partially offset by higher employee related expenses. Automotive Experience
business SG&A increased primarily due to higher engineering and employee related expenses. Building Efficiency business SG&A increased
primarily due to higher employee related expenses, partially offset by cost reduction programs and a current year pension curtailment gain
26
resulting from a lost Global Workplace Solutions contract. Foreign currency translation had a favorable impact on SG&A of $17 million. Refer
to the segment analysis below within Item 7 for a discussion of segment income by segment.
Gain on Business Divestitures - Net
(in millions)
Gain on business divestitures - net
* Measure not meaningful
Year Ended
September 30,
2013
2012
Change
$
483 $
40
*
The increase in the gains on business divestitures net of transaction costs was due to a current year gain on divestiture of the HomeLink®
product line in the Automotive Experience Electronics segment ($476 million) and a current year gain on divestiture in the Automotive
Experience Seating segment ($29 million), partially offset by prior year gains on business divestitures in the Building Efficiency business ($40
million) and a current year loss on divestiture in the Building Efficiency Other segment ($22 million).
Refer to Note 2, “Acquisitions and Divestitures,” of the notes to consolidated financial statements for further disclosure related to the Company’s
business divestitures.
Restructuring and Impairment Costs
(in millions)
Restructuring and impairment costs
* Measure not meaningful
Year Ended
September 30,
2013
2012
Change
$
985 $
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 in fiscal 2012 and recorded $297 million of significant
restructuring and impairment costs, of which $52 million was recorded in the third quarter and $245 million in the fourth quarter of fiscal 2012.
As a continuation of its restructuring plan announced in fiscal 2012, the Company recorded $985 million of significant restructuring and
impairment costs in fiscal 2013, of which $84 million was recorded in the second quarter, $143 million in the third quarter and $758 million in
the fourth quarter of fiscal 2013. The restructuring actions related to cost reduction initiatives in the Company’s Automotive Experience,
Building Efficiency and Power Solutions businesses and included workforce reductions, plant closures, and asset and goodwill impairments. The
restructuring actions are expected to be substantially complete by the end of fiscal 2014.
Refer to Note 16, “Significant Restructuring and Impairment 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
2013
2012
Change
$
248 $
233
6 %
Year Ended
September 30,
The increase in net financing charges was primarily due to higher interest expense as a result of higher debt levels during fiscal 2013 as
compared to the prior year.
27
Equity Income
(in millions)
Equity income
Year Ended
September 30,
2013
2012
Change
$
402 $
340
18 %
The increase in equity income was primarily due to gains on acquisitions of partially-owned affiliates in the Automotive Experience business
($106 million), partially offset by a prior year redemption of a warrant for an existing partially-owned affiliate in the Power Solutions business
($25 million), a prior year equity interest gain in the Automotive Experience business ($15 million) and a prior year equity interest gain on
acquisition of a partially-owned affiliate in the Power Solutions business ($9 million). Refer to the segment analysis below within Item 7 for a
discussion of segment income by segment.
Provision for Income Taxes
(in millions)
Provision for income taxes
* Measure not meaningful
Year Ended
September 30,
2013
2012
Change
$
1,168 $
209
*
The effective rate is above the U.S. statutory rate for fiscal 2013 primarily due to the tax consequences of the sale of the HomeLink® product
line, significant restructuring and impairment costs, the change in our assertion over reinvestment of foreign undistributed earnings primarily
related to the Electronics business, and valuation allowance and uncertain tax position adjustments, partially offset by favorable tax audit
resolutions, the benefits of continuing global tax planning initiatives and income in certain non-U.S. jurisdictions with a tax rate lower than the
U.S. statutory tax rate. The effective rate is below the U.S. statutory rate for fiscal 2012 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 18, “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 the fourth quarter of fiscal 2013 , 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 Germany and Poland would not be realized. The Company also determined that it was more likely than
not that the deferred tax assets within two French Power Solutions entities would be realized. Therefore, the Company recorded $145 million of
net valuation allowances as income tax expense in the three month period ended September 30, 2013 .
In the second quarter of fiscal 2013 , the Company determined that it was more likely than not that a portion of the deferred tax assets within
Brazil and Germany would not be realized. Therefore, the Company recorded $94 million of valuation allowances as income tax expense.
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 realized. Therefore, the
Company recorded a $35 million valuation allowance as income tax expense in the three month period ended September 30, 2012 .
28
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.
In the third quarter of fiscal 2013 , tax audit resolutions resulted in a net $79 million benefit to income tax expense.
As a result of foreign law changes during the second quarter of fiscal 2013 , the Company increased its total reserve for uncertain tax positions,
resulting in income tax expense of $17 million.
As a result of certain 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, resulting in a benefit to income tax expense.
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, 2013, 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.
The Company expects that certain tax examinations, appellate proceedings and/or tax litigation will conclude within the next twelve months, the
net impact of which is not expected to be significant to the Company's consolidated financial statements.
Other Tax Matters
In the fourth quarter of fiscal 2013 , the Company disposed of the HomeLink® product line and certain businesses, which resulted in $59 million
of incremental tax expense above the statutory rate on the net gain.
In the fourth quarter of fiscal 2013, the Company provided income tax expense on the foreign undistributed earnings of the non-U.S. subsidiaries
primarily related to the Electronics business, which resulted in $210 million of incremental tax expense.
During fiscal 2013 , the Company incurred significant charges for restructuring and impairment costs. A substantial portion of these charges
cannot be benefited for tax purposes due to our current tax position in these jurisdictions and the underlying tax basis in the impaired assets, thus
causing a $235 million incremental tax expense.
In the third quarter of fiscal 2013 , the Company resolved certain Mexican tax issues, which resulted in a $61 million benefit to income tax
expense.
Impacts of Tax Legislation and Change in Statutory Tax Rates
As a result of foreign law changes during the second quarter of fiscal 2013 , the Company increased its total reserve for uncertain tax positions,
resulting in income tax expense of $17 million.
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. The rule was extended in
January 2013 retroactive to the beginning of the Company's 2013 fiscal year.
During the fiscal year ended September 30, 2012 , tax legislation was adopted in Japan which reduced 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.
29
Income Attributable to Noncontrolling Interests
(in millions)
Income attributable to noncontrolling interests
2013
2012
Change
$
119 $
127
-6 %
Year Ended
September 30,
The decrease in income attributable to noncontrolling interests was primarily due to 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.
2013
2012
Change
$
1,178 $
1,184
-1 %
Year Ended
September 30,
The decrease in net income attributable to Johnson Controls, Inc. was primarily due to higher restructuring and impairment costs, higher net
financing charges, an increase in the provision for income taxes and the unfavorable impact of foreign currency translation, partially offset by
higher gross profit, lower selling, general and administrative expenses, incremental gains on business divestitures net of transaction costs, higher
equity income and lower income attributable to noncontrolling interests. Fiscal 2013 diluted earnings per share was $1.71 compared to prior
year’s diluted earnings per share of $1.72.
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 and impairment 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
* Measure not meaningful
Net Sales:
Net Sales
for the Year Ended
September 30,
Segment Income
for the Year Ended
September 30,
2013
2012
Change
2013
2012
Change
$
$
2,362 $
2,130
4,265
2,022
3,812
14,591 $
2,389
2,145
4,294
1,987
3,900
14,715
-1 % $
-1 %
-1 %
2 %
-2 %
-1 % $
279 $
228
114
278
89
988 $
286
164
52
267
141
910
-2 %
39 %
*
4 %
-37 %
9 %
•
•
•
The decrease in North America Systems was due to lower volumes of equipment and controls systems in the commercial construction
and replacement markets ($25 million), and the unfavorable impact of foreign currency translation ($2 million).
The decrease in North America Service was due to a reduction in truck-based volumes ($46 million) and the unfavorable impact of
foreign currency translation ($1 million), partially offset by higher energy solutions volumes ($32 million).
The decrease in Global Workplace Solutions was due to a net decrease in services to new and existing customers ($109 million) and the
unfavorable impact of foreign currency translation ($26 million), partially offset by incremental sales from a business acquisition ($106
million).
30
•
•
The increase in Asia was due to higher volumes of equipment and controls ($47 million), and higher service volumes ($30 million),
partially offset by the unfavorable impact of foreign currency translation ($42 million).
The decrease in Other was due to prior year divestitures ($67 million), lower volumes in the Middle East ($64 million) and Europe ($54
million), and the unfavorable impact of foreign currency translation ($18 million), partially offset by higher volumes in unitary products
($66 million), Latin America ($23 million) and other businesses ($26 million).
Segment Income:
•
•
•
•
•
The decrease in North America Systems was due to higher selling, general and administrative expenses ($33 million) and lower
volumes ($8 million), partially offset by favorable margin rates ($28 million) and a pension settlement gain ($6 million).
The increase in North America Service was due to favorable mix and margin rates ($59 million), lower selling, general and
administrative expenses ($9 million), a pension settlement gain ($6 million) and a prior year loss on business divestitures ($3 million),
partially offset by lower volumes ($13 million).
The increase in Global Workplace Solutions was due to favorable margin rates ($47 million), a pension curtailment gain resulting from
a lost contract net of other contract costs ($24 million), a pension settlement gain ($14 million), incremental operating income from a
business acquisition ($3 million), higher equity income ($1 million) and the favorable impact of foreign currency translation ($1
million), partially offset by lower volumes ($14 million), and higher selling, general and administrative expenses ($14 million).
The increase in Asia was due to favorable margin rates ($32 million) and higher volumes ($19 million), partially offset by higher
selling, general and administrative expenses ($34 million), the unfavorable impact of foreign currency translation ($5 million) and lower
equity income ($1 million).
The decrease in Other was due to prior year gains on business divestitures net of transaction costs ($43 million), a current year loss on
business divestiture including transaction costs ($22 million), higher selling, general and administrative expenses ($21 million), lower
operating income due to prior year divestitures ($11 million), contract related charges ($7 million) and the unfavorable impact of
foreign currency translation ($2 million), partially offset by favorable margin rates ($49 million), higher equity income ($3 million) and
a pension settlement gain ($2 million).
Automotive Experience
(in millions)
Seating
Interiors
Electronics
* Measure not meaningful
Net Sales:
Net Sales
for the Year Ended
September 30,
Segment Income (Loss)
for the Year Ended
September 30,
2013
2012
Change
2013
2012
Change
$
$
16,285 $
4,176
1,320
21,781 $
15,854
4,129
1,351
21,334
3 % $
1 %
-2 %
2 % $
723 $
(9 )
585
1,299 $
694
(20 )
129
803
4 %
55 %
*
62 %
•
•
•
The increase in Seating was due to higher volumes to the Company's major OEM customers ($407 million), incremental sales due to
business acquisitions ($89 million), favorable sales mix ($75 million), and the prior year negative impact of the flooding in Thailand
and related events ($25 million), partially offset by the unfavorable impact of foreign currency translation ($147 million) and lower
volumes due to a business divestiture ($18 million).
The increase in Interiors was due to higher volumes to the Company's major OEM customers ($38 million) and the favorable impact of
foreign currency translation ($9 million).
The decrease in Electronics was due to net unfavorable pricing and commercial settlements ($26 million) and the unfavorable impact of
foreign currency translation ($11 million), partially offset by higher volumes to the Company's major OEM customers ($6 million).
31
Segment Income:
•
•
•
The increase in Seating was due to gains on acquisitions of partially-owned affiliates ($106 million), higher volumes ($76 million),
lower purchasing costs ($54 million), a gain on business divestiture ($29 million), a pension settlement gain ($21 million), the prior year
negative impact of the flooding in Thailand and related events ($6 million), and incremental operating income due to a business
acquisition ($4 million), partially offset by net unfavorable pricing and commercial settlements ($63 million), higher selling, general
and administrative expenses ($59 million), unfavorable mix ($42 million), higher operating costs ($29 million), distressed supplier costs
($21 million), higher engineering and launch costs ($17 million), lower equity income including a prior year equity interest gain ($14
million), litigation charges ($10 million), the unfavorable impact of foreign currency translation ($7 million) and lower operating
income due to a business divestiture ($5 million).
The increase in Interiors was due to net favorable pricing and commercial settlements ($49 million), lower operating costs ($16
million), higher volumes ($7 million), favorable mix ($6 million), a pension settlement gain ($4 million) and the favorable impact of
foreign currency translation ($2 million), partially offset by higher engineering and launch costs ($28 million), higher selling, general
and administrative expenses ($25 million), higher purchasing costs ($17 million), distressed supplier costs ($2 million) and lower equity
income ($1 million).
The increase in Electronics was due to a gain on the divestiture of the HomeLink® product line net of transaction costs ($476 million),
lower purchasing costs ($32 million), higher volumes ($2 million) and higher equity income ($1 million), partially offset by net
unfavorable pricing and commercial settlements ($23 million), higher engineering costs ($17 million), higher selling, general and
administrative expenses ($6 million), higher operating costs ($5 million) and the unfavorable impact of foreign currency translation ($4
million).
Power Solutions
(in millions)
Net sales
Segment income
Year Ended
September 30,
2013
2012
Change
$
6,358 $
1,006
5,906
784
8 %
28 %
•
•
Net sales increased due to favorable pricing and product mix ($223 million), higher sales volumes ($172 million) and the impact of
higher lead costs on pricing ($64 million), partially offset by the unfavorable impact of foreign currency translation ($7 million).
Segment income increased due to favorable product mix including lead acquisition costs and battery cores ($187 million), higher
volumes ($29 million), favorable legal settlements ($20 million), a pension settlement gain ($16 million), a prior year impairment of an
equity investment ($14 million), change in asset retirement obligations ($7 million) and higher equity income ($2 million), partially
offset by a prior year gain on redemption of a warrant for an existing partially-owned affiliate ($25 million), higher selling, general and
administrative expenses ($14 million), a prior year gain on acquisition of a partially-owned affiliate ($9 million), higher net operating
and transportation costs ($4 million), and the unfavorable impact of foreign currency translation ($1 million).
32
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
$
$
35,807
6,148
14.7 %
34,774
6,059
14.8 %
3 %
1 %
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 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, lead, 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
2012
2011
Change
$
$
4,478
10.7 %
4,393
10.8 %
2 %
Year Ended
September 30,
Selling, general and administrative expenses (SG&A) increased by $85 million 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 fiscal 2011 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
and fiscal 2011 restructuring costs. The unfavorable impact of net mark-to-market 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.
33
Gain on Business Divestitures - Net
(in millions)
Gain on business divestitures - net
* Measure not meaningful
Year Ended
September 30,
2012
2011
Change
$
40 $
—
*
The increase in the gains on business divestitures net of transaction costs was due to fiscal 2012 divestitures in the Building Efficiency business.
There were no business divestitures in fiscal 2011.
Refer to Note 2, “Acquisitions and Divestitures,” of the notes to consolidated financial statements for further disclosure related to the Company’s
business divestitures.
Restructuring and Impairment Costs
(in millions)
Restructuring and impairment 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 in fiscal 2012 and recorded $297 million of significant
restructuring and impairment costs, of which $52 million was recorded 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 16, “Significant Restructuring and Impairment 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
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 fiscal 2011.
Year Ended
September 30,
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
fiscal 2012 acquisition of a partially-owned affiliate in the Power Solutions business, partially offset by a gain on a fiscal 2011 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.
34
Provision for Income Taxes
(in millions)
Provision for income taxes
* Measure not meaningful
Year Ended
September 30,
2012
2011
Change
$
209 $
258
-19 %
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 18, “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 realized. Therefore, the
Company recorded a $35 million valuation allowance as income tax expense 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 realized. Therefore, the Company released a net $30 million of valuation allowances as a benefit to
income tax expense in the three month period ended September 30, 2011.
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 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, resulting in a benefit to income tax expense.
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, if any, upon resolution of the issues raised by the taxing
authorities may differ materially from the amounts accrued for each year.
35
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. The rule was extended in January 2013
retroactive to the beginning of the Company's 2013 fiscal year.
During the fiscal year ended September 30, 2012, tax legislation was adopted in Japan which reduced 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
2012
2011
Change
$
127 $
117
9 %
Year Ended
September 30,
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.
Year Ended
September 30,
(in millions)
Net income attributable to Johnson Controls, Inc.
2012
2011
Change
$
1,184 $
1,415
-16 %
The decrease in net income attributable to Johnson Controls, Inc. was primarily due to higher selling, general and administrative expenses,
significant restructuring and impairment 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 $1.72 compared to fiscal 2011 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 and impairment costs, and
net mark-to-market adjustments on pension and postretirement plans.
36
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 $
2,145
4,294
1,987
3,900
14,715 $
2,343
2,305
4,153
1,840
4,252
14,893
2 % $
-7 %
3 %
8 %
-8 %
-1 % $
286 $
164
52
267
141
910 $
247
121
22
251
105
746
16 %
36 %
*
6 %
34 %
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 ($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 fiscal 2011 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 fiscal 2011 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 fiscal 2012 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 the 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), fiscal 2011 restructuring
costs ($35 million), fiscal 2011 non-recurring charges related to South America indirect taxes ($24 million), lower selling, general and
administrative expenses ($14 million), fiscal 2011 business distribution costs ($11 million) and higher equity income ($6 million),
partially offset by unfavorable margin rates ($51 million), lower volumes
37
($20 million), net fiscal 2011 warranty accrual adjustment due to favorable experience ($14 million), lower income due to fiscal 2012
divestitures ($10 million) and the unfavorable impact of foreign currency translation ($1 million).
Automotive Experience
(in millions)
Seating
Interiors
Electronics
* 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
$
$
15,854 $
4,129
1,351
21,334 $
14,656
4,119
1,290
20,065
8 % $
0 %
5 %
6 % $
694 $
(20 )
129
803 $
641
(5 )
144
780
8 %
*
-10 %
3 %
•
•
•
The increase in Seating was primarily due to higher volumes to major OEM customers including the fiscal 2011 negative impact of the
Japan earthquake and related events ($1.2 billion), and incremental sales due to business acquisitions ($802 million), partially offset by
the unfavorable impact of foreign currency translation ($584 million), net unfavorable pricing and commercial settlements ($155
million), and the negative impact of the flooding in Thailand and related events ($25 million).
The increase in Interiors was primarily due to higher volumes to major OEM customers including the fiscal 2011 negative impact of the
Japan earthquake and related events ($147 million), partially offset by the unfavorable impact of foreign currency translation ($117
million) and net unfavorable pricing and commercial settlements ($20 million).
The increase in Electronics was primarily due to higher volumes to major OEM customers including the fiscal 2011 negative impact of
the Japan earthquake and related events ($73 million), and incremental sales due to a fiscal 2011 business acquisition ($66 million),
partially offset by the unfavorable impact of foreign currency translation ($63 million) and net unfavorable pricing and commercial
settlements ($15 million).
Segment Income:
•
•
•
The increase in Seating was primarily due to higher volumes including the fiscal 2011 negative impact of the earthquake in Japan and
related events ($246 million), lower purchasing costs ($78 million), fiscal 2011 costs related to business acquisitions ($64 million),
incremental operating income of fiscal 2011 acquisitions ($59 million), lower engineering expenses ($13 million), higher equity income
($3 million) and the favorable impact of foreign currency translation ($2 million), partially offset by higher operating costs ($195
million), net unfavorable commercial settlements and pricing ($167 million), higher selling, general and administrative expenses ($44
million), and the negative impact of the flooding in Thailand and related events ($6 million).
The decrease in Interiors was primarily due to higher operating costs ($35 million), and net unfavorable commercial settlements and
pricing ($31 million), partially offset by lower purchasing costs ($32 million), lower selling, general and administrative expenses ($9
million), higher equity income ($9 million) and lower engineering expenses ($1 million).
The decrease in Electronics was primarily due to net unfavorable commercial settlements and pricing ($15 million), higher operating
costs ($13 million), higher selling, general and administrative expenses ($11 million), and lower equity income ($11 million), partially
offset by higher volumes including the fiscal 2011 negative impact of the earthquake in Japan and related events ($14 million), lower
engineering expenses ($9 million), lower purchasing costs ($6 million), incremental operating income of a fiscal 2011 acquisition ($5
million) and the favorable impact of foreign currency translation ($1 million).
38
Power Solutions
(in millions)
Net sales
Segment income
Year Ended
September 30,
2012
2011
Change
$
5,906 $
784
5,875
822
1 %
-5 %
•
•
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 decreased primarily due to higher operating and transportation costs ($46 million); higher selling, general and
administrative expenses ($43 million); a gain on a fiscal 2011 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); partially offset by favorable pricing and product mix net of lead acquisition
costs including battery cores ($46 million); a gain on redemption of a warrant for an existing partially-owned affiliate ($25 million);
higher volumes including the fiscal 2011 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 fiscal 2012 acquisition of a partially-owned
affiliate ($9 million) and higher equity income ($4 million).
GOODWILL, LONG-LIVED ASSETS AND OTHER INVESTMENTS
Goodwill at September 30, 2013 was $6.6 billion, $393 million lower than the prior year. The decrease was primarily due to the impairment in
the Automotive Experience Interiors segment, as discussed below, and business divestitures in the Automotive Experience Electronics and
Seating segments, partially offset by business acquisitions in the Automotive Experience Seating and Building Efficiency Global Workplace
Solutions segments.
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 or estimated sales price 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 Measurement.”
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 2013 indicated that the estimated fair value of the Automotive Experience Interiors reporting unit
did not exceed its corresponding carrying amount including recorded goodwill, and an impairment existed. No other reporting unit was
determined to be at risk of failing step one of the goodwill impairment test as the impairment testing performed indicated that the estimated fair
value of each reporting unit substantially exceeded its corresponding carrying amount including recorded goodwill at September 30, 2013. No
impairments existed at September 30, 2012 and 2011.
Based on a combination of factors, including the recent operating results of the Automotive Experience Interiors business, restrictions on future
capital and restructuring funding, and the Company's announced intention to explore strategic options related to this business, the Company's
forecasted cash flow estimates used in the goodwill assessment were negatively impacted as of September 30, 2013. As a result, the Company
concluded that the carrying value of the Interiors reporting unit exceeded its fair value as of September 30, 2013. The Company recorded a
goodwill impairment charge of $430 million in the fourth quarter of fiscal 2013, which was determined by comparing the carrying value of the
reporting unit's goodwill with the implied fair value of goodwill for the reporting unit. The assumptions included in the impairment test require
judgment, and changes to these inputs could impact the results of the calculation. Other than management's internal projections of future cash
flows, the primary assumptions used in the impairment test were the weighted-average cost of capital and long-term growth rates. Although the
39
Company's cash flow forecasts are based on assumptions that are considered reasonable by management and consistent with the plans and
estimates management is using to operate the underlying business, there is significant judgment in determining the expected future cash flows
attributable to the Interiors business. The impairment charge is a non-cash expense that was recorded within restructuring and impairment costs
on the consolidated statement of income and did not adversely affect the Company's debt position, cash flow, liquidity or compliance with
financial covenants.
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, 2013, 2012 and 2011, 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 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.
In the second, third and fourth quarters of fiscal 2013, the Company concluded it had a triggering event requiring assessment of impairment for
certain of its long-lived assets in conjunction with its restructuring actions announced in fiscal 2013. In addition, in the fourth quarter of fiscal
2013, the Company concluded that it had a triggering event requiring assessment of impairment for the long-lived assets held by the Automotive
Experience Interiors segment due to the impairment of goodwill in the quarter. As a result, the Company reviewed the long-lived assets for
impairment and recorded a $156 million impairment charge within restructuring and impairment costs on the consolidated statement of income,
of which $13 million was recorded in the second quarter, $36 million in the third quarter and $107 million in the fourth quarter of fiscal 2013. Of
the total impairment charge, $57 million related to the Automotive Experience Interiors segment, $40 million related to the Building Efficiency
Other segment, $22 million related to the Automotive Experience Seating segment, $18 million related to the Power Solutions segment, $12
million related to corporate assets and $7 million related to various segments within the Building Efficiency business. Refer to Note 16,
“Significant Restructuring and Impairment Costs,” of the notes to consolidated financial statements for additional information. 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 Measurement."
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 restructuring actions announced in fiscal 2012. 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 and impairment 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 Interiors segment, $4 million related to the Building Efficiency Other segment and
$10 million related to corporate assets. Refer to Note 16, “Significant Restructuring and Impairment Costs,” of the notes to consolidated
financial statements for additional information. 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 Measurement."
In the second quarter of fiscal 2012, the Company recorded a $14 million impairment charge related to an equity investment. Refer to Note 11,
“Fair Value Measurements,” of the notes to consolidated financial statements for additional information.
Investments in partially-owned affiliates (“affiliates”) at September 30, 2013 were $1.0 billion, $76 million higher than the prior year. The
increase was primarily due to positive earnings by affiliates in all businesses, primarily in the Automotive Experience
40
and Power Solutions businesses, partially offset by dividends paid by affiliates and the acquisitions of the controlling interest in formerly
unconsolidated Automotive Experience Seating affiliates.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
(in millions)
Current assets
Current liabilities
Less: Cash
Add: Short-term debt
Add: Current portion of long-term debt
Less: Assets held for sale
Add: Liabilities held for sale
Working capital
Accounts receivable
Inventories
Accounts payable
$
$
September 30,
2013
September 30,
2012
Change
13,698 $
(12,117 )
1,581
12,743
(10,855 )
1,888
1,055
119
819
804
402
1,062 $
7,206
2,325
6,318
265
323
424
—
—
2,370
7,308
2,343
6,114
-16 %
-55 %
-1 %
-1 %
3 %
•
•
•
•
The Company defines working capital as current assets less current liabilities, excluding cash, short-term debt, the current portion of
long-term debt, and assets and liabilities held for sale. 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 decrease in working capital at September 30, 2013 as compared to September 30, 2012 was primarily due to a decrease in other
current assets related to income taxes, an increase in reserves due to restructuring activities, higher accounts payable due to timing of
supplier payments and lower accounts receivable due to improved collections and timing of customer receipts.
The Company’s days sales in accounts receivable at September 30, 2013 were 51, lower than 55 at the comparable period ended
September 30, 2012 . There has been no significant adverse change in the level of overdue receivables or changes in revenue recognition
methods.
The Company’s inventory turns for the year ended September 30, 2013 were slightly lower than the comparable period ended
September 30, 2012 primarily due to higher inventory production to meet higher sales levels.
•
Days in accounts payable at September 30, 2013 were 72, consistent with the comparable period ended September 30, 2012 .
41
Cash Flows
(in millions)
Cash provided by operating activities
Cash used by investing activities
Cash provided (used) by financing activities
Capital expenditures
$
Year Ended September 30,
2012
2013
2,686 $
(580 )
(1,214 )
(1,377 )
1,559
(1,792 )
207
(1,831 )
•
•
•
•
The increase in cash provided by operating activities was primarily due to favorable changes in accrued liabilities, accrued income taxes,
other assets and restructuring reserves; and lower pension and postretirement contributions; partially offset by unfavorable changes in
inventories and accounts receivable.
The decrease in cash used by investing activities was primarily due to cash received for business divestitures and lower capital
expenditures, partially offset by higher cash paid for acquisitions of businesses.
The increase in cash used by financing activities was primarily due to a prior year $1.1 billion bond issuance, higher repayments of debt
and an increase in stock repurchases, partially offset by higher proceeds from the exercise of stock options. Refer to Note 9, “Debt and
Financing Arrangements,” of the notes to consolidated financial statements for further discussion on debt issuances and debt levels.
The decrease in capital expenditures in the current year is primarily related to capacity increases and vertical integration efforts in the
prior year in the Power Solutions business, and a reduction in program spending for new customer launches in the Automotive
Experience business.
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,
2013
September 30,
2012
Change
$
$
$
119
819
4,560
5,498
$
$
12,314
17,812
$
323
424
5,321
6,068
11,625
17,693
-9 %
6 %
1 %
Total debt as a % of total capitalization
31 %
34 %
•
•
•
•
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, 2013 and 2012 , the Company had committed bilateral euro denominated credit facilities totaling 237 million euro.
Additionally, at September 30, 2013 and 2012 , the Company had committed bilateral U.S. dollar denominated revolving credit facilities
totaling $185 million. Each of these facilities is scheduled to expire in fiscal 2014. There were no draws on any of the revolving credit
facilities for the respective periods.
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.
42
•
•
•
•
•
•
•
•
•
•
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.
In November 2012, the Company retired $100 million in principal amount, plus accrued interest of its 5.8% fixed rate notes that matured
November 2012. The Company used cash to fund the payment.
In November 2012, the Company entered into a five-year, 70 million euro, floating rate credit facility scheduled to mature in fiscal 2018.
The Company drew on the credit facility during the quarter ended December 31, 2012. Proceeds from the facility were used for general
corporate purposes.
In August 2013, the Company made a partial repayment of 43 million euro, plus accrued interest, of its 100 million euro floating rate
credit facility scheduled to mature in February 2017. The Company used cash to fund the payment.
In August 2013, the Company replaced its $2.5 billion committed four-year credit facility, scheduled to mature in February 2015, with a
$2.5 billion committed five-year credit facility scheduled to mature in August 2018. The facility is used to support the Company's
outstanding commercial paper. There were no draws on the facility as of September 30, 2013.
In September 2013, the Company retired $300 million in principal amount, plus accrued interest, of its 4.875% fixed rate notes that
matured in September 2013. The Company used cash to fund the payment.
The Company also selectively makes use of short-term credit lines. The Company estimates that, as of September 30, 2013 , it could
borrow up to $2.1 billion on committed credit lines.
The Company believes its capital resources and liquidity position at September 30, 2013 are adequate to meet projected needs. The
Company believes requirements for working capital, capital expenditures, dividends, stock repurchases, minimum pension contributions,
debt maturities and any potential acquisitions in fiscal 2014 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 August 2018. There were no draws on the revolving credit facility as of
September 30, 2013 . 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 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 will 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, 2013 , consolidated
shareholders’ equity attributable to Johnson Controls, Inc. as defined per the Company’s debt financial covenants was $11.9 billion and
there was a maximum of $273 million of liens and pledges outstanding. 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.
43
A summary of the Company’s significant contractual obligations as of September 30, 2013 is as follows (in millions):
Total
2014
2015-2016
2017-2018
2019
and Beyond
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
$
$
5,379 $
819 $
1,062 $
904 $
2,329
908
2,289
426
11,331 $
211
300
1,795
83
3,208 $
366
382
295
56
2,161 $
267
155
180
65
1,571 $
2,594
1,485
71
19
222
4,391
* See "Capitalization" for additional information related to the Company' s long-term debt. The Company's interest rate swaps are not included
in the table as all outstanding interest rate swaps were in an asset position at September 30, 2013, which indicates the Company was in a net
position of receiving cash under such swaps.
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 primarily in accounts receivable. Likewise, contracts where billings to date have exceeded
recognized revenues are recorded primarily 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.
44
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 or estimated sales price 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 Measurement.”
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 2013 indicated that the estimated fair value of the Automotive Experience Interiors reporting unit
did not exceed its corresponding carrying amount including recorded goodwill, and an impairment existed. No other reporting unit was
determined to be at risk of failing step one of the goodwill impairment test as the impairment testing performed indicated that the estimated fair
value of each reporting unit substantially exceeded its corresponding carrying amount including recorded goodwill at September 30, 2013. No
impairments existed at September 30, 2012 and 2011.
Refer to Note 6, "Goodwill and Other Intangible Assets," of the notes to consolidated financial statements for further information regarding the
goodwill impairment charge recorded in the fourth quarter of fiscal 2013.
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, 2013, 2012 and 2011, different assumptions could change the estimated fair values and, therefore, impairment charges could be
required, which could be material to the consolidated financial statements.
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.
The Company utilizes a mark-to-market approach for recognizing pension and postretirement benefit expenses, including measuring the market
related value of plan assets at fair value and recognizing actuarial gains and losses in the fourth quarter of each fiscal year or at the date of a
remeasurement event. Refer to Note 15, "Retirement Plans," of the notes to consolidated financial statements for disclosure of the Company's
pension and postretirement benefit plans.
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 4.90%
and 4.15% at September 30, 2013 and 2012 , respectively. The Company’s weighted average discount rate on non-U.S. plans was 3.60% and
3.40% at September 30, 2013 and 2012 , respectively.
45
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 45% of the plans’ assets are invested in fixed income securities and 40% in equity securities, with
the remainder primarily invested in alternative investments. For the years ending September 30, 2013 and 2012 , the Company’s expected long-
term return on U.S. pension plan assets used to determine net periodic benefit cost was 8.00% and 8.50%, respectively. The actual rate of return
on U.S. pension plans was above 8.00% in fiscal 2013 and above 8.50% in fiscal 2012 . For the years ending September 30, 2013 and 2012 , the
Company’s weighted average expected long-term return on non-U.S. pension plan assets was 4.55% and 5.15%, respectively. The actual rate of
return on non-U.S. pension plans was above 4.55% in fiscal 2013 and above 5.15% in fiscal 2012 . For the years ending September 30, 2013 and
2012 , the Company’s weighted average expected long-term return on postretirement plan assets was 5.80% and 6.30%, respectively. The actual
rate of return on postretirement plan assets approximated 5.80% in fiscal 2013 and was above 6.30% in fiscal 2012 .
Beginning in fiscal 2014 , the Company believes the long-term rate of return will approximate 8.00%, 4.65% 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 2013 , total employer and employee contributions to the defined benefit pension plans were $95 million, of which $1 million were
voluntary contributions made by the Company. The Company expects to contribute approximately $80 million in cash to its defined benefit
pension plans in fiscal year 2014 . In fiscal 2013 , total employer and employee contributions to the postretirement plans were $13 million, of
which $12 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 2014 .
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 Company’s warranty provisions are adjusted as necessary. At September 30, 2013 , the Company had recorded $256
million of warranty reserves, including extended warranties for which deferred revenue is recorded. 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.
Refer to Note 7, "Product Warranties," of the notes to consolidated financial statements for disclosure of the Company's product warranty
liabilities.
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 realization 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.
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. At September 30, 2013, the Company had a valuation allowance of
46
$1,172 million, of which $911 million relates to federal net operating loss carryforwards primarily in Brazil, France, Germany and Spain, for
which sustainable taxable income has not been demonstrated; and $261 million for other deferred tax assets.
The Company is subject to income taxes in the U.S. and numerous non-U.S. jurisdictions. Judgment is required in determining its worldwide
provision for income taxes and recording the related assets and liabilities. In the ordinary course of the Company’s business, there are many
transactions and calculations where the ultimate tax determination is uncertain. The Company is regularly under audit by tax authorities. At
September 30, 2013, the Company had unrecognized tax benefits of $1,345 million.
The Company does not generally 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. However, the Company did provide incremental income tax
expense on the undistributed earnings of certain non-U.S. subsidiaries that have assets held for sale or are themselves held for sale at September
30, 2013. Refer to “Capitalization” within the “Liquidity and Capital Resources” section for discussion of domestic and foreign cash projections.
Refer to Note 18, "Income Taxes," of the notes to consolidated financial statements for the Company's income tax disclosures.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2013, the FASB issued Accounting Standards Update (ASU) No. 2013-11, "Income Taxes (Topic 740): Presentation of an Unrecognized
Tax Benefit When a Net Operating Loss Carryforward, a similar Tax Loss, or a Tax Credit Carryforward Exists." ASU No. 2013-11 clarifies that
companies should present an unrecognized tax benefit as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax
loss or a tax credit carryforward. ASU No. 2013-11 will be effective prospectively for the Company for the quarter ending December 31, 2014,
with early adoption permitted. The Company is currently assessing the impact on its consolidated statement of financial position; however, the
adoption of this guidance will have no impact on the Company's consolidated results of operations.
In March 2013, the FASB issued ASU No. 2013-05, "Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative
Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign
Entity." ASU No. 2013-05 clarifies when companies should release the cumulative translation adjustment (CTA) into net income when a parent
either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets
within a foreign entity. Additionally, ASU No. 2013-05 states that CTA should be released into net income upon an acquirer obtaining control of
an acquiree in which it held an equity interest immediately before the acquisition date (step acquisition). ASU No. 2013-05 will be effective
prospectively for the Company for the quarter ending December 31, 2014, with early adoption permitted. The significance of this guidance for
the Company is dependent on any future derecognition events involving the Company's foreign entities.
In February 2013, the FASB issued ASU No. 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of
Accumulated Other Comprehensive Income." ASU No. 2013-02 requires companies to provide information about the amounts reclassified out of
accumulated other comprehensive income by component. Additionally, companies are required to disclose these reclassifications by each
respective line item on the statements of income. ASU No. 2013-02 is effective for the Company for the quarter ended December 31, 2013,
though the Company has early adopted as permitted. The adoption of this guidance had no impact on the Company's consolidated financial
condition or results of operations. Refer to Note 14, "Equity and Noncontrolling Interests," of the notes to consolidated financial statements for
disclosures regarding other comprehensive income.
In July 2012, the FASB issued 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 asset is impaired, then the Company is not
required to take further action. ASU No. 2012-02 is effective for the Company for impairment tests of indefinite-lived intangible assets
performed in the current fiscal year. The adoption of this guidance had no impact on the Company’s consolidated financial condition or 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 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 or results of operations.
47
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 is effective
for the Company for goodwill impairment tests performed in the current fiscal year. The adoption of this guidance had no impact on the
Company’s consolidated financial condition or 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 was effective for the Company for the quarter ended December 31, 2012. The adoption
of this guidance had no impact on the Company’s consolidated financial condition or results of operations. Refer to the consolidated statements
of comprehensive income (loss) and Note 14, “Equity and Noncontrolling Interests,” of the notes to consolidated financial statements for
disclosures regarding other comprehensive income.
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 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 10, “Derivative Instruments and Hedging Activities,” and Note 11, “Fair Value Measurements,” of the notes to consolidated
financial statements.
48
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, 2013 and 2012 ,
the Company estimates that an unfavorable 10% change in the exchange rates would have decreased net unrealized gains by approximately $104
million and $23 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. The Company had ten interest rate swaps totaling $1.4 billion outstanding at September 30, 2013
and eight interest rates swaps totaling $850 million outstanding at September 30, 2012. A 10% increase in the average cost of the Company’s
variable rate debt would have resulted in an unfavorable change in pre-tax interest expense of approximately $6 million and $3 million at
September 30, 2013 and 2012 , respectively.
Commodities
The Company uses commodity contracts in the financial derivatives market in cases where commodity price risk cannot be naturally offset or
hedged through supply base fixed price contracts. Commodity risks are systematically managed pursuant to policy guidelines. As a cash flow
hedge, gains and losses resulting from the hedging instruments offset the gains or losses on purchases of the underlying commodities that will be
used in the business. The maturities of the commodity contracts coincide with the expected purchase of the commodities.
ENVIRONMENTAL, HEALTH AND SAFETY AND OTHER MATTERS
The Company’s global operations are governed by environmental laws and worker safety laws. Under various circumstances, these laws impose
civil and criminal penalties and fines, as well as injunctive and remedial relief, for noncompliance and require remediation at sites where
Company-related substances have been released into the environment.
The Company has expended substantial resources globally, both financial and managerial, to comply with applicable environmental laws and
worker safety laws and to protect the environment and workers. The Company believes it is in substantial compliance with such laws and
maintains procedures designed to foster and ensure compliance. However, the Company has been, and in the future may become, the subject of
formal or informal enforcement actions or proceedings regarding noncompliance with such laws or the remediation of Company-related
substances released into the environment. Such matters typically are resolved by negotiation with regulatory authorities resulting in
commitments to compliance, abatement or remediation programs and in some cases payment of penalties. Historically, neither such
commitments nor penalties imposed on the Company have been material.
Environmental considerations are a part of all significant capital expenditure decisions; however, expenditures in fiscal 2013 related solely to
environmental compliance were not material. At both September 30, 2013 and 2012 , the Company recorded environmental liabilities of $25
million . 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
49
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, 2013 and 2012 , the Company recorded conditional asset retirement obligations of $56 million and $76 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 21, “Commitments and Contingencies,” of the notes to consolidated financial statements). Costs related to such matters were not material
to the periods presented.
QUARTERLY FINANCIAL DATA
Previously reported quarterly amounts have been revised to reflect the retrospective application of the Company’s change in inventory costing
method for certain inventory in its Power Solutions business to the first-in first-out (FIFO) method from the last-in first-out (LIFO). 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)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Full
Year
2013 (1)
Net sales
Gross profit
Net income (3)
Net income attributable to Johnson
Controls, Inc.
Earnings per share (5)
Basic
Diluted
$
10,422 $
1,516
389
10,430 $
1,515
194
10,831 $
1,645
573
11,047 $
2,102
141
359
0.53
0.52
164
0.24
0.24
550
0.80
0.80
105
0.15
0.15
2012 (2)
Net sales
Gross profit
Net income (4)
Net income (loss) attributable to Johnson Controls,
$
Inc.
Earnings (loss) per share (5)
Basic
Diluted
10,417 $
1,491
431
10,565 $
1,552
417
10,581 $
1,518
442
10,392 $
1,587
21
396
0.58
0.58
379
0.56
0.55
417
0.61
0.61
(8 )
(0.01 )
(0.01 )
42,730
6,778
1,297
1,178
1.72
1.71
41,955
6,148
1,311
1,184
1.74
1.72
(1)
(2)
For the first, second, third and fourth quarters of fiscal 2013, the retrospective application of the Company’s change in inventory costing
method resulted in an increase (decrease) to gross profit of $8 million, $27 million, $(35) million and $11 million, respectively, and an
increase (decrease) to net income attributable to Johnson Controls, Inc. of $5 million (less than $0.01 per diluted share), $16 million
($0.03 per diluted share), $(21) million ($0.03 per diluted share) and $7 million ($0.01 per diluted share), respectively.
For the first, second, third and fourth quarters of fiscal 2012, the retrospective application of the Company’s change in inventory costing
method resulted in a decrease to gross profit of $45 million, $1 million, $23 million and $1 million, respectively. For the first and third
quarters of fiscal 2012, the change resulted in a decrease to net income attributable to Johnson Controls, Inc. of $28 million ($0.04 per
diluted share) and $14 million ($0.02 per diluted share), respectively, and there was no significant impact for the second and fourth
quarters of fiscal 2012.
(3)
The fiscal 2013 second quarter net income includes $84 million of significant restructuring and impairment costs and an $82 million gain
on acquisition of a partially-owned affiliate in India in the Automotive Experience Seating segment. The
50
fiscal 2013 third quarter net income includes $143 million of significant restructuring and impairment costs and a $29 million gain on
business divestitures in the Automotive Experience Seating segment. The fiscal 2013 fourth quarter net income includes $758 million of
significant restructuring and impairment costs, a $476 million gain on divestiture of the HomeLink® product line net of transaction costs
in the Automotive Experience Electronics segment, $405 million of net mark-to-market gains on pension and postretirement plans, a $69
million pension settlement gain and a $22 million loss on business divestiture including transaction costs in the Building Efficiency Other
segment. The preceding amounts are stated on a pre-tax basis.
(4)
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 and impairment 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
and impairment costs. The preceding amounts are stated on a pre-tax basis.
(5) 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.
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, 2013, 2012 and 201 1
Consolidated Statements of Comprehensive Income (Loss) for the years ended September 30, 2013, 2012 and 2011
Consolidated Statements of Financial Position as of September 30, 2013 and 201 2
Consolidated Statements of Cash Flows for the years ended September 30, 2013, 2012 and 201 1
Consolidated Statements of Shareholders’ Equity Attributable to Johnson Controls, Inc. for the years ended
September 30, 2013, 2012 and 201 1
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts
51
Page
52
54
55
56
57
58
59
109
To the Board of Directors and Shareholders of Johnson Controls, Inc.
Report of Independent Registered Public Accounting Firm
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial
position of Johnson Controls, Inc. and its subsidiaries at September 30, 2013 and 2012 , and the results of their operations and their cash flows
for each of the three years in the period ended September 30, 2013 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, 2013 , based on criteria
established in Internal Control - Integrated Framework (1992) 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 2013 the Company changed their inventory costing method for certain
inventories. 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
52
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 21, 2013
53
Johnson Controls, Inc.
Consolidated Statements of Income
(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
Gain on business divestitures - net
Restructuring and impairment 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,
2012
2011
2013
34,412 $
8,318
42,730
29,196
6,756
35,952
33,561 $
8,394
41,955
28,909
6,898
35,807
6,778
6,148
(3,965 )
483
(985 )
(248 )
402
2,465
1,168
(4,478 )
40
(297 )
(233 )
340
1,520
209
1,297
1,311
119
127
1,178 $
1,184 $
1.72 $
1.71 $
1.74 $
1.72 $
32,420
8,413
40,833
27,674
7,100
34,774
6,059
(4,393 )
—
—
(174 )
298
1,790
258
1,532
117
1,415
2.09
2.06
$
$
$
$
*
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
Johnson Controls, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(in millions)
Net income
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
Realized and unrealized gains (losses) on derivatives
Unrealized gains (losses) on marketable common stock
Pension and postretirement plans
Other comprehensive loss
Total comprehensive income
Year Ended September 30,
2012
2011
2013
$
1,297 $
1,311 $
1,532
(20 )
(5 )
2
(16 )
(39 )
(222 )
39
(1 )
(8 )
(192 )
(110 )
(47 )
3
4
(150 )
1,258
1,119
1,382
Comprehensive income attributable to noncontrolling interests
120
126
116
Comprehensive income attributable to Johnson Controls, Inc.
$
1,138 $
993 $
1,266
The accompanying notes are an integral part of the financial statements.
55
Johnson Controls, Inc.
Consolidated Statements of Financial Position
September 30,
2013
2012
$
1,055 $
(in millions, except par value and share data)
Assets
Cash and cash equivalents
Accounts receivable, less allowance for doubtful
accounts of $68 and $78, respectively
Inventories
Assets held for sale
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
Liabilities held for sale
Other current liabilities
Current liabilities
Long-term debt
Pension and postretirement benefits
Other noncurrent liabilities
Long-term liabilities
Commitments and contingencies (Note 21)
Redeemable noncontrolling interests
Common stock, $1.00 par value, shares authorized: 1,800,000,000
shares issued: 2013 - 700,178,785; 2012 - 688,483,873
Capital in excess of par value
Retained earnings
Treasury stock, at cost (2013 - 15,643,146; 2012 - 6,176,266 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.
7,206
2,325
804
2,308
13,698
6,585
6,589
999
1,024
2,623
31,518 $
119 $
819
6,318
1,215
402
3,244
12,117
4,560
750
1,360
6,670
265
7,308
2,343
—
2,827
12,743
6,440
6,982
947
948
2,894
30,954
323
424
6,114
1,090
—
2,904
10,855
5,321
1,248
1,504
8,073
157
253
700
2,399
9,328
(531 )
418
12,314
260
12,574
31,518 $
688
2,047
8,611
(179 )
458
11,625
148
11,773
30,954
$
$
$
56
Johnson 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 and amortization
Pension and postretirement benefit expense (income)
Pension and postretirement contributions
Equity in earnings of partially-owned affiliates, net of dividends received
Deferred income taxes
Non-cash restructuring and 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
Changes in long-term investments
Other
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
Cash paid to acquire a noncontrolling interest
Other
Cash provided (used) by financing activities
Effect of exchange rate changes on cash and cash equivalents
Cash held for sale
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Year Ended September 30,
2013
2012
2011
$
1,178 $
119
1,297
1,184 $
127
1,311
952
(475 )
(97 )
(86 )
273
586
(483 )
(106 )
64
(21 )
(182 )
(97 )
(181 )
234
686
322
2,686
(1,377 )
116
(123 )
761
(10 )
53
(580 )
(197 )
114
(490 )
(350 )
(513 )
254
(64 )
32
(1,214 )
(98 )
(4 )
790
265
1,055 $
824
479
(414 )
(138 )
(234 )
53
(40 )
(12 )
56
(11 )
(114 )
109
(367 )
196
(64 )
(75 )
1,559
(1,831 )
58
(30 )
105
(100 )
6
(1,792 )
(302 )
1,260
(36 )
(102 )
(477 )
40
(115 )
(61 )
207
34
—
8
257
265 $
$
1,415
117
1,532
731
410
(451 )
(15 )
(256 )
—
—
(89 )
59
2
(721 )
(388 )
(118 )
(94 )
343
131
1,076
(1,325 )
54
(1,226 )
—
(140 )
—
(2,637 )
510
1,852
(787 )
—
(413 )
105
(23 )
(5 )
1,239
19
—
(303 )
560
257
The accompanying notes are an integral part of the financial statements.
57
Johnson Controls, Inc.
Consolidated Statements of Shareholders’ Equity Attributable to Johnson Controls, Inc.
(in millions, except per share data)
At September 30, 2010 (previously reported)
Inventory costing policy change and common stock
$
Total
10,071 $
Common
Stock
Capital in
Excess of
Par Value
Retained
Earnings
Treasury
Stock,
at Cost
9 $
2,448 $
6,890 $
(74 ) $
Accumulated
Other
Comprehensive
Income (Loss)
798
par value change (Note 1)
At September 30, 2010 (revised)
Comprehensive income (loss)
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 (loss)
Cash dividends
Common ($0.72 per share)
Redemption value adjustment attributable to
redeemable noncontrolling interests
Repurchases of common stock
Other, including options exercised
At September 30, 2012
Comprehensive income (loss)
Cash dividends
Common ($0.76 per share)
Redemption value adjustment attributable to
redeemable noncontrolling interests
Repurchases of common stock
Other, including options exercised
At September 30, 2013
112
10,183
1,266
667
676
—
(667 )
1,781
—
112
7,002
1,415
(435 )
—
—
(435 )
(32 )
172
11,154
993
—
7
683
—
—
165
1,946
—
(32 )
—
7,950
1,184
(492 )
—
—
(492 )
(35 )
(102 )
107
11,625
1,138
—
—
5
688
—
—
—
101
2,047
—
(35 )
—
4
8,611
1,178
—
(74 )
—
—
—
—
(74 )
—
—
—
(102 )
(3 )
(179 )
—
(520 )
—
—
(520 )
—
59
(350 )
362
12,314 $
$
—
—
12
700 $
—
—
352
2,399 $
59
—
—
9,328 $
—
(350 )
(2 )
(531 ) $
—
798
(149 )
—
—
—
649
(191 )
—
—
—
—
458
(40 )
—
—
—
—
418
The accompanying notes are an integral part of the financial statements.
58
Johnson 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
periods ended September 30, 2013 and 2012 , 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 years ended September 30, 2013 and 2012 was not material. The VIE is named as a co-obligor under a third party
debt agreement of $175 million , maturing in fiscal 2020, under 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 $64 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.
59
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
September 30,
2013
2012
273 $
139
412 $
212 $
39
251 $
199
144
343
172
25
197
$
$
$
$
The Company did not have a significant variable interest in any other consolidated VIEs for the presented reporting periods.
Nonconsolidated VIEs
The Company has a 40% interest in an equity method investee whereby the investee is a VIE. 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. The Company has a
contractual right to purchase the remaining 60% equity interest in the investee between May 2014 and May 2016 (the “call option”). If the
Company does not exercise the call option prior to its expiration in May 2016, 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, 2013 and 2012 was $56 million and $55 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. In October 2013, the Company purchased an
additional 50% equity interest in the investee to bring the Company's total interest in the investee to 90% . As a result this transaction, the fixed
price call option and repurchase option no longer exist, and the Company will begin to consolidate the investee under the voting interest model
in the first quarter of fiscal 2014.
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 includes the partially-
owned affiliate investment balance of $57 million and $52 million at September 30, 2013 and 2012 , respectively, 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 nonconsolidated VIEs for the presented reporting periods.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
60
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 10, “Derivative Instruments and Hedging Activities,” and Note 11, “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.
Assets and Liabilities Held for Sale
The Company classifies assets and liabilities (disposal groups) to be sold as held for sale in the period in which all of the following criteria are
met: management, having the authority to approve the action, commits to a plan to sell the disposal group; the disposal group is available for
immediate sale in its present condition subject only to terms that are usual and customary for sales of such disposal groups; an active program to
locate a buyer and other actions required to complete the plan to sell the disposal group have been initiated; the sale of the disposal group is
probable, and transfer of the disposal group is expected to qualify for recognition as a completed sale within one year, except if events or
circumstances beyond the Company's control extend the period of time required to sell the disposal group beyond one year; the disposal group is
being actively marketed for sale at a price that is reasonable in relation to its current fair value; and actions required to complete the plan indicate
that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
The Company initially measures a disposal group that is classified as held for sale at the lower of its carrying value or fair value less any costs to
sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not
recognized on the sale of a disposal group until the date of sale. The Company assesses the fair value of a disposal group less any costs to sell
each reporting period it remains classified as held for sale and reports any subsequent changes as an adjustment to the carrying value of the
disposal group, as long as the new carrying value does not exceed the carrying value of the disposal group at the time it was initially classified as
held for sale.
Upon determining that a disposal group meets the criteria to be classified as held for sale, the Company reports the assets and liabilities of the
disposal group, if material, in the line items assets held for sale and liabilities held for sale, respectively, in the consolidated statement of
financial position. Refer to Note 3, "Assets and Liabilities Held for Sale," of the notes to consolidated financial statements for further
information.
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.
At September 30, 2013 and 2012, the Company held restricted cash of approximately $32 million and $29 million , respectively, within cash and
cash equivalents. These amounts primarily were collected from customers for payment of maintenance costs under contract, and withdrawals are
restricted for this purpose.
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. Finished goods and work-in-process inventories include material, labor and manufacturing
overhead costs.
In the fourth quarter of fiscal 2013, the Company changed its method of inventory costing for certain inventory in its Power Solutions business
to the first-in first-out (FIFO) method from the last-in first-out (LIFO) method. The Company's other businesses also determine costs using the
FIFO method. Prior to the change, Power Solutions utilized two methods of inventory costing: LIFO for inventories in the U.S. and FIFO for
inventories in other countries. The Company believes that the FIFO method is preferable as it better reflects the current value of inventory on the
Company’s consolidated statement of financial position, provides better matching of revenues and expenses, results in uniformity across the
Company’s global operations with respect to the method of inventory accounting and improves comparability with the Company’s peers. The
change has been reported through retrospective application of the new accounting policy to all periods presented and resulted in a $5 million
increase (less than $0.01 per diluted
61
share), $16 million increase ( $0.03 per diluted share) and $21 million decrease ( $0.03 per diluted share) to net income attributable to Johnson
Controls, Inc. for the quarters ended December 31, 2012, March 31, 2013 and June 30, 2013, respectively.
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
Gross profit
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 Comprehensive Income (Loss)
Net income
Total comprehensive income
Consolidated Statement of Financial Position
Inventories
Other current assets
Retained earnings
Consolidated Statement of Cash Flows
Cash provided by operating activities
Net income attributable to Johnson Controls, Inc.
Net income
Deferred income taxes
Inventories
Consolidated Statement of Shareholders’ Equity
Attributable to Johnson Controls, Inc.
Retained earnings at September 30, 2012
Retained earnings at September 30, 2013
Previous
Method
2013
As Reported
Effect of
Change
$
$
$
$
$
29,207 $
6,767
2,454
1,164
1,290
1,171
1.71
1.70
29,196 $
6,778
2,465
1,168
1,297
1,178
1.72
1.71
1,290 $
1,251
1,297 $
1,258
2,198 $
2,358
9,251
2,325 $
2,308
9,328
1,171 $
1,290
269
(86 )
1,178 $
1,297
273
(97 )
8,541 $
9,251
8,611 $
9,328
(11 )
11
11
4
7
7
0.01
0.01
7
7
127
(50 )
77
7
7
4
(11 )
70
77
62
Consolidated Statement of Income
Cost of sales
Products and systems
Gross profit
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 Comprehensive Income (Loss)
Net income
Total comprehensive income
Consolidated Statement of Financial Position
Inventories
Other current assets
Retained earnings
Consolidated Statement of Cash Flows
Cash provided by operating activities
Net income attributable to Johnson Controls, Inc.
Net income
Deferred income taxes
Inventories
Consolidated Statement of Shareholders’ Equity
Attributable to Johnson Controls, Inc.
Retained earnings at September 30, 2011
Retained earnings at September 30, 2012
Previously
Reported
2012
Revised
Effect of
Change
$
$
$
$
$
28,839 $
6,218
1,590
237
1,353
1,226
1.80
1.78
28,909 $
6,148
1,520
209
1,311
1,184
1.74
1.72
1,353 $
1,161
1,311 $
1,119
2,227 $
2,873
8,541
2,343 $
2,827
8,611
1,226 $
1,353
(206 )
39
1,184 $
1,311
(234 )
109
7,838 $
8,541
7,950 $
8,611
70
(70 )
(70 )
(28 )
(42 )
(42 )
(0.06 )
(0.06 )
(42 )
(42 )
116
(46 )
70
(42 )
(42 )
(28 )
70
112
70
63
Consolidated Statement of Income
Cost of sales
Products and systems
Gross profit
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 Comprehensive Income (Loss)
Net income
Total comprehensive income
Consolidated Statement of Cash Flows
Cash provided by operating activities
Net income attributable to Johnson Controls, Inc.
Net income
Deferred income taxes
Inventories
Consolidated Statement of Shareholders’ Equity
Attributable to Johnson Controls, Inc.
Retained earnings at September 30, 2010
Retained earnings at September 30, 2011
Previously
Reported
2011
Revised
Effect of
Change
$
$
$
$
27,675 $
6,058
1,789
257
1,532
1,415
2.09
2.06
27,674 $
6,059
1,790
258
1,532
1,415
2.09
2.06
1,532 $
1,382
1,532 $
1,382
1,415 $
1,532
(257 )
(387 )
1,415 $
1,532
(256 )
(388 )
(1 )
1
1
1
—
—
—
—
—
—
—
—
1
(1 )
6,890 $
7,838
7,002 $
7,950
112
112
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, 2013 and 2012 , the Company recorded within the consolidated statements of financial position
approximately $259 million and $382 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, 2013 and 2012 , approximately $99 million and $113 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, 2013 and 2012 , the Company recorded within the consolidated statements of financial position in other current assets
approximately $297 million and $284 million , respectively, of costs for molds, dies and other tools for which customer reimbursement is
contractually assured.
64
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.
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 or estimated sales price 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 Measurement.”
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 2013 indicated that the estimated fair value of the Automotive Experience Interiors reporting unit
did not exceed its corresponding carrying amount including recorded goodwill, and an impairment existed. No other reporting unit was
determined to be at risk of failing step one of the goodwill impairment test as the impairment testing performed indicated that the estimated fair
value of each reporting unit substantially exceeded its corresponding carrying amount including recorded goodwill at September 30, 2013. No
impairments existed at September 30, 2012 and 2011.
Refer to Note 6, "Goodwill and Other Intangible Assets," of the notes to consolidated financial statements for further information regarding the
goodwill impairment charge recorded in the fourth quarter of fiscal 2013.
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, 2013, 2012 and 2011, 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 17, “Impairment of Long-Lived Assets,” of
the notes to consolidated financial statements for disclosure of the impairment analyses performed by the Company during fiscal 2013 , 2012 and
2011 .
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 primarily within accounts
receivable and billings in excess of costs and earnings on uncompleted contracts primarily within other current liabilities in the consolidated
statements of financial position. Costs and earnings in excess of billings related
65
to these contracts were $489 million and $531 million at September 30, 2013 and 2012 , respectively. Billings in excess of costs and earnings
related to these contracts were $263 million and $321 million at September 30, 2013 and 2012 , respectively.
Revenue Recognition
The Company’s Building Efficiency business recognizes revenue from certain long-term contracts over the contractual period under the
percentage-of-completion (POC) method of accounting. This method of accounting recognizes sales and gross profit as work is performed based
on the relationship between actual costs incurred and total estimated costs at completion. Recognized revenues that will not be billed under the
terms of the contract until a later date are recorded primarily in accounts receivable. Likewise, contracts where billings to date have exceeded
recognized revenues are recorded primarily 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, 2013 , 2012 and 2011 were $1,006 million , $1,025 million and $876 million , respectively.
A portion of the costs associated with these activities is reimbursed by customers and, for the fiscal years ended September 30, 2013 , 2012 and
2011 were $448 million , $516 million and $366 million , respectively.
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 and unvested restricted stock. See
Note 13, “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 transaction gains (losses), net of the impact of foreign currency hedges, included in net income for the years ended September 30,
2013 , 2012 and 2011 were $(25) million , $12 million and $(22) million , respectively.
66
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 10, “Derivative Instruments and Hedging Activities,” and Note 11, “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
The Company utilizes a mark-to-market approach for recognizing pension and postretirement benefit expenses, including measuring the market
related value of plan assets at fair value and recognizing actuarial gains and losses in the fourth quarter of each fiscal year or at the date of a
remeasurement event. Refer to Note 15, "Retirement Plans," of the notes to consolidated financial statements for disclosure of the Company's
pension and postretirement benefit plans.
Retrospective Changes
In addition to the change in inventory costing method discussed in the "Inventories" section above, certain amounts in the prior years have been
revised to conform to the current year’s presentation.
Effective October 1, 2012, the Company reorganized the reportable segments within its Automotive Experience business to align with its new
management reporting structure and business activities. As a result of this change, Automotive Experience is comprised of three new reportable
segments for financial reporting purposes: Seating, Interiors and Electronics. Historical information has been revised to reflect the new
Automotive Experience reportable segment structure. Refer to Note 6, “Goodwill and Other Intangible Assets,” and Note 19, “Segment
Information,” of the notes to consolidated financial statements for further information.
In January 2013, the Company’s shareholders approved a restatement of the Company’s articles of incorporation that included the simplification
of the par value of the Company’s common stock by changing the par value from $0.01 7/18 per share to $1.00 per share. This change resulted
in an increase to common stock and corresponding reduction in capital in excess of par value in the consolidated statements of financial position
and is reported through retrospective application of the new par value for all periods presented.
The net gains related to business divestitures are now included in the gain on business divestitures - net line within the consolidated statements
of income. In the prior year, net gains related to business divestitures were included in the selling, general and administrative expenses line.
New Accounting Pronouncements
In July 2013, the FASB issued Accounting Standards Update (ASU) No. 2013-11, "Income Taxes (Topic 740): Presentation of an Unrecognized
Tax Benefit When a Net Operating Loss Carryforward, a similar Tax Loss, or a Tax Credit Carryforward Exists." ASU No. 2013-11 clarifies that
companies should present an unrecognized tax benefit as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax
loss or a tax credit carryforward. ASU No. 2013-11 will be effective prospectively for the Company for the quarter ending December 31, 2014,
with early adoption permitted. The Company is currently assessing the impact on its consolidated statement of financial position; however, the
adoption of this guidance will have no impact on the Company's consolidated results of operations.
In March 2013, the FASB issued ASU No. 2013-05, "Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative
Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign
Entity." ASU No. 2013-05 clarifies when companies should release the cumulative translation adjustment (CTA) into net income when a parent
either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets
within a foreign entity. Additionally, ASU No. 2013-05 states that CTA should be released into net income upon an acquirer obtaining control of
an acquiree in which it held an equity interest immediately before the acquisition date (step acquisition). ASU No. 2013-05 will be effective
prospectively for the Company for the quarter ending
67
December 31, 2014, with early adoption permitted. The significance of this guidance for the Company is dependent on any future derecognition
events involving the Company's foreign entities.
In February 2013, the FASB issued ASU No. 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of
Accumulated Other Comprehensive Income." ASU No. 2013-02 requires companies to provide information about the amounts reclassified out of
accumulated other comprehensive income by component. Additionally, companies are required to disclose these reclassifications by each
respective line item on the statements of income. ASU No. 2013-02 is effective for the Company for the quarter ended December 31, 2013,
though the Company has early adopted as permitted. The adoption of this guidance had no impact on the Company's consolidated financial
condition or results of operations. Refer to Note 14, "Equity and Noncontrolling Interests," of the notes to consolidated financial statements for
disclosures regarding other comprehensive income.
In July 2012, the FASB issued 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 asset is impaired, then the Company is not
required to take further action. ASU No. 2012-02 is effective for the Company for impairment tests of indefinite-lived intangible assets
performed in the current fiscal year. The adoption of this guidance had no impact on the Company’s consolidated financial condition or 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 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 or results of operations.
In September 2011, the FASB issued ASU No. 2011-08, “Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment.”
ASU No. 2011-08 provides companies an option to perform a qualitative assessment to determine whether further goodwill impairment testing is
necessary. If, as a result of the qualitative assessment, it is determined that it is more likely than not that a reporting unit’s fair value is less than
its carrying amount, the two-step quantitative impairment test is required. Otherwise, no further testing is required. ASU No. 2011-08 is effective
for the Company for goodwill impairment tests performed in the current fiscal year. The adoption of this guidance had no impact on the
Company’s consolidated financial condition or 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 was effective for the Company for the quarter ended December 31, 2012. The adoption
of this guidance had no impact on the Company’s consolidated financial condition or results of operations. Refer to the consolidated statements
of comprehensive income (loss) and Note 14, “Equity and Noncontrolling Interests,” of the notes to consolidated financial statements for
disclosures regarding other comprehensive income.
2.
ACQUISITIONS AND DIVESTITURES
During fiscal 2013, the Company completed three acquisitions for a combined purchase price, net of cash acquired, of $123 million , all of
which was paid as of September 30, 2013. 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 $266 million . The purchase price allocations may be
subsequently adjusted to reflect final valuation studies. Two of the acquisitions increased the Company's ownership from a noncontrolling to
controlling interest. As a result, the Company recorded a combined non-cash gain of $106 million in Automotive Experience Seating equity
income to adjust the Company's existing equity investments to fair value.
During the fourth quarter of fiscal 2013, the Company completed its divestiture of its Automotive Experience Electronics' HomeLink® product
line to Gentex Corporation. The selling price was $701 million , all of which was received as of September 30, 2013. In connection with the
HomeLink® product line divestiture, the Company recorded a gain, net of transaction costs, of $476 million and reduced goodwill by $177
million in the Automotive Experience Electronics segment. The continuing process to sell the remainder of the Automotive Experience
Electronics business is progressing, and the business is classified as held for sale in the consolidated statement of financial position as of
September 30, 2013. Refer to Note 3, "Assets and Liabilities Held for Sale," of the notes to consolidated financial statements for further
disclosure related to the Company's assets and liabilities held for sale.
68
Also during fiscal 2013, the Company completed two additional divestitures for a combined sales price, net of cash transferred, of $60 million ,
all of which was received as of September 30, 2013. The divestitures were not material to the Company's consolidated financial statements. In
connection with the divestitures, the Company recorded a gain of $29 million and reduced goodwill by $15 million in the Automotive
Experience Seating segment, and recorded a loss, net of transaction costs, of $22 million in the Building Efficiency Other segment.
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 Seating equity
income, to adjust the Company’s existing equity investments in the partially-owned affiliates to fair value.
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 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 Seating
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 Seating 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 Electronics 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.
There were no business divestitures for the year ended September 30, 2011.
69
3. ASSETS AND LIABILITIES HELD FOR SALE
At September 30, 2013 , the Company determined that certain of its businesses met the criteria to be classified as held for sale. The Automotive
Experience Electronics segment and certain product lines of the Automotive Experience Interiors segment are classified as held for sale as of
September 30, 2013.
The following table summarizes the carrying value of the assets and liabilities held for sale (in millions):
Cash and cash equivalents
Accounts receivable
Inventories
Other current assets
Property, plant and equipment - net
Goodwill
Other intangibles assets - net
Investments in partially-owned affiliates
Other noncurrent assets
Assets held for sale
Short-term debt
Accounts payable
Accrued compensation and benefits
Other current liabilities
Pension and postretirement benefits
Other noncurrent liabilities
Liabilities held for sale
September 30,
2013
4
197
124
91
167
74
57
26
64
804
5
253
46
84
13
1
402
$
$
$
$
Assets and liabilities classified as held for sale were required to be recorded at the lower of carrying value or fair value less any costs to sell.
Accordingly, the Company recorded an impairment charge of $41 million within restructuring and impairment costs in the consolidated
statement of income related to certain product lines of the Automotive Experience Interiors segment. Refer to Note 17, “Impairment of Long-
Lived Assets” of the notes to consolidated financial statements for further information regarding the impairment charge. The divestiture of the
businesses held for sale could result in a gain or loss on sale to the extent the ultimate selling price differs from the current carrying value of the
net assets recorded.
The Automotive Experience Electronics business does not meet the criteria to be classified as a discontinued operation at September 30, 2013
primarily due to the uncertainty regarding the Company’s potential continuing involvement in these operations following a divestiture. The
Automotive Experience Interiors product lines classified as held for sale are immaterial to the Company individually and in the aggregate and do
not constitute a distinguishable business in order to be classified as a discontinued operation.
70
4. INVENTORIES
Inventories consisted of the following (in millions):
Raw materials and supplies
Work-in-process
Finished goods
Inventories
September 30,
2013
2012
$
$
1,086 $
459
780
2,325 $
1,144
397
802
2,343
In the fourth quarter of fiscal 2013, the Company changed its method of inventory costing for certain inventory in its Power Solutions business
to the first-in first-out (FIFO) method from the last-in first-out (LIFO) method. Refer to Note 1, “Summary of Significant Accounting Policies,”
of the notes to consolidated financial statements for discussion of the Company’s change in accounting method.
5. 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,
2013
2012
$
$
3,046 $
8,189
1,441
374
13,050
(6,465 )
6,585 $
2,716
7,827
1,722
375
12,640
(6,200 )
6,440
Interest costs capitalized during the fiscal years ended September 30, 2013 , 2012 and 2011 were $42 million , $55 million and $34 million ,
respectively. Accumulated depreciation related to capital leases at September 30, 2013 and 2012 was $44 million and $56 million , respectively.
71
6. 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, 2013 and
2012 were as follows (in millions):
September 30,
2011
Business
Acquisitions
Business
Divestitures Impairments
Currency
Translation and
Other
September 30,
2012
Building Efficiency
North America Systems
North America Service
Global Workplace Solutions
Asia
Other
Automotive Experience
Seating
Interiors
Electronics
Power Solutions
Total
$
$
519 $
710
184
391
1,065
2,505
387
251
1,004
7,016 $
— $
—
—
—
—
34
—
—
45
79 $
— $
(2 )
—
—
(32 )
—
—
—
—
(34 ) $
— $
—
—
—
—
—
—
—
—
— $
2 $
—
3
5
(39 )
(55 )
15
(1 )
(9 )
(79 ) $
521
708
187
396
994
2,484
402
250
1,040
6,982
September 30,
2012
Business
Acquisitions
Business
Divestitures Impairments
Currency
Translation and
Other
September 30,
2013
Building Efficiency
North America Systems
North America Service
Global Workplace Solutions
Asia
Other
Automotive Experience
Seating
Interiors
Electronics
Power Solutions
Total
$
$
521 $
708
187
396
994
2,484
402
250
1,040
6,982 $
— $
—
79
—
—
187
—
—
—
266 $
— $
—
—
—
—
(15 )
—
(251 )
—
(266 ) $
— $
—
—
—
—
—
(430 )
—
—
(430 ) $
(1 ) $
—
(9 )
(8 )
9
3
28
1
14
37 $
520
708
257
388
1,003
2,659
—
—
1,054
6,589
The fiscal 2013 Automotive Experience Electronics business divestitures amount includes $74 million of goodwill transferred to assets held for
sale on the consolidated statement of financial position. Refer to Note 3, "Assets and Liabilities Held for Sale," of the notes to consolidated
financial statements for further information regarding the Company's disposal groups classified as held for sale.
Based on a combination of factors, including the recent operating results of the Automotive Experience Interiors business, restrictions on future
capital and restructuring funding, and the Company's announced intention to explore strategic options related to this business, the Company's
forecasted cash flow estimates used in the goodwill assessment were negatively impacted as of September 30, 2013. As a result, the Company
concluded that the carrying value of the Interiors reporting unit exceeded its fair value as of September 30, 2013. The Company recorded a
goodwill impairment charge of $430 million in the fourth quarter of fiscal 2013, which was determined by comparing the carrying value of the
reporting unit's goodwill with the implied fair value of goodwill for the reporting unit. The assumptions included in the impairment test require
judgment, and changes to these inputs could impact the results of the calculation. Other than management's internal projections of future cash
flows, the primary assumptions used in the impairment test were the weighted-average cost of capital and long-term growth rates. Although the
Company's cash flow forecasts are based on assumptions that are considered reasonable by management and consistent with the
72
plans and estimates management is using to operate the underlying business, there is significant judgment in determining the expected future
cash flows attributable to the Interiors business. The impairment charge is a non-cash expense that was recorded within restructuring and
impairment costs on the consolidated statement of income and did not adversely affect the Company's debt position, cash flow, liquidity or
compliance with financial covenants.
The Company’s other intangible assets, primarily from business acquisitions valued based on independent appraisals, 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, 2013
September 30, 2012
Gross
Carrying
Amount
Accumulated
Amortization
Net
Gross
Carrying
Amount
Accumulated
Amortization
Net
$
$
92 $
537
336
965
316
1,281 $
(53 ) $
(138 )
(91 )
(282 )
—
(282 ) $
39 $
399
245
683
188 $
517
204
909
316
999 $
315
1,224 $
(113 ) $
(117 )
(47 )
(277 )
—
(277 ) $
75
400
157
632
315
947
Amortization of other intangible assets for the fiscal years ended September 30, 2013 , 2012 and 2011 was $75 million , $56 million and $53
million , respectively. Excluding the impact of any future acquisitions, the Company anticipates amortization for fiscal 2014 , 2015 , 2016 , 2017
and 2018 will be approximately $73 million , $73 million , $67 million , $62 million and $57 million , respectively.
7. 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, including extended warranties for which deferred revenue
is recorded, for the fiscal years ended September 30, 2013 and 2012 were as follows (in millions):
Balance at beginning of period
Accruals for warranties issued during the period
Accruals from acquisitions and divestitures (1)
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
Year Ended
September 30,
2013
2012
$
$
278 $
272
(5 )
(14 )
(275 )
—
256 $
301
224
(1 )
(21 )
(221 )
(4 )
278
(1) Fiscal 2013 includes $2 million of product warranties transferred to liabilities held for sale on the consolidated statement of financial
position. Refer to Note 3, "Assets and Liabilities Held for Sale," of the notes to consolidated financial statements for further information
regarding the Company's disposal groups classified as held for sale.
73
8. 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 $79 million and $96 million at September 30, 2013 and 2012 , 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, 2013 , 2012 and 2011 was $470 million , $454 million and $424 million , respectively.
Future minimum capital and operating lease payments and the related present value of capital lease payments at September 30, 2013 were as
follows (in millions):
2014
2015
2016
2017
2018
After 2018
Total minimum lease payments
Interest
Present value of net minimum lease payments
9. DEBT AND FINANCING ARRANGEMENTS
Short-term debt consisted of the following (in millions):
Capital
Leases
Operating
Leases
$
$
13 $
11
8
7
14
25
78 $
(13 )
65
300
244
138
95
60
71
908
Bank borrowings and commercial paper
Weighted average interest rate on short-term debt outstanding
$
$
119
4.6 %
323
2.5 %
September 30,
2013
2012
During fiscal 2013, the Company replaced its $2.5 billion committed four -year credit facility, scheduled to mature in February 2015, with a $2.5
billion committed five -year credit facility scheduled to mature in August 2018. 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, 2013 and 2012. Average
outstanding commercial paper for the fiscal year ended September 30, 2013 was $1,123 million , and there was none outstanding at
September 30, 2013. 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.
74
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)
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,
2013
2012
$
$
— $
—
350
452
125
802
159
400
46
498
497
448
395
299
250
125
65
426
42
5,379
819
4,560 $
100
310
350
456
125
800
162
400
46
498
497
447
395
299
250
125
80
377
28
5,745
424
5,321
At September 30, 2013 , the Company’s euro-denominated long-term debt was at fixed rates with a weighted-average interest rate of 3.1% . 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% .
The installments of long-term debt maturing in subsequent fiscal years are: 2014 - $819 million ; 2015 - $254 million ; 2016 - $808 million ;
2017 - $885 million ; 2018 - $19 million ; 2019 and thereafter - $2,594 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, 2013 , 2012 and 2011 was $290 million , $283
million and $216 million , respectively. The Company uses financial instruments to manage its interest rate exposure (see Note 10, “Derivative
Instruments and Hedging Activities,” and Note 11, “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, 2013, two 50 million euro revolving credit facilities and a 37 million euro revolving credit facility
expired. The Company entered into two new 50 million euro revolving credit facilities scheduled to expire in August and September 2014. The
Company also entered into a new 37 million euro revolving credit facility scheduled to expire in September 2014. There were no draws on the
facilities during fiscal 2013.
During the quarter ended September 30, 2013 a $50 million revolving credit facility expired. The Company entered into a new $50 million
revolving credit facility scheduled to expire in September 2014. There were no draws on this facility during fiscal 2013.
75
During the quarter ended September 30, 2013, the Company retired $300 million in principal amount, plus accrued interest, of its 4.875% fixed
rate notes that matured September 2013. The Company used cash to fund the payment.
During the quarter ended September 30, 2013, the Company made a partial repayment of 43 million euro, plus accrued interest, of its 100
million euro floating rate credit facility scheduled to mature in February 2017. The Company used cash to fund the payment.
During the quarter ended December 31, 2012, a $35 million and a $100 million committed revolving credit facility expired. The Company
entered into a new $35 million committed revolving credit facility scheduled to expire in November 2013 and a new $100 million committed
revolving credit facility scheduled to expire in December 2013. As of September 30, 2013, there were no draws on either facility.
During the quarter ended December 31, 2012, the Company entered into a five -year, 70 million euro, floating rate credit facility scheduled to
mature in fiscal 2018. The Company drew on the credit facility during the quarter ended December 31, 2012. Proceeds from the facility were
used for general corporate purposes.
During the quarter ended December 31, 2012, the Company retired $100 million in principal amount, plus accrued interest, of its 5.8% fixed rate
notes that matured November 2012. The Company used cash to fund the payment.
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 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.
Net Financing Charges
The Company's net financing charges line item in the consolidated statements of income for the years ended September 30, 2013, 2012 and 2011
contained the following components (in millions):
Interest expense, net of capitalized interest costs
Banking fees and bond cost amortization
Interest income
Net foreign exchange results for financing activities
Net financing charges
Year Ended September 30,
2012
2011
2013
$
$
256 $
21
(19 )
(10 )
248 $
239 $
21
(17 )
(10 )
233 $
186
27
(8 )
(31 )
174
76
10. 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 11, “Fair Value Measurements,” of the notes to
consolidated financial statements for information related to the fair value measurements and valuation methods utilized by the Company for each
derivative type.
The Company has global operations and participates in the foreign exchange markets to minimize its risk of loss from fluctuations in foreign
currency exchange rates. The Company primarily uses foreign currency exchange contracts to hedge certain of its foreign exchange rate
exposures. The Company hedges 70% to 90% of the nominal amount of each of its known foreign exchange transactional exposures.
The Company has entered into cross-currency interest rate swaps to selectively hedge portions of its net investment in Japan. The currency
effects of the cross-currency interest rate swaps are reflected in the accumulated other comprehensive income (AOCI) account within
shareholders’ equity attributable to Johnson Controls, Inc. where they offset gains and losses recorded on the Company’s net investment in
Japan. At September 30, 2013 the Company had five cross-currency interest rate swaps outstanding totaling 25 billion yen. At September 30,
2012 , 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 statements 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
Units
September 30, 2013
September 30, 2012
Volume Outstanding as of
Copper
Lead
Aluminum
Tin
Pounds
Metric Tons
Metric Tons
Metric Tons
14,705,000
23,900
2,709
2,052
13,135,000
21,200
2,868
1,344
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, 2013 and 2012 , the Company had hedged approximately 4.4
million and 4.5 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 statements 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% notes which matured on
November 15, 2012, two fixed to floating interest rate swaps totaling $300 million to hedge the coupon of its 4.875% notes which matured on
September 15, 2013 and five fixed to floating interest rate swaps totaling $450 million to hedge the coupon of its 1.75% notes maturing March 1,
2014. In the fourth quarter of fiscal 2013, the Company entered into a fixed to floating interest rate swap totaling approximately $125 million to
hedge the coupon of its 7.70% notes maturing March 1, 2015. Additionally, in the fourth quarter of fiscal 2013, the Company entered into four
fixed to floating interest rate swaps totaling $800 million to hedge the coupon of its 5.50% notes maturing January 15, 2016. There were ten
interest rate swaps outstanding as of September 30, 2013 and eight interest rate swaps outstanding as of September 30, 2012 .
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
77
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.
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
Total assets
Other current liabilities
Foreign currency exchange derivatives
Commodity derivatives
Current portion of long-term debt
Fixed rate debt swapped to floating
Long-term debt
Fixed rate debt swapped to floating
Total liabilities
Derivatives and Hedging Activities
Designated as Hedging Instruments
under ASC 815
Derivatives and Hedging Activities Not
Designated as Hedging Instruments
under ASC 815
September 30,
2013
September 30,
2012
September 30,
2013
September 30,
2012
$
$
$
$
19 $
8
2
7
3
—
39 $
21 $
3
452
927
1,403 $
14 $
11
2
1
6
—
34 $
17 $
—
401
456
874 $
14 $
—
—
—
—
183
197 $
11 $
—
—
—
11 $
8
—
—
—
—
123
131
9
—
—
—
9
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,
2013 and 2012 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
Location of Gain (Loss)
Reclassified from AOCI into Income
Foreign currency exchange derivatives
Commodity derivatives
Forward treasury locks
Total
Cost of sales
Cost of sales
Net financing charges
$
$
Amount of Gain (Loss) Reclassified from AOCI into Income
Year Ended September 30,
2013
2012
1 $
2
2
5 $
(19 )
(25 )
2
(42 )
Derivatives in ASC 815 Cash Flow Hedging
Relationships
Foreign currency exchange derivatives
Commodity derivatives
Forward treasury locks
Total
$
$
Amount of Gain (Loss) Recognized in AOCI on Derivative
September 30, 2013
September 30, 2012
(3 ) $
3
7
7 $
78
(3 )
7
8
12
Derivatives in ASC 815 Fair Value Hedging
Relationships
Location of Gain (Loss)
Recognized in Income on Derivative
Interest rate swap
Fixed rate debt swapped to floating
Total
Net financing charges
Net financing charges
Derivatives Not Designated as Hedging
Instruments under ASC 815
Location of Gain (Loss)
Recognized in Income on Derivative
Foreign currency exchange derivatives
Foreign currency exchange derivatives
Foreign currency exchange derivatives
Equity swap
Total
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,
2013
2012
(2 ) $
2
— $
Amount of Gain (Loss) Recognized in Income on Derivative
Year Ended September 30,
2013
2012
(8 ) $
25
(5 )
65
77 $
(8 )
9
1
23
(19 )
1
6
11
$
$
$
$
The amount of gains recognized in cumulative translation adjustment (CTA) within AOCI on the effective portion of outstanding net investment
hedges was $4 million and $1 million at September 30, 2013 and 2012 , respectively. For the years ended September 30, 2013 and 2012 , 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.
11. FAIR VALUE MEASUREMENTS
ASC 820, “Fair Value Measurement,” 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.
79
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, 2013
and 2012 (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
Investments in marketable common stock
Equity swap
Total assets
Other current liabilities
Foreign currency exchange derivatives
Commodity derivatives
Current portion of long-term debt
Fixed rate debt swapped to floating
Long-term debt
Fixed rate debt swapped to floating
Total liabilities
$
$
$
$
Fair Value Measurements Using:
Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total as of
September 30, 2013
— $
—
—
—
—
30
183
213 $
— $
—
—
—
— $
33 $
8
2
7
3
—
—
53 $
32 $
3
452
927
1,414 $
—
—
—
—
—
—
—
—
—
—
—
—
—
33 $
8
2
7
3
30
183
266 $
32 $
3
452
927
1,414 $
80
Fair Value Measurements Using:
Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total as of
September 30, 2012
22 $
11
2
1
6
32
123
197 $
26 $
401
456
883 $
— $
—
—
—
—
32
123
155 $
— $
—
—
— $
22 $
11
2
1
6
—
—
42 $
26 $
401
456
883 $
—
—
—
—
—
—
—
—
—
—
—
—
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
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,
2013 and 2012 . The fair value of foreign currency exchange derivatives not designated as hedging instruments under ASC 815 are recorded in
the consolidated statements 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 statements of income. These contracts were highly
effective in hedging the variability in future cash flows attributable to changes in commodity prices at September 30, 2013 and 2012 .
Interest rate swaps and related debt - The Company selectively uses interest rate swaps to reduce market risk associated with changes in interest
rates for its fixed-rate notes. As fair value hedges, the interest rate swaps and related debt balances are valued under a market approach using
publicized swap curves. Changes in the fair value of the swap and hedged portion of the debt are recorded in the consolidated statements 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 which matured on November 15, 2012, two fixed to floating interest rate swaps totaling $300 million to hedge the
coupon of its 4.875% notes which matured on September 15, 2013 and five fixed to floating interest rate swaps totaling $450 million to hedge
the coupon of its 1.75% notes maturing March 1, 2014. In the fourth quarter of fiscal 2013, the Company entered into a fixed to floating interest
rate swap totaling approximately $125 million to hedge the coupon of its 7.70% notes maturing March 1, 2015. Additionally, in the fourth
quarter of fiscal 2013, the Company entered into four fixed to floating interest rate swaps totaling $800 million to hedge the coupon of its 5.50%
notes
81
maturing January 15, 2016. There were ten interest rate swaps outstanding as of September 30, 2013 and eight interest rate swaps outstanding as
of September 30, 2012 .
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, 2013 , the Company had five
cross-currency interest rate swaps outstanding totaling 25 billion yen. At September 30, 2012 , 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, 2013 and 2012 , the Company recorded unrealized gains of $7 million and $5 million ,
respectively, in accumulated other comprehensive income. The Company recorded no unrealized losses in accumulated other comprehensive
income as of September 30, 2013 and 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 statements 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 $5.7 billion and $6.3 billion at September 30, 2013 and 2012 , respectively, was determined primarily
using market quotes classified as Level 1 inputs within the ASC 820 fair value hierarchy.
12. STOCK-BASED COMPENSATION
On January 23, 2013, the shareholders of the Company approved the Johnson Controls, Inc. 2012 Omnibus Incentive Plan (the "2012 Plan").
The types of awards authorized by the 2012 Plan comprise of stock options, stock appreciation rights, performance shares, performance units and
other stock-based awards. The Compensation Committee of the Company's Board of Directors will determine the types of awards to be granted
to individual participants and the terms and conditions of the awards. The 2012 Plan provides that 37 million shares of the Company's common
stock are reserved for issuance under the 2012 Plan, and 36 million shares remained available for issuance at September 30, 2013.
Prior to shareholder approval of the 2012 Plan, the Company maintained the Johnson Controls, Inc. 2007 Stock Option Plan and the Johnson
Controls, Inc. 2001 Restricted Stock Plan (the "Existing Plans"). The Existing Plans terminated on January 23, 2013 as a result of shareholder
approval of the 2012 Plan, ending the authority to grant new awards under the Existing Plans. All awards under the Existing Plans that were
outstanding as of January 23, 2013 continue to be governed by the Existing Plans. Pursuant to the Existing Plans, all forfeitures under such plans
will be deposited into the reserve for the 2012 Plan.
The Company has four share-based compensation plans, which are described below. The compensation cost charged against income, excluding
the offsetting impact of outstanding equity swaps, for those plans was approximately $91 million , $55 million and $47 million for the fiscal
years ended September 30, 2013 , 2012 and 2011 , respectively. The total income tax benefit recognized in the consolidated statements of
income for share-based compensation arrangements was approximately $36 million , $22 million and $19 million for the fiscal years ended
September 30, 2013 , 2012 and 2011 , 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 Options
Stock options are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Stock option awards
typically vest between two and three years after the grant date and expire ten years from the grant date.
The fair value of each option 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.
82
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
2013
5.0 - 6.7
0.62% - 1.33%
41.00%
2.03%
Year Ended September 30,
2012
4.8 - 6.4
0.54% - 1.61%
40.00%
1.81%
2011
4.5 - 6.0
1.10% - 1.58%
38.00%
1.74%
A summary of stock option activity at September 30, 2013 , and changes for the year then ended, is presented below:
Outstanding, September 30, 2012
Granted
Exercised
Forfeited or expired
Outstanding, September 30, 2013
Exercisable, September 30, 2013
Weighted
Average
Option Price
$
$
$
26.39
27.96
22.10
30.03
28.25
27.97
Shares
Subject to
Option
36,468,503
5,554,690
(11,576,924 )
(1,042,988 )
29,403,281
17,699,011
Weighted
Average
Remaining
Contractual
Life (years)
Aggregate
Intrinsic
Value
(in millions)
5.9
4.4
$
$
390
239
The weighted-average grant-date fair value of options granted during the fiscal years ended September 30, 2013 , 2012 and 2011 was $8.58 ,
$8.92 and $9.09 , respectively.
The total intrinsic value of options exercised during the fiscal years ended September 30, 2013 , 2012 and 2011 was approximately $154
million , $19 million and $101 million , respectively.
In conjunction with the exercise of stock options granted, the Company received cash payments for the fiscal years ended September 30, 2013 ,
2012 and 2011 of approximately $254 million , $40 million and $105 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 $35 million , $3 million and $30 million for the fiscal years ended
September 30, 2013 , 2012 and 2011 , respectively. The Company does not settle stock options granted under share-based payment arrangements
for cash.
At September 30, 2013 , the Company had approximately $36 million of total unrecognized compensation cost related to nonvested stock
options granted. That cost is expected to be recognized over a weighted-average period of 1.6 years.
Stock Appreciation Rights (SARs)
SARs vest under the same terms and conditions as stock 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 stock options. 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.
83
The assumptions used to determine the fair value of the SAR awards at September 30, 2013 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 - 3.3
0.02% - 0.74%
41.00%
2.03%
A summary of SAR activity at September 30, 2013 , and changes for the year then ended, is presented below:
Outstanding, September 30, 2012
Granted
Exercised
Forfeited or expired
Outstanding, September 30, 2013
Exercisable, September 30, 2013
Weighted
Average
SAR Price
$
$
$
26.93
27.85
23.67
28.42
27.94
27.44
Shares
Subject to
SAR
3,775,878
1,018,650
(923,570 )
(126,167 )
3,744,791
1,884,356
Weighted
Average
Remaining
Contractual
Life (years)
Aggregate
Intrinsic
Value
(in millions)
6.3
4.3
$
$
51
27
In conjunction with the exercise of SARs granted, the Company made payments of $11 million , $2 million and $4 million during the fiscal years
ended September 30, 2013 , 2012 and 2011 , respectively.
Restricted (Nonvested) Stock
The 2012 Plan provides for the award of restricted stock or restricted stock units to certain key employees. These awards are typically share
settled unless the employee is a non-U.S. employee or elects to defer settlement until retirement at which point the award would be settled in
cash. Restricted awards typically vest 50% after two years from the grant date and 50% after four years from the grant date. The 2012 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, 2013 , and changes for the fiscal year then ended,
is presented below:
Nonvested, September 30, 2012
Granted
Vested
Forfeited
Nonvested, September 30, 2013
Weighted
Average
Price
Shares/Units
Subject to
Restriction
$
$
30.46
30.14
36.85
28.74
29.18
997,059
515,700
(233,150 )
(37,750 )
1,241,859
At September 30, 2013 , the Company had approximately $16 million of total unrecognized compensation cost related to nonvested restricted
stock arrangements granted. That cost is expected to be recognized over a weighted-average period of 2.7 years.
Performance Share Awards
The 2012 Plan permits the grant of performance-based share unit ("PSU") awards. The number of PSUs granted is equal to the PSU award value
divided by the closing price of the Company's common stock at the grant date. The PSUs are generally contingent on the achievement of pre-
determined performance goals over a three-year performance period as well as on the award holder's continuous employment until the vesting
date. Each PSU that is earned will be settled with a share of the Company's common stock following the completion of the performance period,
unless the award holder elected to defer a portion or all of the award until retirement which would then be settled in cash.
84
A summary of the status of the Company’s nonvested PSUs at September 30, 2013 , and changes for the fiscal year then ended, is presented
below:
Nonvested, September 30, 2012
Granted
Forfeited
Nonvested, September 30, 2013
Weighted
Average
Price
Shares/Units
Subject to
PSU
$
$
—
30.73
30.73
30.73
—
547,800
(6,100 )
541,700
At September 30, 2013 , the Company had approximately $19 million of total unrecognized compensation cost related to nonvested PSUs
granted. That cost is expected to be recognized over a weighted-average period of 2.0 years.
13. 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 and unvested restricted stock. 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. For unvested restricted stock, assumed proceeds under the treasury stock
method would include unamortized compensation cost and windfall tax benefits or shortfalls.
The Company’s outstanding Equity Units due 2042 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 is added back to the numerator in
calculating diluted earnings per share.
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 and unvested restricted stock
Equity units
Diluted weighted average shares outstanding
Antidilutive Securities
Options to purchase common shares
$
$
2013
Year Ended September 30,
2012
2011
1,178 $
—
1,178 $
683.7
5.5
—
689.2
1,184 $
1
1,185 $
681.5
5.2
1.9
688.6
1,415
3
1,418
677.7
8.1
4.1
689.9
0.8
1.4
0.3
During the three months ended September 30, 2013 and 2012 , the Company declared a dividend of $0.19 and $0.18 , respectively, per common
share. During the twelve months ended September 30, 2013 and 2012 , the Company declared four quarterly dividends totaling $0.76 and $0.72 ,
respectively, per common share. With the exception of the quarterly dividend declared and paid in the three months ended December 31, 2012,
the Company paid all dividends in the month subsequent to the end of each fiscal quarter.
85
14. 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
$
10,183 $
106 $
10,289
At September 30, 2010 (revised)
Total comprehensive income:
Net income
Foreign currency translation adjustments
Realized and unrealized losses on derivatives
Unrealized gains on marketable common stock
Pension and postretirement 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
Change 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
Pension and postretirement 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
Total comprehensive income:
Net income
Foreign currency translation adjustments
Realized and unrealized losses on derivatives
Unrealized gains on marketable common stock
Pension and postretirement plans
Other comprehensive loss
Comprehensive income
Other changes in equity:
Cash dividends - common stock ($0.76 per share)
Dividends attributable to noncontrolling interests
Redemption value adjustment attributable to redeemable
noncontrolling interests
Repurchases of common stock
Change in noncontrolling interest share
Other, including options exercised
At September 30, 2013
$
1,415
(109 )
(47 )
3
4
(149 )
1,266
(435 )
—
(32 )
—
172
11,154
1,184
(221 )
39
(1 )
(8 )
(191 )
993
(492 )
—
(35 )
(102 )
107
11,625
1,178
(21 )
(5 )
2
(16 )
(40 )
1,138
(520 )
—
59
(350 )
—
362
12,314 $
53
(1 )
—
—
—
(1 )
52
—
(32 )
—
12
—
138
58
—
—
—
—
—
58
—
(48 )
—
—
—
148
71
—
—
—
—
—
71
—
(39 )
—
—
80
—
260 $
1,468
(110 )
(47 )
3
4
(150 )
1,318
(435 )
(32 )
(32 )
12
172
11,292
1,242
(221 )
39
(1 )
(8 )
(191 )
1,051
(492 )
(48 )
(35 )
(102 )
107
11,773
1,249
(21 )
(5 )
2
(16 )
(40 )
1,209
(520 )
(39 )
59
(350 )
80
362
12,574
86
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):
Year Ended September
30, 2013
Year Ended September
30, 2012
Year Ended September
30, 2011
Beginning balance, September 30
Net income
Foreign currency translation adjustments
Change in noncontrolling interest share
Dividends
Redemption value adjustment
Ending balance, September 30
$
$
253 $
48
1
(63 )
(23 )
(59 )
157 $
260 $
69
(1 )
(95 )
(15 )
35
253 $
196
64
—
(21 )
(11 )
32
260
The following schedules present changes in accumulated other comprehensive income (AOCI) attributable to Johnson Controls, Inc. (in millions,
net of tax):
Year Ended
September 30, 2013
Year Ended
September 30, 2012
Year Ended
September 30, 2011
Foreign currency translation adjustments
Balance at beginning of period
Aggregate adjustment for the period (net of tax effect of $19, $(15) and $(3))
Balance at end of period
$
413 $
(21 )
392
634 $
(221 )
413
Realized and unrealized gains (losses) on derivatives
Balance at beginning of period
Current period changes in fair value (net of tax effect of $(2), $9 and $(17))
Reclassification to income (net of tax effect of $(2), $17 and $(13)) *
Balance at end of period
Unrealized gains (losses) on marketable common stock
Balance at beginning of period
Current period changes in fair value (net of tax effect of $0, $(3) and $0)
Reclassifications to income (net of tax effect of $0) **
Balance at end of period
Pension and postretirement plans
Balance at beginning of period
Reclassification to income (net of tax effect of $(9), $(7) and $(1)) ***
Other changes (net of tax effect of $0)
Balance at end of period
12
(2 )
(3 )
7
5
2
—
7
28
(18 )
2
12
(27 )
14
25
12
6
(15 )
14
5
36
(10 )
2
28
743
(109 )
634
20
(28 )
(19 )
(27 )
3
3
—
6
32
(2 )
6
36
Accumulated other comprehensive income, end of period
$
418 $
458 $
649
* Refer to Note 10, "Derivative Instruments and Hedging Activities," of the notes to consolidated financial statements for disclosure of the line
items on the consolidated statements of income affected by reclassifications from AOCI into income related to derivatives.
** Refer to Note 11, "Fair Value Measurements," of the notes to consolidated financial statements for disclosure of the line item on the
consolidated statements of income affected by reclassifications from AOCI into income related to marketable common stock.
87
*** Refer to Note 15, "Retirement Plans," of the notes to consolidated financial statements for disclosure of the components of the Company's
net periodic benefit costs associated with its defined benefit pension and postretirement plans. For the year ended September 30, 2013, the
income reclassified from AOCI into income for pension and postretirement plans was split approximately evenly between cost of sales and
selling, general and administrative expenses on the consolidated statement of income. For the year ended September 30, 2012, the reclassified
income was primarily recorded in cost of sales. For the year ended September 30, 2011, approximately $8 million of reclassified income was
recorded in cost of sales, and approximately $6 million of reclassified expense was recorded in selling, general and administrative expenses.
15. RETIREMENT PLANS
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 $3,069 million , $2,981 million and $2,392 million , respectively, as of September 30, 2013 and $4,450
million , $4,242 million and $3,279 million , respectively, as of September 30, 2012 .
In fiscal 2013 , total employer and employee contributions to the defined benefit pension plans were $95 million , of which $1 million were
voluntary contributions made by the Company. The Company expects to contribute approximately $80 million in cash to its defined benefit
pension plans in fiscal 2014 . Projected benefit payments from the plans as of September 30, 2013 are estimated as follows (in millions):
2014
2015
2016
2017
2018
2019-2023
$
265
262
268
269
275
1,456
Postretirement Benefits
The Company provides certain health care and life insurance benefits for eligible retirees and their dependents primarily in the U.S. Most non-
U.S. employees are covered by government sponsored programs, and the cost to the Company is not significant.
Eligibility for coverage is based on meeting certain years of service and retirement age qualifications. These benefits may be subject to
deductibles, co-payment provisions and other limitations, and the Company has reserved the right to modify these benefits. Effective January 31,
1994, the Company modified certain salaried plans to place a limit on the Company’s cost of future annual retiree medical benefits at no more
than 150% of the 1993 cost.
The September 30, 2013 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 to one quarter percent each year to an ultimate rate of 5% and 7.25% 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 to one quarter percent each year to an ultimate rate of 5% and 8.15% for non-U.S. plans, decreasing
one fifth of one percent each year to an ultimate rate of 4.5% . The September 30, 2012 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 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 the non-U.S. plans, decreasing
one fifth of one percent each year to an ultimate rate of 4.5% . The health care cost trend assumption does not have a significant effect on the
amounts reported.
88
In fiscal 2013 , total employer and employee contributions to the postretirement plans were $13 million , of which $12 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 2014 . Projected benefit payments from the plans as of September 30, 2013 are estimated as follows (in millions):
$
2014
2015
2016
2017
2018
2019-2023
21
21
22
23
23
102
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 that allow employees to contribute a portion of their pre-tax and/or after-tax
income in accordance with plan specified guidelines. Under specified conditions, the Company will contribute to certain savings plans based on
the employees’ eligible pay and/or will match a percentage of the employee contributions up to certain limits. Matching contributions charged to
expense amounted to $118 million , $105 million and $105 million for the fiscal years ended 2013 , 2012 and 2011 , 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 2013 , 2012 and
2011 contributions. The Company recognizes expense for the contractually-required contribution for each period. The Company contributed $44
million , $47 million and $51 million to multiemployer benefit plans in fiscal 2013 , 2012 and 2011 , 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
89
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 to diversify
the expected investment returns relative to the equity and fixed income investments. As a result of our diversification strategies, there are no
significant concentrations of risk within the portfolio of investments.
The Company’s actual asset allocations are in line with target allocations. The Company rebalances asset allocations as appropriate, in order to
stay within a range of allocation for each asset category.
The expected return on plan assets is based on the Company’s expectation of the long-term average rate of return of the capital markets in which
the plans invest. The average market returns are adjusted, where appropriate, for active asset management returns. The expected return reflects
the investment policy target asset mix and considers the historical returns earned for each asset category.
90
The Company’s plan assets at September 30, 2013 and 2012 , by asset category, are as follows (in millions):
Fair Value Measurements Using:
Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total as of
September 30, 2013
$
30 $
30 $
— $
525
261
523
173
842
17
285
525
261
523
166
652
—
—
—
—
—
7
190
—
—
2,656 $
2,157 $
197 $
30 $
30 $
— $
132
371
31
376
531
6
89
90
132
269
31
376
531
6
—
81
—
102
—
—
—
—
—
—
1,656 $
1,456 $
102 $
10 $
10 $
— $
$
$
$
$
—
—
—
—
—
—
17
285
302
—
—
—
—
—
—
—
89
9
98
—
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
36
12
29
14
24
71
17
13
36
12
29
14
24
71
17
13
—
—
—
—
—
—
—
—
$
226 $
226 $
— $
91
—
—
—
—
—
—
—
—
—
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
Fair Value Measurements Using:
Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total as of
September 30, 2012
$
25 $
25 $
— $
781
324
617
685
219
94
240
781
324
617
685
219
—
—
—
—
—
—
—
—
—
2,985 $
2,651 $
— $
61 $
61 $
— $
134
383
46
334
540
12
56
91
134
383
46
334
540
12
—
83
—
—
—
—
—
—
—
—
1,657 $
1,593 $
— $
6 $
6 $
— $
35
35
—
$
$
$
$
—
—
—
—
—
—
94
240
334
—
—
—
—
—
—
—
56
8
64
—
—
Small-Cap
International - Developed
International - Emerging
Fixed Income Securities
Government
Corporate/Other
Commodities
Real Estate
Total
11
25
14
26
74
20
12
11
25
14
26
74
20
12
—
—
—
—
—
—
—
$
223 $
223 $
— $
92
—
—
—
—
—
—
—
—
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.
93
The following sets forth a summary of changes in the fair value of assets measured using significant unobservable inputs (Level 3) (in millions):
Total
Hedge Funds
Real Estate
U.S. Pension
Asset value as of September 30, 2011
Additions net of redemptions
Unrealized gain
Asset value as of September 30, 2012
Additions net of redemptions
Realized gain
Unrealized gain (loss)
Asset value as of September 30, 2013
Non-U.S. Pension
Asset value as of September 30, 2011
Additions net of redemptions
Unrealized gain
Asset value as of September 30, 2012
Additions net of redemptions
Unrealized gain
Asset value as of September 30, 2013
$
$
$
$
$
$
94
298 $
94 $
11
25
—
—
334 $
94 $
(74 )
32
10
(80 )
13
(10 )
302 $
17 $
7 $
— $
48
9
48
8
64 $
56 $
31
3
31
2
98 $
89 $
204
11
25
240
6
19
20
285
7
—
1
8
—
1
9
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,
2013
2012
2013
2012
2013
2012
Pension Benefits
U.S. Plans
Non-U.S. Plans
Postretirement
Benefits
Accumulated Benefit Obligation
$
2,839
$
3,586
$
1,905
$
1,904
$
—
$
—
Change in Projected Benefit Obligation
Projected benefit obligation at beginning of year
Service cost
Interest cost
Plan participant contributions
Acquisitions
Divestitures (1)
Actuarial (gain) loss
Amendments made during the year
Benefits and settlements paid
Estimated subsidy received
Curtailment
Other
Currency translation adjustment
3,736
90
151
—
—
—
(452 )
(2 )
(621 )
—
—
—
—
2,953
69
150
—
—
—
722
—
(158 )
—
—
—
—
2,025
38
64
5
2
(20 )
84
1
(176 )
—
(15 )
4
(15 )
1,852
41
73
6
6
(2 )
109
(6 )
(93 )
—
(2 )
41
—
266
5
11
6
—
—
(21 )
—
(22 )
1
—
—
(1 )
259
5
13
7
—
—
7
—
(31 )
2
—
2
2
Projected benefit obligation at end of year
$
2,902
$
3,736
$
1,997
$
2,025
$
245
$
266
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
$
$
$
2,985
282
—
—
10
(136 )
(485 )
—
—
$
2,372
504
—
—
267
(158 )
—
—
—
$
1,657
110
1
—
85
(64 )
(112 )
3
(24 )
$
1,471
155
—
(1 )
97
(74 )
(19 )
16
12
$
223
12
—
—
13
(22 )
—
—
—
156
35
—
—
63
(31 )
—
—
—
2,656
$
2,985
$
1,656
$
1,657
$
226
$
223
(246 ) $
(751 ) $
(341 ) $
(368 ) $
(19 ) $
(43 )
Amounts recognized in the statement of financial position consist of:
Prepaid benefit cost
Accrued benefit liability
$
$
29
(275 )
$
3
(754 )
$
83
(424 )
$
61
(429 )
$
51
(70 )
39
(82 )
Net amount recognized
$
(246 ) $
(751 ) $
(341 ) $
(368 ) $
(19 ) $
(43 )
Weighted Average Assumptions (2)
Discount rate (3)
Rate of compensation increase
4.90 %
3.30 %
4.15 %
3.25 %
3.60 %
2.60 %
3.40 %
2.40 %
4.90 %
NA
4.15 %
NA
95
(1)
Fiscal 2013 includes $14 million of projected benefit obligations transferred to liabilities held for sale on the consolidated statement of
financial position for non-U.S. plans. Refer to Note 3, "Assets and Liabilities Held for Sale," of the notes to consolidated financial
statements for further information regarding the Company's disposal groups classified as held for sale.
(2)
Plan assets and obligations are determined based on a September 30 measurement date at September 30, 2013 and 2012 .
(3)
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, 2013 are as follows (in millions):
Accumulated other comprehensive loss (income)
Net transition obligation
Net prior service credit
Total
Pension
Benefits
Postretirement
Benefits
$
$
1 $
(10 )
(9 ) $
—
(9 )
(9 )
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
Pension
Benefits
Postretirement
Benefits
— $
—
— $
—
(7 )
(7 )
$
$
96
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
2013
Pension Benefits
U.S. Plans
2012
2011
2013
Non-U.S. Plans
2012
2011
Postretirement Benefits
2012
2011
2013
Periodic Benefit Cost
(Credit):
Service cost
Interest cost
Expected return on plan
assets
Net actuarial (gain) loss
Amortization of prior
service cost (credit)
Curtailment gain
Settlement (gain) loss
Net periodic benefit cost
(credit)
Expense Assumptions:
Discount rate
Expected return on plan
assets
Rate of compensation
increase
$
$
90
151
69
150
$
$
66
145
$
38
64
$
41
73
$
34
70
$
5
11
$
5
13
(232 )
(433 )
(214 )
432
(203 )
336
1
—
(69 )
1
—
—
1
—
—
(71 )
48
(1 )
(26 )
(1 )
(75 )
30
(1 )
(2 )
—
(75 )
43
2
(19 )
4
(13 )
(20 )
(17 )
—
—
(11 )
(15 )
(17 )
—
—
5
13
—
5
(17 )
—
—
$
(492 ) $
438
$
345
$
51
$
66
$
59
$
(34 ) $
(25 ) $
6
4.15 %
5.25 %
5.50 %
3.40 %
4.00 %
4.00 %
4.15 %
5.25 %
5.50 %
8.00 %
8.50 %
8.50 %
4.55 %
5.15 %
5.50 %
5.80 %
6.30 %
3.25 %
3.30 %
3.20 %
2.45 %
2.45 %
3.00 %
NA
NA
NA
NA
16. SIGNIFICANT RESTRUCTURING AND IMPAIRMENT 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 in fiscal 2012 and recorded $297 million of significant
restructuring and impairment costs, of which $52 million was recorded in the third quarter and $245 million in the fourth quarter of fiscal 2012.
As a continuation of its restructuring plan announced in fiscal 2012, the Company recorded $985 million of significant restructuring and
impairment costs in fiscal 2013, of which $84 million was recorded in the second quarter, $143 million in the third quarter and $758 million in
the fourth quarter of fiscal 2013. The restructuring actions related to cost reduction initiatives in the Company’s Automotive Experience,
Building Efficiency and Power Solutions businesses and included workforce reductions, plant closures, and asset and goodwill impairments. 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 restructuring reserve, included within other current liabilities in the consolidated
statements of financial position (in millions):
Employee
Severance and
Termination
Benefits
Long-
Lived Asset
Impairments
Goodwill
Impairment
Other
Currency
Translation
Total
Original Reserve
Utilized—cash
Utilized—noncash
Balance at September 30, 2012
Additional restructuring and impairment
costs
Utilized—cash
Utilized—noncash
Transfer to liabilities held for sale
Balance at September 30, 2013
$
$
$
237 $
(16 )
—
221 $
392
(141 )
—
(31 )
441 $
39 $
—
(39 )
— $
156
—
(156 )
—
— $
— $
—
—
— $
430
—
(430 )
—
— $
21 $
(6 )
(8 )
7 $
7
(7 )
(4 )
—
3 $
—
—
—
— $
—
—
2
—
2 $
297
(22 )
(47 )
228
985
(148 )
(588 )
(31 )
446
97
The Company's restructuring plans included workforce reductions of approximately 16,700 employees ( 9,500 for the Automotive Experience
business, 6,200 for the Building Efficiency business and 1,000 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, 2013, approximately 6,300 of the employees have been separated from the Company
pursuant to the restructuring plans. In addition, the restructuring plans included twenty-one plant closures ( seventeen for Automotive
Experience, two for Building Efficiency and two for Power Solutions). As of September 30, 2013, five of the twenty-one plants have been
closed.
Refer to Note 17, “Impairment of Long-Lived Assets,” of the notes to consolidated financial statements for further information regarding the
long-lived asset impairment charges recorded as part of the restructuring actions.
Refer to Note 6, “Goodwill and other Intangible Assets," of the notes to consolidated financial statements for further information regarding the
goodwill impairment charge recorded in the fourth quarter of fiscal 2013.
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.
17. 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 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 second, third and fourth quarters of fiscal 2013, the Company concluded it had a triggering event requiring assessment of impairment for
certain of its long-lived assets in conjunction with its restructuring actions announced in fiscal 2013. In addition, in the fourth quarter of fiscal
2013, the Company concluded that it had a triggering event requiring assessment of impairment for the long-lived assets held by the Automotive
Experience Interiors segment due to the impairment of goodwill in the quarter. As a result, the Company reviewed the long-lived assets for
impairment and recorded a $156 million impairment charge within restructuring and impairment costs on the consolidated statement of income,
of which $13 million was recorded in the second quarter, $36 million in the third quarter and $107 million in the fourth quarter of fiscal 2013. Of
the total impairment charge, $57 million related to the Automotive Experience Interiors segment, $40 million related to the Building Efficiency
Other segment, $22 million related to the Automotive Experience Seating segment, $18 million related to the Power Solutions segment, $12
million related to corporate assets and $7 million related to various segments within the Building Efficiency business. Refer to Note 16,
“Significant Restructuring and Impairment Costs,” of the notes to consolidated financial statements for additional information. 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 Measurement."
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 restructuring actions announced in fiscal 2012. 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 and impairment 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 Interiors segment, $4 million related to the Building Efficiency Other segment and
$10 million related to corporate assets. Refer to Note 16, “Significant Restructuring and Impairment Costs,” of the notes to consolidated
financial statements for additional information. 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
98
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 Measurement."
In the second quarter of fiscal 2012, the Company recorded an impairment charge related to an equity investment. Refer to Note 11, “Fair Value
Measurements,” of the notes to consolidated financial statements for additional information.
At September 30, 2013 and 2012 , 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. Refer to Note 6, “Goodwill and Other Intangible Assets,” of the notes to consolidated
financial statements for further information regarding the goodwill impairment charge recorded in the fourth quarter of fiscal 2013.
18. INCOME TAXES
In the fourth quarter of fiscal 2013, the Company changed its method of inventory costing for certain inventory in its Power Solutions business
to the first-in first-out (FIFO) method from the last-in first-out (LIFO) method. Certain amounts have been revised to reflect the retrospective
application of this accounting policy change. The $112 million adjustment to the opening balance of retained earnings as of September 30, 2010
was net of a $73 million tax provision. 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):
2013
Year Ended September 30,
2012
2011
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
U.S. credits and incentives
Gain on business divestiture
Restructuring and impairment costs
Change in assertion over permanently reinvested earnings
Other
Provision for income taxes
$
$
863 $
46
(317 )
(69 )
197
(28 )
59
235
210
(28 )
1,168 $
532 $
17
(381 )
(20 )
13
(13 )
—
81
—
(20 )
209 $
627
(10 )
(351 )
28
(30 )
(7 )
—
—
—
1
258
The effective rate is above the U.S. statutory rate for fiscal 2013 primarily due to the tax consequences of the sale of the HomeLink® product
line, significant restructuring and impairment costs, the change in our assertion over reinvestment of foreign undistributed earnings primarily
related to the Electronics business, and valuation allowance and uncertain tax position adjustments, partially offset by favorable tax audit
resolutions, the benefits of continuing global tax planning initiatives and income in certain non-U.S. jurisdictions with a tax rate lower than the
U.S. statutory tax rate. The effective rate is below the U.S. statutory rate for fiscal 2012 and 2011 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 the fourth quarter of fiscal 2013 , 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 Germany and Poland would not be realized. The Company also
99
determined that it was more likely than not that the deferred tax assets within two French Power Solutions entities would be realized. Therefore,
the Company recorded $145 million of net valuation allowances as income tax expense in the three month period ended September 30, 2013 .
In the second quarter of fiscal 2013 , the Company determined that it was more likely than not that a portion of the deferred tax assets within
Brazil and Germany would not be realized. Therefore, the Company recorded $94 million of valuation allowances as income tax expense.
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 realized. Therefore, the
Company recorded a $35 million valuation allowance as income tax expense 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 realized. Therefore, the Company released a net $30 million of valuation allowances as
a benefit to income tax expense in the three month period ended September 30, 2011 .
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, 2013 , the Company had gross tax effected unrecognized tax benefits of $1,345 million of which $1,198 million , if
recognized, would impact the effective tax rate. Total net accrued interest at September 30, 2013 was approximately $84 million (net of tax
benefit).
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) .
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 with taxing authorities
Statute closings
Audit resolutions
Ending balance, September 30
2013
Year Ended September 30,
2012
2011
1,465 $
123
84
(43 )
(160 )
(45 )
(79 )
1,345 $
1,357 $
143
36
(58 )
—
(13 )
—
1,465 $
1,262
150
20
(62 )
(5 )
(8 )
—
1,357
$
$
100
In the U.S., fiscal years 2010 through 2012 are currently under exam by the Internal Revenue Service (IRS) and 2004 through 2009 are currently
under (IRS) appeals. Additionally, the Company is currently under exam in the following major foreign jurisdictions:
Tax Jurisdiction
Tax Years Covered
Belgium
Brazil
Canada
France
Germany
Italy
Japan
Korea
Mexico
Poland
2011 - 2012
2004 - 2008
2007 - 2010
2002 - 2012
2001 - 2010
2005 - 2009
2010 - 2012
2008 - 2012
2003 - 2004, 2008 - 2011
2008 - 2009
The Company expects that certain tax examinations, appellate proceedings and/or tax litigation will conclude within the next twelve months, the
impact of which is not expected to be significant to the Company's consolidated financial statements.
In the third quarter of fiscal 2013 , tax audit resolutions resulted in a net $79 million benefit to income tax expense.
As a result of foreign law changes during the second quarter of fiscal 2013 , the Company increased its total reserve for uncertain tax positions,
resulting in income tax expense of $17 million .
As a result of certain 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, resulting in a benefit to income tax expense.
Other Tax Matters
In the fourth quarter of fiscal 2013 , the Company disposed of assets, the HomeLink® product line and certain businesses, which resulted in $59
million of incremental tax expense above the statutory rate on the net gain.
In the fourth quarter of fiscal 2013, the Company provided income tax expense on the foreign undistributed earnings of the non-U.S. subsidiaries
primarily related to the Electronics business, which resulted in $210 million of incremental tax expense.
During fiscal 2013 , the Company incurred significant charges for restructuring and impairment costs. A substantial portion of these charges
cannot be benefited for tax purposes due to the Company's current tax position in these jurisdictions and the underlying tax basis in the impaired
assets, thus causing a $235 million incremental tax expense.
In the third quarter of fiscal 2013 , the Company resolved certain Mexican tax issues, which resulted in a $61 million benefit to income tax
expense.
Impacts of Tax Legislation and Change in Statutory Tax Rates
As a result of foreign law changes during the second quarter of fiscal 2013 , the Company increased its total reserve for uncertain tax positions,
resulting in income tax expense of $17 million .
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. The rule was extended in
January 2013 retroactive to the beginning of the Company's 2013 fiscal year.
During the fiscal year ended September 30, 2012 , tax legislation was adopted in Japan which reduced 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.
101
None of these changes had a material impact on the Company’s consolidated financial condition, results of operations or cash flows.
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
2013
Year Ended September 30,
2012
2011
$
327 $
41
527
895
462
14
(203 )
273
118 $
12
313
443
94
18
(346 )
(234 )
Provision for income taxes
$
1,168 $
209 $
56
—
458
514
95
(9 )
(342 )
(256 )
258
Consolidated domestic income from continuing operations before income taxes and noncontrolling interests for the fiscal years ended
September 30, 2013 , 2012 and 2011 was income of $2,335 million , $1,061 million and $1,013 million , respectively. Consolidated foreign
income from continuing operations before income taxes and noncontrolling interests for the fiscal years ended September 30, 2013 , 2012 and
2011 was income of $130 million , $459 million and $777 million , respectively.
Income taxes paid for the fiscal years ended September 30, 2013 , 2012 and 2011 were $531 million , $496 million and $384 million ,
respectively.
The Company has not provided additional U.S. income taxes on approximately $7.6 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. In the fourth quarter of fiscal 2013, the Company
provided income tax expense on the foreign undistributed earnings of the non-U.S. subsidiaries primarily related to the Electronics business,
which resulted in $210 million of incremental tax expense. 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
September 30,
2013
2012
567 $
1,349
(4 )
(58 )
1,854 $
518
1,783
(10 )
(95 )
2,196
$
$
102
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
September 30,
2013
2012
439 $
173
2,752
146
3,510
(1,172 )
2,338
128
196
160
484
488
444
2,582
79
3,593
(766 )
2,827
119
349
163
631
Net deferred tax asset
$
1,854 $
2,196
Note that the above tables exclude the amounts of deferred tax assets and liabilities for fiscal 2013 that have been transferred to assets held for
sale and liabilities held for sale within the consolidated statement of financial position.
At September 30, 2013 , the Company had available net operating loss carryforwards of approximately $5.0 billion , of which $2.1 billion will
expire at various dates between 2014 and 2032, and the remainder has an indefinite carryforward period. The Company had available U.S.
foreign tax credit carryforwards at September 30, 2013 of $900 million , which will expire at various dates between 2016 and 2022. The
valuation allowance, generally, is for loss carryforwards for which realization is uncertain because it is unlikely that the losses will be realized
given the lack of sustained profitability and/or limited carryforward periods in certain countries.
19. SEGMENT INFORMATION
Effective October 1, 2012, the Company reorganized the reportable segments within its Automotive Experience business to align with its new
management reporting structure and business activities. Prior to this reorganization, Automotive Experience was comprised of three reportable
segments for financial reporting purposes: North America, Europe and Asia. As a result of this change, Automotive Experience is now
comprised of three new reportable segments for financial reporting purposes: Seating, Interiors and Electronics. Historical information has been
revised to reflect the new Automotive Experience reportable segment structure.
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.
103
• North America Service provides technical services including inspection, scheduled maintenance, repair and replacement of mechanical
and control systems in North America, as well as the retrofit and service components of performance contracts and other solutions.
• Global Workplace Solutions provides on-site staff for complete real estate services, facility operation and management to improve the
comfort, productivity, energy efficiency and cost effectiveness of building systems around the globe.
• Asia provides HVAC and refrigeration systems and technical services to the Asian marketplace.
• Other provides HVAC and refrigeration systems and technical services to markets in Europe, the Middle East and Latin America. Other
also designs and produces heating and air conditioning solutions for residential and light commercial applications, and markets products
to the replacement and new construction markets.
Automotive Experience
Automotive Experience designs and manufactures interior systems and products for passenger cars and light trucks, including vans, pick-up
trucks and sport utility/crossover vehicles.
• Seating produces automotive seat metal structures and mechanisms, foam, trim, fabric and complete seat systems.
•
Interiors produces instrument panels, floor consoles, door panels, headliners and overhead systems.
• Electronics produces information displays and body controllers, including electronic convenience features, and clusters.
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 and impairment 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
Seating
Interiors
Electronics
Power Solutions
Total net sales
2013
Year Ended September 30,
2012
2011
$
2,362 $
2,130
4,265
2,022
3,812
14,591
16,285
4,176
1,320
21,781
6,358
2,389 $
2,145
4,294
1,987
3,900
14,715
15,854
4,129
1,351
21,334
5,906
$
42,730 $
41,955 $
104
2,343
2,305
4,153
1,840
4,252
14,893
14,656
4,119
1,290
20,065
5,875
40,833
Segment Income (Loss)
Building Efficiency
North America Systems (1)
North America Service (2)
Global Workplace Solutions (3)
Asia (4)
Other (5)
Automotive Experience
Seating (6)
Interiors (7)
Electronics (8)
Power Solutions (9)
Total segment income
Net financing charges
Restructuring and impairment 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
Seating
Interiors (10)
Electronics (10)
Power Solutions
Assets held for sale
Unallocated
Total
$
$
$
$
2013
Year Ended September 30,
2012
2011
279 $
228
114
278
89
988
723
(9 )
585
1,299
1,006
286 $
164
52
267
141
910
694
(20 )
129
803
784
3,293 $
2,497 $
(248 )
(985 )
405
(233 )
(297 )
(447 )
2,465 $
1,520 $
2013
September 30,
2012
2011
1,222 $
1,477
1,286
1,352
3,769
9,106
9,763
1,872
—
11,635
7,459
804
2,514
1,326 $
1,523
1,234
1,316
3,947
9,346
9,334
2,577
842
12,753
7,312
—
1,543
$
31,518 $
30,954 $
105
247
121
22
251
105
746
641
(5 )
144
780
822
2,348
(174 )
—
(384 )
1,790
1,300
1,581
1,228
1,247
4,115
9,471
9,319
2,590
889
12,798
6,750
—
769
29,788
Depreciation/Amortization
Building Efficiency
North America Systems
North America Service
Global Workplace Solutions
Asia
Other
Automotive Experience
Seating
Interiors
Electronics
Power Solutions
Total
Capital Expenditures
Building Efficiency
North America Systems
North America Service
Global Workplace Solutions
Asia
Other
Automotive Experience
Seating
Interiors
Electronics
Power Solutions
$
$
$
2013
Year Ended September 30,
2012
2011
11 $
25
25
19
89
169
354
116
41
511
272
12 $
25
24
19
66
146
320
109
35
464
214
952 $
824 $
2013
Year Ended September 30,
2012
2011
4 $
8
7
73
106
198
467
235
52
754
425
6 $
25
7
38
103
179
549
171
57
777
875
10
25
18
15
69
137
273
111
35
419
175
731
6
17
32
22
91
168
446
146
46
638
519
Total
(1)
(2)
(3)
(4)
$
1,377 $
1,831 $
1,325
Building Efficiency - North America Systems segment income for the years ended September 30, 2013 and 2012 excludes $20 million
and $2 million , respectively, of restructuring and impairment costs.
Building Efficiency - North America Service segment income for the years ended September 30, 2013 and 2012 excludes $18 million
and $6 million , respectively, of restructuring and impairment 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.
Building Efficiency - Global Workplace Solutions segment income for the years ended September 30, 2013 and 2012 excludes $54
million and $16 million , respectively, of restructuring and impairment costs.
Building Efficiency - Asia segment income for the years ended September 30, 2013 and 2012 excludes $5 million and $1 million ,
respectively, of restructuring and impairment costs. For the years ended September 30, 2013 , 2012 and 2011 , Asia segment income
includes $2 million , $3 million and $3 million , respectively, of equity income.
106
(5)
(6)
(7)
(8)
(9)
Building Efficiency - Other segment income for the years ended September 30, 2013 and 2012 excludes $95 million and $64 million ,
respectively, of restructuring and impairment costs. For the years ended September 30, 2013 , 2012 and 2011 , Other segment income
includes $26 million , $23 million and $17 million , respectively, of equity income.
Automotive Experience - Seating segment income for the years ended September 30, 2013 and 2012 excludes $152 million and $101
million , respectively, of restructuring and impairment costs. For the years ended September 30, 2013 , 2012 and 2011 , Seating
segment income includes $287 million , $194 million and $192 million , respectively, of equity income.
Automotive Experience - Interiors segment income for the years ended September 30, 2013 and 2012 excludes $560 million and $48
million , respectively, of restructuring and impairment costs. For the years ended September 30, 2013 , 2012 and 2011 , Interiors
segment income includes $16 million , $17 million and $9 million , respectively, of equity income.
Automotive Experience - Electronics segment income for the years ended September 30, 2013 and 2012 excludes $28 million and $12
million , respectively, of restructuring and impairment costs. For the years ended September 30, 2013 , 2012 and 2011 , Electronics
segment income includes $3 million , $2 million and $13 million , respectively, of equity income. The year ended September 30, 2013
includes a $476 million gain on divestiture of the HomeLink® product line net of transaction costs.
Power Solutions segment income for the years ended September 30, 2013 and 2012 excludes $36 million and $37 million , respectively,
of restructuring and impairment costs. For the years ended September 30, 2013 , 2012 and 2011 , Power Solutions segment income
includes $68 million , $100 million and $62 million , respectively, of equity income.
(10)
Current year amounts exclude assets held for sale. Refer to Note 3, "Assets and Liabilities Held for Sale," of the notes to consolidated
financial statements for further information regarding the Company's disposal groups classified as held for sale.
The Company has significant sales to the automotive industry. In fiscal years 2013 , 2012 and 2011 , 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
2013
Year Ended September 30,
2012
2011
$
$
$
$
16,681 $
4,730
2,330
9,943
9,046
15,484 $
4,790
2,189
10,663
8,829
42,730 $
41,955 $
2,551 $
1,057
560
1,439
978
6,585 $
2,521 $
879
588
1,557
895
6,440 $
14,367
4,590
1,869
10,212
9,795
40,833
2,116
864
540
1,356
740
5,616
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.
107
20. 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, 2013 and 2012 . Equity in the net income of nonconsolidated partially-owned
affiliates is stated in the “Equity income” line in the consolidated statements of income for the years ended September 30, 2013 , 2012 and 2011 .
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.
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
$
$
2013
2012
3,987 $
1,775
5,762
3,046 $
613
2,103
5,762
3,339
1,648
4,987
2,501
553
1,933
4,987
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
21. COMMITMENTS AND CONTINGENCIES
2013
2012
2011
$
9,973 $
1,483
639
9,261 $
1,423
664
8,468
1,154
526
The Company accrues for potential environmental liabilities in a manner consistent with U.S. GAAP; 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 at September 30,
2013 and 2012 . 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, 2013 and 2012 , the Company recorded conditional asset retirement obligations of $56 million and $76 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.
108
JOHNSON CONTROLS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In millions)
Year Ended September 30,
2013
2012
2011
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
Divestiture of businesses
Currency translation
Transfers to held for sale
Balance at end of period
Deferred Tax Assets - Valuation Allowance
Balance at beginning of period
Allowance provision for new operating and other loss carryforwards
Acquisition of businesses
Allowance provision (benefit) adjustments
Transfers to held for sale
Balance at end of period
$
$
$
$
78 $
68
(50 )
(27 )
1
(1 )
—
(1 )
68 $
766 $
165
—
250
(9 )
1,172 $
89 $
47
(15 )
(42 )
—
—
(1 )
—
78 $
719 $
119
—
(72 )
—
766 $
96
37
(23 )
(24 )
4
—
(1 )
—
89
739
95
18
(133 )
—
719
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 (1992) 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, 2013 , 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.
109
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, 2013 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
There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2013 , 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, 2013 .
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 2014 Annual Meeting of Shareholders (fiscal 2013 Proxy Statement), dated and to be filed
with the SEC on or abo ut December 9, 2013, as f ollows:
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,” “Corporate Governance,” "Board and Committee Membership," “Audit Committee Report” and “Section 16(a)
Beneficial Ownership Reporting Compliance” of the fiscal 2013 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 “Corporate Governance,” "Board and Committee Membership," “Compensation Committee
Report,” “Compensation Discussion and Analysis,” “Director Compensation during Fiscal Year 2013 ,” “Potential Payments and Benefits Upon
Termination or Change of Control,” and “Johnson Controls Share Ownership” of the fiscal 2013 Proxy Statement.
110
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Incorporated by reference to the section entitled “Johnson Controls Share Ownership” of the fiscal 2013 Proxy Statement.
The following table provides information about the Company's equity compensation plans as of September 30, 2013 :
(a)
(b)
Number of Securities to be
Issued upon Exercise of
Outstanding Options, Warrants
and Rights
Weighted-Average Exercise
Price of Outstanding Options,
Warrants and Rights
(c)
Number of Securities
Remaining Available for Future
Issuance Under Equity
Compensation Plans (Excluding
Securities Reflected in Column
(a))
Plan Category
Equity compensation plans approved
by shareholders
Equity compensation plans not
approved by shareholders
Total
29,403,281 $
—
29,403,281 $
28.25
—
28.25
36,377,076
—
36,377,076
(c) Includes shares of Common Stock that remain available for grant as follows: 36,255,826 shares under the 2012 Omnibus Plan and 121,250
shares under the 2003 Stock Plan for Outside Directors.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Incorporated by reference to the section entitled “Corporate Governance” of the fiscal 2013 Proxy Statement.
ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES
Incorporated by reference to the section entitled “Audit Committee Report” of the fiscal 2013 Proxy Statement.
111
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, 2013, 2012 and
201 1
Consolidated Statements of Comprehensive Income (Loss) for the years ended
September 30, 2013, 2012 and 2011
Consolidated Statements of Financial Position at September 30, 2013 and 201 2
Consolidated Statements of Cash Flows for the years ended September 30, 2013, 2012
and 201 1
Consolidated Statements of Shareholders’ Equity Attributable to Johnson Controls, Inc.
for the years ended September 30, 2013, 2012 and 201 1
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
For the years ended September 30, 2013, 2012 and 2011:
Page in
Form 10-K
52
54
55
56
57
58
59
Schedule II - Valuation and Qualifying Accounts
109
(3) Exhibits
Reference is made to the separate exhibit index contained on pages 114 through 117 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 individually less than 20% of the respective consolidated amounts, and investments in such companies are less than 20% of
consolidated total assets. Refer to Note 20, "Non-Consolidated Partially-Owned Affiliates" of the notes to consolidated financial statements for
the summarized financial data for the Company’s nonconsolidated partially-owned affiliates.
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, 33-58094, 333-10707, 333-41564, 333-141578, 333-173326 and 333-188430.
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.
112
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
JOHNSON CONTROLS, INC.
By
/s/ R. Bruce McDonald
R. Bruce McDonald
Executive Vice President and
Chief Financial Officer
Date: November 21, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of November 21, 2013 , by the
following persons on behalf of the registrant and in the capacities indicated:
/s/ Alex A. Molinaroli
Alex A. Molinaroli
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ R. Bruce McDonald
R. Bruce McDonald
Executive Vice President and
Chief Financial Officer (Principal 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/ Eugenio Clariond Reyes-Retana
Eugenio Clariond Reyes-Retana
Director
/s/ Jeffrey A. Joerres
Jeffrey A. Joerres
Director
/s/ Mark P. Vergnano
Mark P. Vergnano
Director
/s/ Stephen A. Roell
Stephen A. Roell
Chairman and Director
/s/ Dennis W. Archer
Dennis W. Archer
Director
/s/ Julie L. Bushman
Julie L. Bushman
Director
/s/ Richard Goodman
Richard Goodman
Director
/s/ William H. Lacy
William H. Lacy
Director
Raymond L. Conner
Director
113
Exhibit
3.(i)
Johnson Controls, Inc.
Index to Exhibits
Title
Restated Articles of Incorporation of Johnson Controls, Inc., as amended through January 23, 2013 (incorporated by
reference to Exhibit 3.1 to Johnson Controls, Inc.’s Current Report on Form 8-K filed January 28, 2013) (Commission
File No. 1-5097).
3.(ii)
Johnson Controls, Inc. By-Laws, as amended and restated through July 24, 2013 (incorporated by reference to Exhibit 3.1
to Johnson Controls, Inc.’s Current Report on Form 8-K filed July 25, 2013) (Commission File No. 1-5097).
4.A
Miscellaneous long-term debt agreements and financing leases with banks and other creditors and debenture indentures.*
4.B
Miscellaneous industrial development bond long-term debt issues and related loan agreements and leases.*
4.C
4.D
4.E
4.F
4.G
4.H
4.I
4.J
4.K
4.L
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).
Senior indenture, dated January 17, 2006, between Johnson Controls, Inc. and U.S. Bank National Association, as
successor trustee to JP Morgan Chase Bank, National Association (incorporated by reference to Exhibit 4.1 to Johnson
Controls, Inc. Registration Statement on Form S-3 [Reg. No. 333-157502]).
Credit Agreement, dated as of August 6, 2013 among Johnson Controls, Inc., the financial institutions parties thereto and
JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 4.1 to Johnson Controls, Inc.’s
Current Report on Form 8-K filed August 9, 2013) (Commission File No. 1-5907).
Supplemental Indenture, dated March 16, 2009, between Johnson Controls, Inc., as Issuer, 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).
114
Johnson Controls, Inc
Index to Exhibits
Title
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).
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).
[RESERVED].
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).
Exhibit
4.M
4.N
4.O
4.P
10.A
[RESERVED].
10.B
10.C
10.D
10.E
Johnson Controls, Inc. Common Stock Purchase Plan for Executives as amended through 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).**
Tax Refund Purchase Agreement among Dr. Beda Bolzenius, Johnson Controls, Inc. and Christiane Bolzenius dated as of
November 30, 2012 (incorporated by reference to Exhibit 10.1 to Johnson Controls, Inc.’s Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 2012) (Commission File No. 1-5097).**
10.F
[RESERVED].
10.G
10.H
10.I
10.J
Form of indemnity agreement effective January 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).**
115
Exhibit
10.K
10.L
10.M
10.N
10.O
10.P
10.Q
10.S
10.T
10.U
10.V
10.W
10.X
Johnson Controls, Inc.
Index to Exhibits
Title
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, 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 July 23, 2013, filed
herewith.**
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 October 1,
2013, 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 or stock appreciation right 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 Johnson Controls GmbH 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 (incorporated by reference to Exhibit 10.X to Johnson Controls, Inc.'s Annual Report on
Form 10-K for the year ended September 30, 2012) (Commission File No. 1-5097) **
116
Exhibit
10.Y
10.Z
10.AA
10.BB
10.CC
Johnson Controls, Inc.
Index to Exhibits
Title
Form of employment agreement between Johnson Controls, Inc. and all elected officers and named executives, 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).**
Johnson Controls, Inc. 2012 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1(a) to Johnson Controls,
Inc.'s Current Report on Form 8-K filed January 28, 2013) (Commission File No. 1-5097).**
Form of performance share unit agreement for Johnson Controls, Inc. 2012 Omnibus Incentive Plan (incorporated by
reference to Exhibit 10.1(b) to Johnson Controls, Inc.'s Current Report on Form 8-K filed January 28, 2013) (Commission
File No. 1-5097).**
Form of restricted stock/restricted stock unit agreement for Johnson Controls, Inc. 2012 Omnibus Incentive Plan
(incorporated by reference to Exhibit 10.1(c) to Johnson Controls, Inc.'s Current Report on Form 8-K filed January 28,
2013) (Commission File No. 1-5097).**
Form of option or stock appreciation right award for Johnson Controls, Inc. 2012 Omnibus Incentive Plan (incorporated
by reference to Exhibit 10.1(d) to Johnson Controls, Inc.'s Current Report on Form 8-K filed January 28, 2013)
(Commission File No. 1-5097).**
12
Computation of ratio of earnings to fixed charges for the years ended September 30, 2013, 2012, 2011, 2010 and 2009,
filed herewith.
18
Preferability Letter on Change in Accounting Principle, filed herewith.
21
Subsidiaries of the Registrant, filed herewith.
23
Consent of Independent Registered Public Accounting Firm dated November 21, 2013, filed herewith.
31.1
Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
31.2
Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32
101
Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
The following materials from Johnson Controls, Inc.’s Annual Report on Form 10-K for the year ended September 30,
2013, 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 Comprehensive Income (Loss),
(iv) the Consolidated Statements of Cash Flow, (v) the Consolidated Statements of Shareholders’ Equity Attributable to
Johnson Controls, Inc. and (vi) 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.
117
EXHIBIT 10.M
JOHNSON CONTROLS, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
ARTICLE 1
PURPOSE AND DURATION
Section 1.1 Purpose. The Johnson Controls, Inc. Executive Deferred Compensation Plan (the “Plan”)
permits certain employees of the Company and its Affiliates to defer amounts otherwise payable or shares deliverable
under separate bonus or equity plans or programs maintained by the Company or an Affiliate.
Section 1.2 Duration . The Plan was originally effective on October 1, 2001, as a consolidation of the
deferral features of various separate plans. The Plan has been amended several times since it was originally effective,
and is most recently amended and restated effective as of July 23, , 2013 (the “Amended and Restated Effective Date”).
The Plan shall remain in effect until terminated by the Board pursuant to Section 9.6.
ARTICLE 2
DEFINITIONS AND CONSTRUCTION
Section 2.1 Definitions . Wherever used in the Plan, the following terms shall have the meanings set
forth below and, where the meaning is intended, the initial letter of the word is capitalized:
(a)
“Account” means the record keeping account or accounts maintained to record the interest of
each Participant under the Plan. An Account is established for record keeping purposes only and not to reflect the
physical segregation of assets on the Participant’s behalf, and may consist of such subaccounts or balances as the
Administrator may determine to be necessary or appropriate.
“Act” means the Securities Act of 1933, as interpreted by regulations and rules issued pursuant
thereto, all as amended and in effect from time to time. Any reference to a specific provision of the Act shall be deemed
to include reference to any successor provision thereto.
(b)
(c)
(d)
“Administrator” means the Employee Benefits Policy Committee of the Company.
“Affiliate” means each entity that is required to be included in the Company’s controlled
group of corporations within the meaning of Code Section 414(b), or that is under common control with the Company
within the meaning of Code Section 414(c); provided that for purposes of determining when a Participant has incurred a
Separation from Service, the phrase “at least 50 percent” shall be used in place of the phrase “at least 80 percent” in each
place that phrase appears in the regulations issued thereunder.
beneficiary for purposes of this Plan as provided in Section 9.2.
(e)
“Beneficiary” means the person(s) or entity(ies) designated by a Participant to be his
(f)
“Board” means the Board of Directors of the Company.
1
(g)
(h)
“Change of Control” has the meaning ascribed in Section 8.3.
“Code” means the Internal Revenue Code of 1986, as interpreted by regulations and rulings
issued pursuant thereto, all as amended and in effect from time to time. Any reference to a specific provision of the Code
shall be deemed to include reference to any successor provision thereto.
(i)
“Committee” means the Compensation Committee of the Board, which shall consist of not less
than two members of the Board, each of whom is also a director of the Company and qualifies as a “non-employee
director” for purposes of Rule 16b-3 of the Exchange Act.
(j)
(k)
under the Plan:
“Company” means Johnson Controls, Inc., and its successors as provided in Section 9.8.
“Deferrable Compensation” means the following types of compensation that may be deferred
(1) Annual Incentive Awards : All or a portion of a Participant’s performance cash award under the
Johnson Controls, Inc. Annual Incentive Performance Plan (or any successor plan thereto) and,
with the consent of the Administrator, any other annual bonus plan maintained by the Company or
an Affiliate.
(2)
Long-Term Incentive Awards : All or a portion of a Participant’s performance cash award under
the Johnson Controls, Inc. Long-Term Incentive Performance Plan (or any successor plan thereto)
and, with the consent of the Administrator, any other multi-year bonus plan maintained by the
Company or an Affiliate.
(3) Restricted Shares : The Shares that would have otherwise been issued to a Participant in the form
of restricted stock under any plan of the Company providing for the grant of restricted stock, but
only to the extent the Committee (with respect to those Participants who are Company officers), or
the Administrator (with respect to all other Participants), designates the restricted stock as being
eligible for deferral hereunder.
(4) Other Incentive Compensation : Any other incentive award or compensation that the Committee
(with respect to those Participants who are Company officers), or the Administrator (with respect
to all other Participants), designates is eligible for deferral hereunder.
(l)
“Deferral” means the amount credited, in accordance with a Participant’s election or as
required by the Plan, to the Participant’s Account in lieu of the payment in cash thereof, or the issuance of Shares with
respect thereto. Deferrals include the following:
(1) Annual Incentive Deferrals : A deferral of all or a portion of a Participant’s Annual Incentive
Award, as described in subsection (k)(1).
(2)
Long-Term Incentive Deferrals : A deferral of all or a portion of a Participant’s Long-Term
Incentive Award, as described in subsection (k)(2).
2
(3)
Share Deferrals : A deferral of Shares of restricted stock, as described in subsection (k)(3).
(4) Other Incentive Compensation : A deferral of any other type of Deferrable Compensation, as
described in subsection (k)(4).
(5)
Automatic Deferred Dividends : A deferral of the dividends or dividend equivalents paid with
respect to equity-based awards that are automatically deferred hereunder pending the vesting or
earning of such equity-based award.
(m)
“ERISA” means the Employee Retirement Income Security Act of 1974, as interpreted by
regulations and rulings issued pursuant thereto, all as amended and in effect from time to time. Any reference to a
specific provision of ERISA shall be deemed to include reference to any successor provision thereto.
“Exchange Act” means the Securities Exchange Act of 1934, as interpreted by regulations and
rules issued pursuant thereto, all as amended and in effect from time to time. Any reference to a specific provision of the
Exchange Act shall be deemed to include reference to any successor provision thereto.
(n)
(o)
“Fair Market Value” means with respect to a Share, except as otherwise provided herein, the
closing sales price on the New York Stock Exchange as of 4:00 p.m. EST on the date in question (or the immediately
preceding trading day if the date in question is not a trading day), and with respect to any other property, such value as is
determined by the Administrator.
(p)
“Investment Options” means the investment options offered under the Johnson Controls
Savings and Investment (401k) Plan (excluding the Company stock fund) or any successor plan thereto, the Share Unit
Account, and any other alternatives made available by the Administrator, which shall be used for the purpose of
measuring hypothetical investment experience attributable to a Participant’s Account.
(q)
“Participant” means an employee of the Company or any Affiliate who is employed in the
United States and is participating in the Company’s Stock Ownership Program, and any other employee of the Company
or any Affiliate who is selected for participation under a Company or Affiliate plan described in paragraph (k) and who
is offered the ability (or is required) to make Deferrals hereunder. Notwithstanding the foregoing, the Committee shall
limit the foregoing group of eligible employees to a select group of management and highly compensated employees, as
determined by the Committee in accordance with ERISA. Where the context so requires, a Participant also means a
former employee entitled to receive a benefit hereunder.
(r)
(s)
“Plan Year” means the fiscal year of the Company.
“Separation from Service” means a Participant’s cessation of service for the Company and all
Affiliates within the meaning of Code Section 409A, including the following rules:
(1)
If a Participant takes a leave of absence from the Company or an Affiliate for purposes of military
leave, sick leave or other bona fide leave of absence, the Participant’s employment will be deemed
to continue for the first six (6) months of the leave of absence, or if longer, for so long as the
Participant’s right to
3
reemployment is provided by either by statute or by contract; provided that if the leave of absence
is due to the Participant’s medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last for a continuous period of six (6) months or
more, and such impairment causes the Participant to be unable to perform the duties of his
position with the Company or an Affiliate or a substantially similar position of employment, then
the leave period may be extended for up to a total of twenty-nine (29) months. If the period of the
leave exceeds the time periods set forth above and the Participant’s right to reemployment is not
provided by either statute or contract, the Participant will be considered to have incurred a
Separation from Service on the first day following the time periods set forth above.
(2) A Participant will be presumed to have incurred a Separation from Service when the level of bona
fide services performed by the Participant for the Company and its Affiliates permanently
decreases to a level equal to 20% or less of the average level of services performed by the
Participant for the Company or its Affiliates during the immediately preceding thirty-six (36)
month period (or such lesser period of service).
(3)
(t)
(u)
The Participant will be presumed not to have incurred a Separation from Service while the
Participant continues to provide bona fide services to the Company or an Affiliate in any capacity
(whether as an employee or independent contractor) at a level that is at least 50% or more of the
average level of services performed by the Participant for the Company or its Affiliates during the
immediately preceding thirty-six (36) month period (or such lesser period of service).
“Share” means a share of common stock of the Company.
“Share Unit Account” means the account described in Article 7, which is deemed invested in
Shares.
(v)
“Share Units” means the hypothetical Shares that are credited to the Share Unit Account in
accordance with Article 7.
business, as of which the Administrator will determine the value of each Account and will make allocations to Accounts.
(w)
“Valuation Date” means each day when the United States financial markets are open for
Section 2.2 Construction . Wherever any words are used in the masculine, they shall be construed as
though they were used in the feminine in all cases where they would so apply; and wherever any words are use in the
singular or the plural, they shall be construed as though they were used in the plural or the singular, as the case may be,
in all cases where they would so apply. Titles of articles and sections are for general information only, and the Plan is
not to be construed by reference to such items.
Section 2.3 Severability . In the event any provision of the Plan is held illegal or invalid for any reason,
the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
4
ARTICLE 3.
PARTICIPATION
Section 3.1 Effective Date . Each individual for whom an Account is maintained under the Plan as of
the Amended and Restated Effective Date shall continue in participation hereunder on the day following the Amended
and Restated Effective Date.
Section 3.2 New Participants . Each employee of the Company or an Affiliate shall automatically
become a Participant on the date he makes (or is deemed to make) a deferral election under Article 4.
ARTICLE 4.
DEFERRALS OF COMPENSATION
Section 4.1 Deferral Elections . A Participant may elect to defer all or part of his Deferrable
Compensation pursuant to one or more of the following provisions, as applicable to such compensation, subject to any
limitations imposed by the Committee (with respect to Participants who are Company officers) or the Administrator
(with respect to all other Participants). A Participant’s election to defer an award shall be effective only for the award to
which the election relates, and shall not carry over from award to award. All deferral elections shall be for a minimum of
$1,000. As of the end of the applicable election period, the Participant’s deferral election shall be irrevocable except as
provided in Section 4.3.
(a) Calendar Year . A Participant may make a deferral election during the calendar year preceding the
calendar year for which an award is made.
(b) Forfeitable Rights . With respect to an award which is subject to a risk of forfeiture, a Participant
may make a deferral election prior to or within the first thirty (30) days following the grant date; provided, the election
may apply only to the portion of the award that vests on or after the first anniversary of the award grant date. This
election shall be available even if the terms of the award provide that the award will vest prior to the first anniversary of
the award grant date in the event of the Participant’s death, disability (as defined in Code Section 409A) or a change of
control event (as defined in Code Section 409A); provided that, if the award so vests prior to the first anniversary of the
grant date, then if and to the extent required by Code Section 409A, such deferral election shall be cancelled.
(c) Initial Eligibility . A Participant may make a deferral election within the first thirty (30) days of
becoming a Participant; provided such Participant has not previously been eligible for participation in any other deferred
compensation plan that is required to be aggregated with this Plan for purposes of Code Section 409A. Such election
shall only be effective with respect to compensation for services to be performed subsequent to the date of the election.
(d) Performance-Based Compensation . With respect to a performance-based award, a Participant may
make a deferral election within the first 180 days of the performance period for which the award is made.
Notwithstanding the foregoing:
(1)
if the Company determines that an award qualifies as performance-based compensation within the
meaning of Code Section 409A, the Company may specify a later election period, which in all
events must end 180 days prior to the end of the performance period for such award; provided that
any election made hereunder
5
(2)
shall not be applicable to compensation that is readily ascertainable at the time of the election, or
if the Company determines that an award does not qualify as performance-based compensation
within the meaning of Code Section 409A, or determines that, at the time of the election described
above, the compensation payable under such award will be readily ascertainable, then the
Company may specify an earlier election period consistent with the requirements of Code Section
409A.
(e) Other Deferrals Rules . A Participant may make a deferral election at such other times not described
above as may be permitted by the Company consistent with the requirements of Code Section 409A.
Section 4.2 Deferral of Automatic Deferred Dividends . All cash dividends and dividend equivalents
units paid with respect to unearned or unvested equity-based awards granted by the Company to a Participant (and for
which the Participant has not otherwise made a deferral election hereunder) shall be automatically deferred as Automatic
Deferred Dividends. Automatic Deferred Dividends shall be subject to the same risk of forfeiture as the equity-based
awards to which such Deferrals relate.
Section 4.3 Cancellation of Deferral Elections . If the Administrator determines that a Participant’s
deferral elections must be cancelled in order for the Participant to receive a hardship distribution under the Johnson
Controls Savings and Investment (401k) Plan (or any successor plan thereto), or any other 401(k) plan maintained by the
Company or an Affiliate, the Participant’s deferral election(s) shall be cancelled if permitted under Code Section 409A.
A Participant whose deferral election(s) are cancelled pursuant to this Section 4.3 may make a new deferral election
under Sections 4.1 or 4.2, and pursuant to the requirements of Code Section 409A, with respect to future incentive
awards, unless otherwise prohibited by the Administrator.
Section 4.4 Administration of Deferral Elections . All deferral elections must be made in the form and
manner and within such time periods as the Company prescribes in order to be effective.
ARTICLE 5.
HYPOTHETICAL INVESTMENT OPTIONS
Section 5.1 Investment Election .
(a) Investment Elections . Subject to subsection (b) and unless otherwise determined by the
Administrator, amounts credited to a Participant’s Account shall reflect the investment experience of the Investment
Options selected by the Participant. The Participant may make an initial investment election at the time of enrollment in
the Plan in whole increments of one percent (1%). Subject to subsection (b) , a Participant may also elect to reallocate
his or her Account, and may elect to allocate any future Deferrals, among the various Investment Options in whole
increments of one percent (1%) from time to time as prescribed by the Administrator. Notwithstanding the foregoing,
unless otherwise determined by the Administrator, Share Deferrals or Other Incentive Compensation measured in
relation to a Share shall be automatically invested in the Share Unit Account and may be re-allocated out of such
Investment Option only after the Share Deferrals or Other Incentive Compensation are either vested or earned, , subject
to any additional restrictions on re-allocation as may be imposed by the Company. Such investment elections shall
remain in effect until changed by the Participant. All investment elections shall become effective as soon as practicable
after receipt of such election by the Administrator, and must be made in the form and manner and within such time
periods as the Administrator prescribes in order to be
6
effective. In the absence of an effective election, the Participant’s Account (to the extent the Plan does not require
Deferrals to be allocated to the Share Unit Account) shall be deemed invested in the default fund specified for the
Johnson Controls Inc. Savings and Investment (401k) Plan (or any successor plan thereto).
(b) Automatic Investment of Deferred Dividends . Automatic Deferred Dividends shall be
automatically deemed invested in the Share Unit Account and shall not be re-allocated out of such account.
(c) Crediting of Investment Return . On each Valuation Date, the Administrator (or its designee) shall
credit the deemed investment experience with respect to the selected (or required) Investment Options to each
Participant’s Account. Notwithstanding anything herein to the contrary, the Company retains the right to allocate actual
amounts hereunder without regard to a Participant’s request.
Section 5.2 Allocations to Investment Options .
(a) General Rule . All Deferrals will be deemed invested in an Investment Option as of the date on
which the deferrals would have otherwise been paid to the Participant.
(b) Automatic Deferred Dividends . If a Participant is holding restricted shares of the Company’s stock
or other unearned or unvested equity-based awards with accompanying dividend equivalent rights when the Company
declares a cash dividend on its Shares, the Participant’s Share Unit Account will be credited with Automatic Deferred
Dividends, as of the date the cash dividend is paid to the Company’s shareholders. The amount of the Automatic
Deferred Dividends credited to the Participant’s Stock Unit Account shall be determined by multiplying the number of
restricted shares or dividend equivalent rights held by such Participant on the date the dividend is declared by the
amount of the dividend paid on one Share.
Section 5.3 Securities Law Restrictions . Notwithstanding anything to the contrary herein, all elections
under Article 5 or 6 by a Participant who is subject to Section 16 of the Exchange Act are subject to review by the
Administrator prior to implementation. In accordance with Section 9.3, the Administrator may restrict additional
transactions, rescind transactions, or impose other rules and procedures, to the extent deemed desirable by the
Administrator in order to comply with the Exchange Act, including, without limitation, application of the review and
approval provisions of this Section 5.3 to Participants who are not subject to Section 16 of the Exchange Act.
Section 5.4 Accounts are For Record Keeping Purposes Only . Plan Accounts and the record keeping
procedures described herein serve solely as a device for determining the amount of benefits accumulated by a Participant
under the Plan, and shall not constitute or imply an obligation on the part of the Company or any Affiliate to fund such
benefits.
ARTICLE 6.
DISTRIBUTION OF ACCOUNTS
Section 6.1 Form of Distribution . A Participant, at the time he makes an initial deferral election under
the Plan pursuant to any provision of Article 4, shall elect the form of distribution with respect to each of the following
sub-accounts:
(a) Annual Incentive Deferrals, including interest, earnings or losses thereon.
7
(b) Long-Term Incentive Deferrals, including interest, earnings or losses thereon.
(c) Share Deferrals, as adjusted for gains or losses thereon, that are held in the Participant’s Share Unit
Account as of that date. Notwithstanding the foregoing, if a Participant receives a single lump sum payment of his or her
vested Share Deferrals under the Plan, any Share Deferrals vesting after such payment date shall be paid in a single lump
sum promptly (but not more than seventy-five (75) days) after the vesting date.
(d) Other Incentive Compensation Deferrals, including interest, earnings or losses thereon.
Such election shall be made in such form and manner as the Administrator may prescribe, and shall be
irrevocable. The election shall specify whether distributions shall be made in a single lump sum or from two (2) to ten
(10) annual installments. In the absence of a distribution election with respect to a particular subaccount, payment shall
be made in ten (10) annual installments.
No distribution election shall be made with respect to Deferred Automatic Deferred Dividends, which are
automatically paid in a lump sum as provided in Section 6.2(b).
Section 6.2 Time of Distribution .
(a) Separation from Service . Except as set forth in subsection (b), upon a Participant’s Separation from
Service for any reason, the Participant, or his Beneficiary in the event of his death, shall be entitled to payment of the
amount accumulated in such Participant’s Account in cash.
(b) Payment of Automatic Deferred Dividends . Notwithstanding anything herein to the contrary, the
portion of the Participant’s Share Unit Account that is related to Automatic Deferred Dividends shall be paid to the
Participant in a lump sum within seventy-five (75) days of the date the shares of restricted stock or other equity-based
awards to which such Automatic Deferred Dividends relate vest or are earned. Payment may be made in cash, Shares or
a mixture of cash and Shares, as determined by the Committee in its discretion. Any Shares distributed with respect to
the Participant’s Share Unit Account hereunder shall be deemed issued under the plan of the Company pursuant to which
the related equity-based award was granted.
Section 6.3 Manner of Distribution . Except as set forth in Section 6.2(b), the Participant’s Account
shall be paid in cash in the following manner:
(a) Lump Sum . If payment is to be made in a lump sum,
(1)
(2)
for those Participants whose Separation from Service occurs from January 1 through June 30 of a
year, payment shall be made in the first calendar quarter of the following year, and
for those Participants whose Separation from Service occurs from July 1 through December 31 of
a year, payment shall be made in the third calendar quarter of the following year.
8
The lump sum payment shall equal the balance of the Participant’s Account as of the Valuation Date
immediately preceding the distribution date.
(b) Installments . If payment is to be made in annual installments, the first annual payment shall be
made:
(1)
(2)
for those Participants whose Separation from Service occurs from January 1 through June 30 of a
year, in the first calendar quarter of the following year, and
for those Participants whose Separation from Service occurs during the period from July 1 through
December 31 of a year, in the third calendar quarter of the following year.
The amount of the first annual payment shall equal the value of 1/10 th (or 1/9 th , 1/8 th , 1/7 th , etc.
depending on the number of installments elected) of the balance of the Participant’s Account as of the Valuation Date
immediately preceding the distribution date. All subsequent annual payments shall be made in the first calendar quarter
of each subsequent calendar year, and shall be in an amount equal to the value of 1/9 th (or 1/8 th , 1/7 th , 1/6 th , etc.
depending on the number of installments elected) of the balance of the Participant’s Account as of the Valuation Date
immediately preceding the distribution date. The final annual installment payment shall equal the then remaining balance
of such Account as of the Valuation Date preceding such final payment date.
Notwithstanding the foregoing provisions, if the balance of a Participant’s Account as of the Valuation
Date immediately preceding a distribution date is $50,000 or less, then the entire remaining balance of the Participant’s
Account shall be paid in a lump sum on such distribution date.
Section 6.4 Distribution of Remaining Account Following Participant’s Death . In the event of the
Participant’s death prior to receiving all payments due under this Article 6, the balance of the Participant’s Account shall
be paid to the Participant’s Beneficiary in a lump sum in the first calendar quarter or the third calendar quarter,
whichever first occurs after the Participant’s death; provided that if the Participant dies prior to November 18, 2010, the
death benefit shall be paid according to the prior provisions of the Plan. Notwithstanding the foregoing, in lieu of such
lump sum death benefit, a Participant who has an installment payment election in effect may, prior to his or her
termination of employment, elect to have any remaining installment payments continue to his or her Beneficiary in the
event the Participant dies after beginning to receive such installment payments, provided that such election shall be
given effect only if filed at least twelve (12) months prior to the date of the Participant’s death.
Section 6.5 Tax Withholding . The Company shall have the right to deduct from any deferral or
payment made hereunder, or from any other amount due a Participant, the amount of cash and/or Fair Market Value of
Shares sufficient to satisfy the Company’s or Affiliate’s foreign, federal, state or local income tax withholding
obligations with respect to such deferral (or vesting thereof) or payment. In addition, if prior to the date of distribution of
any amount hereunder, the Federal Insurance Contributions Act (FICA) tax imposed under Code Sections 3101, 3121(a)
and 3121(v)(2), where applicable, becomes due, the Participant’s Account balance shall be reduced by the amount
needed to pay the Participant’s portion of such tax, plus an amount equal to the withholding taxes due under federal,
state or local law resulting from the payment of such FICA tax, and an additional amount to pay the additional income
tax at source on wages attributable to the pyramiding of the Code Section 3401 wages and taxes, but no
9
greater than the aggregate of the FICA tax amount and the income tax withholding related to such FICA tax amount.
Section 6.6 Offset . The Company shall have the right to offset from any amount payable hereunder any
amount that the Participant owes to the Company or to any Affiliate without the consent of the Participant (or his
Beneficiary, in the event of the Participant’s death).
Section 6.7 Additional Payment Provisions .
(a) Acceleration of Payment . Notwithstanding the foregoing:
(1)
(2)
If an amount deferred under this Plan is required to be included in income under Code Section
409A prior to the date such amount is actually distributed, a Participant shall receive a
distribution, in a lump sum within ninety (90) days after the Plan fails to meet the requirements of
Code Section 409A, of the amount required to be included in the Participant’s income as a result
of such failure.
If an amount under the Plan is required to be immediately distributed in a lump sum under a
domestic relations order within the meaning of Code Section 414(p)(1)(B), it may be distributed
according to the terms of such order, provided the Participant holds the Administrator harmless
with respect to such distribution. The Plan shall not distribute amounts required to be distributed
under a domestic relations order other than in the limited circumstance specifically stated herein.
(b) Delay in Payment . Notwithstanding the foregoing:
(1)
If a distribution required under the terms of this Plan would jeopardize the ability of the Company
or an Affiliate to continue as a going concern, the Company or the Affiliate shall not be required
to make such distribution. Rather, the distribution shall be delayed until the first date that making
the distribution does not jeopardize the ability of the Company or of an Affiliate to continue as a
going concern. Any distribution delayed under this provision shall be treated as made on the date
specified under the terms of this Plan.
(2)
If the distribution will violate the terms of Section 16(b) of the Exchange Act or other Federal
securities laws, or any other applicable law, then the distribution shall be delayed until the earliest
date on which making the distribution will not violate such law.
ARTICLE 7.
RULES WITH RESPECT TO SHARE UNITS
Section 7.1 Valuation of Share Unit Account . When any amounts are to be allocated to a Share Unit
Account (whether in the form of Deferrals or amounts that are deemed re-allocated from another Investment Option),
such amount shall be converted to whole and fractional Share Units, with fractional units calculated to three decimal
places, by dividing the amount to be allocated by the Fair Market Value of a Share on the effective date of such
allocation. If any dividends or other distributions are paid on Shares while a Participant has Share Units credited to his
Account, such Participant shall be credited with additional Share Units equal to (a) the amount of the cash dividend paid
or Fair Market
10
Value of other property distributed on one Share, multiplied by the number of Share Units credited to the Participant’s
Share Unit Account on the date the dividend is declared, and then divided by (b) the Fair Market Value of a Share on the
date the dividend is paid or distributed. Any other provision of this Plan to the contrary notwithstanding, if a dividend is
paid on Shares in the form of a right or rights to purchase shares of capital stock of the Company or any entity acquiring
the Company, no additional Share Units shall be credited to the Participant’s Share Unit Account with respect to such
dividend, but each Share Unit credited to a Participant’s Share Unit Account at the time such dividend is paid, and each
Share Unit thereafter credited to the Participant’s Share Unit Account at a time when such rights are attached to Shares,
shall thereafter be valued as of any point in time on the basis of the aggregate of the then Fair Market Value of one Share
plus the then Fair Market Value of such right or rights then attached to one Share.
Section 7.2 Transactions Affecting Common Stock . In the event of any merger, share exchange,
reorganization, consolidation, recapitalization, stock dividend, stock split or other change in corporate structure of the
Company affecting Shares, the Committee may make appropriate equitable adjustments with respect to the Share Units
credited to the Share Unit Account of each Participant, including without limitation, adjusting the date as of which such
units are valued and/or distributed, as the Committee determines is necessary or desirable to prevent the dilution or
enlargement of the benefits intended to be provided under the Plan.
Section 7.3 No Shareholder Rights With Respect to Share Units . Participants shall have no rights as
a stockholder pertaining to Share Units credited to their Accounts.
SPECIAL RULES APPLICABLE IN THE EVENT OF A
CHANGE OF CONTROL OF THE COMPANY
Section 8.1 Acceleration of Payments . Notwithstanding any other provision of this Plan, within 30 days
after a Change of Control, each Participant (or any Beneficiary thereof entitled to receive payments hereunder),
including Participants (or Beneficiaries) receiving installment payments under the Plan, shall be entitled to receive a
lump sum payment in cash of all amounts accumulated in such Participant’s Account. Such payment shall be made as
soon as practicable (but not more than ninety (90) days) following the Change of Control.
In determining the amount accumulated in a Participant’s Share Unit Account, each Share Unit shall have
a value equal to the higher of (a) the highest reported sales price, regular way, of a share of the Company’s common
stock on the Composite Tape for New York Stock Exchange Listed Stocks (the “Composite Tape”) during the sixty
(60)-day period prior to the date of the Change of Control of the Company and (b) if the Change of Control of the
Company is the result of a transaction or series of transactions described in Section 8.2(a), the highest price per Share of
the Company paid in such transaction or series of transactions.
Section 8.2 Definition of a Change of Control . A Change of Control means any of the following
events, provided that each such event would constitute a change of control within the meaning of Code Section 409A:
(a) The acquisition, other than from the Company, by any individual, entity or group of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act), including in connection with a
merger, consolidation or reorganization, of more than either:
11
(1)
(2)
Fifty percent (50%) of the then outstanding shares of common stock of the Company (the
“Outstanding Company Common Stock”) or
Thirty-five percent (35%) of the combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors (the “Company Voting
Securities”),
provided, however , that any acquisition by (x) the Company or any of its subsidiaries, or any employee benefit plan (or
related trust) sponsored or maintained by the Company or any of its subsidiaries or (y) any corporation with respect to
which, following such acquisition, more than sixty percent (60%) of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all
or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Company Voting Securities immediately prior to such acquisition in substantially the
same proportion as their ownership, immediately prior to such acquisition, of the Outstanding Company Common Stock
and Company Voting Securities, as the case may be, shall not constitute a Change in Control of the Company; or
(b) Individuals who, as of January 1, 2005, constitute the Board (the “Incumbent Board”) cease for any
reason to constitute at least a majority of the Board during any twelve (12)-month period, provided that any individual
becoming a director subsequent to January 1, 2005, whose election or nomination for election by the Company’s
shareholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board, shall
be considered as though such individual were a member of the Incumbent Board; or
(c) A complete liquidation or dissolution of the Company or sale or other disposition of all or
substantially all of the assets of the Company other than to a corporation with respect to which, following such sale or
disposition, more than sixty percent (60%) of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors is
then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and Company Voting Securities
immediately prior to such sale or disposition in substantially the same proportion as their ownership of the Outstanding
Company Common Stock and Company Voting Securities, as the case may be, immediately prior to such sale or
disposition. For purposes hereof, “a sale or other disposition of all or substantially all of the assets of the Company” will
not be deemed to have occurred if the sale involves assets having a total gross fair market value of less than forty percent
(40%) of the total gross fair market value of all assets of the Company immediately prior to the acquisition. For this
purpose, “gross fair market value” means the value of the assets without regard to any liabilities associated with such
assets.
For purposes of this Section 8.2, persons will not be considered to be acting as a “group” solely because
they purchase or own stock of the Company at the same time, or as a result of the same public offering. However,
persons will be considered to be acting as a “group” if they are owners of a corporation that enters into a merger,
consolidation, purchase or acquisition of stock, or similar business transaction with the Company. If a person, including
an entity, owns stock in the Company and any other corporation that enters into a merger, consolidation, purchase or
acquisition of stock, or similar transaction, such shareholder is considered to be acting as a group with other shareholders
in such
12
corporation only with respect to the ownership in that corporation prior to the transaction giving rise to the change and
not with respect to the ownership interest in the Company.
Section 8.3 Maximum Payment Limitation .
(a) Limit on Payments . Except as provided in subsection (b) below, if any portion of the payments or
benefits described in this Plan or under any other agreement with or plan of the Company or an Affiliate (in the
aggregate, “Total Payments”), would constitute an “excess parachute payment”, then the Total Payments to be made to
the Participant shall be reduced such that the value of the aggregate Total Payments that the Participant is entitled to
receive shall be one dollar ($1) less than the maximum amount which the Participant may receive without becoming
subject to the tax imposed by Section 4999 of the Code or which the Company may pay without loss of deduction under
Section 280G(a) of the Code. The terms “excess parachute payment” and “parachute payment” shall have the meanings
assigned to them in Section 280G of the Code, and such “parachute payments” shall be valued as provided therein.
Present value shall be calculated in accordance with Section 280G(d)(4) of the Code. Within forty (40) days following
delivery of notice by the Company to the Participant of its belief that there is a payment or benefit due the Participant
which will result in an excess parachute payment, the Participant and the Company, at the Company’s expense, shall
obtain the opinion (which need not be unqualified) of nationally recognized tax counsel selected by the Company’s
independent auditors and acceptable to the Participant in his sole discretion (which may be regular outside counsel to the
Company), which opinion sets forth (1) the amount of the Base Period Income, (2) the amount and present value of Total
Payments and (3) the amount and present value of any excess parachute payments determined without regard to the
limitations of this Section. As used in this Section, the term “Base Period Income” means an amount equal to the
Participant’s “annualized includible compensation for the base period” as defined in Section 280G(d)(1) of the Code.
For purposes of such opinion, the value of any noncash benefits or any deferred payment or benefit shall be determined
by the Company’s independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code,
which determination shall be evidenced in a certificate of such auditors addressed to the Company and the Participant.
Such opinion shall be addressed to the Company and the Participant and shall be binding upon the Company and the
Participant. If such opinion determines that there would be an excess parachute payment, the payments hereunder that
are includible in Total Payments or any other payment or benefit determined by such counsel to be includible in Total
Payments shall be reduced or eliminated as specified by the Participant in writing delivered to the Company within thirty
(30) days of his receipt of such opinion or, if the Participant fails to so notify the Company, then as the Company shall
reasonably determine, so that under the bases of calculations set forth in such opinion there will be no excess parachute
payment. If such legal counsel so requests in connection with the opinion required by this Section, the Participant and
the Company shall obtain, at the Company’s expense, and the legal counsel may rely on in providing the opinion, the
advice of a firm of recognized executive compensation consultants as to the reasonableness of any item of compensation
to be received by the Participant. If the provisions of Sections 280G and 4999 of the Code are repealed without
succession, then this Section shall be of no further force or effect.
(b) Employment Contract Governs . The provisions of subsection (a) above shall not apply to a
Participant whose employment is governed by an employment contract that provides for Total Payments in excess of the
limitation described in subsection (a) above.
13
ARTICLE 9.
GENERAL PROVISIONS
Section 9.1 Administration .
(a) General . The Committee shall have overall discretionary authority with respect to administration of
the Plan; provided that the Administrator shall have discretionary authority and responsibility for the general operation
and daily administration of the Plan and to decide claims and appeals as specified herein. If at any time the Committee
shall not be in existence or not be composed of members of the Board who qualify as “non-employee directors”, then all
determinations affecting Participants who are subject to Section 16 of the Exchange Act shall be made by the full Board,
and all determinations affecting other Participants shall be made by the Board or an officer of the Company or other
committee appointed by the Board (with the assistance of the Administrator). The Committee or Administrator may, in
its discretion, delegate any or all of its authority and responsibility; provided that the Committee shall not delegate
authority and responsibility with respect to non-ministerial functions that relate to the participation by Participants who
are subject to Section 16 of the Exchange Act at the time any such delegated authority or responsibility is exercised. To
the extent of any such delegation, any references herein to the Committee or Administrator, as applicable, shall be
deemed references to such delegatee. Interpretation of the Plan shall be within the sole discretion of the Committee or
the Administrator with respect to their respective duties hereunder. If any delegatee of the Committee or the
Administrator shall also be a Participant or Beneficiary, any determinations affecting the delegatee’s participation in the
Plan shall be made by the Committee or Administrator, as applicable.
(b) Authority and Responsibility . In addition to the authority specifically provided herein, the
Committee and Administrator shall have the discretionary authority to take any action or make any determination
deemed necessary for the proper administration of the Plan with regard to the respective duties of each under the Plan,
including but not limited to: (1) prescribe rules and regulations for the administration of the Plan; (2) prescribe forms for
use with respect to the Plan; (3) interpret and apply all of the Plan’s provisions, reconcile inconsistencies or supply
omissions in the Plan’s terms; (4) make appropriate determinations, including factual determinations, and calculations;
and (5) prepare all reports required by law. Any action taken by the Committee shall be controlling over any contrary
action of the Administrator. The Committee and the Administrator may delegate their ministerial duties to third parties
and to the extent such delegation, references to the Committee or Administrator herein shall mean such delegates, if any.
(c) Decisions Binding . The Committee’s and Administrator’s determinations shall be final and binding
on all parties with an interest hereunder, unless determined to be arbitrary and capricious.
(d) Procedures of the Committee . The Committee’s determinations must be made by not less than a
majority of its members present at the meeting (in person or otherwise) at which a quorum is present, or by written
consent, which sets forth the action, is signed by each member of the Committee and filed with the minutes for
proceedings of the Committee. A majority of the entire Committee shall constitute a quorum for the transaction of
business. The Administrator’s determinations shall be made in accordance with such procedures it establishes.
(e) Indemnification . Service on the Committee or as an Administrator shall constitute service as a
director or officer of the Company so that the Committee and Administrator members shall be entitled to
indemnification, limitation of liability and reimbursement of expenses with respect to their
14
Committee or Administrator services to the same extent that they are entitled under the Company’s By-laws and
Wisconsin law for their services as directors or officers of the Company.
Section 9.2 Designation of Beneficiary . Each Participant may designate a Beneficiary in such form and
manner and within such time periods as the Administrator may prescribe. A Participant can change his beneficiary
designation at any time, provided that each beneficiary designation shall revoke the most recent designation, and the last
designation received by the Administrator while the Participant was alive shall be given effect. If a Participant
designates a Beneficiary without providing in the designation that the Beneficiary must be living at the time of
distribution, the designation shall vest in the Beneficiary the distribution payable after the Participant’s death, and such
distribution if not paid by the Beneficiary’s death shall be made to the Beneficiary’s estate. In the event there is no valid
beneficiary designation in effect at the time of the Participant’s death, in the event the Participant’s designated
Beneficiary does not survive the Participant, or in the event that the beneficiary designation provides that the Beneficiary
must be living at the time of distribution and such designated Beneficiary does not survive to the distribution date, the
Participant’s estate will be deemed the Beneficiary and will be entitled to receive payment. If a Participant designates his
spouse as a beneficiary, such beneficiary designation automatically shall become null and void on the date the
Administrator receives notice of the Participant’s divorce or legal separation.
Section 9.3 Restrictions to Comply with Applicable Law . All transactions under the Plan are intended
to comply with all applicable conditions of Rule 16b-3 under the Exchange Act. The Committee and Administrator shall
administer the Plan so that transactions under the Plan will be exempt from or comply with Section 16 of the Exchange
Act, and shall have the right to restrict or rescind any transaction, or impose other rules and requirements, to the extent it
deems necessary or desirable for such exemption or compliance to be met.
Section 9.4 Claims Procedures .
(a) Initial Claim . If a Participant or Beneficiary (the “claimant”) believes that he is entitled to a benefit
under the Plan that is not provided, the claimant or his legal representative shall file a written claim for such benefit with
the Administrator within ninety (90) days of the date the payment that is in dispute should have been made. The
Administrator shall review the claim and render a decision within ninety (90) days following the receipt of the claim;
provided that the Administrator may determine that an additional ninety (90)-day extension is necessary due to
circumstances beyond the Administrator’s control, in which event the Administrator shall notify the claimant prior to the
end of the initial period that an extension is needed, the reason therefor, and the date by which the Administrator expects
to render a decision. If the claimant’s claim is denied in whole or part, the Administrator shall provide written notice to
the claimant of such denial. The written notice shall include: the specific reason(s) for the denial; reference to specific
Plan provisions upon which the denial is based; a description of any additional material or information necessary for the
claimant to perfect the claim and an explanation of which such material or information is necessary; and a description of
the Plan’s review procedures (as set forth in subsection (b)) and the time limits applicable to such procedures, including
a statement of the claimant’s right to bring a civil action under section 502(a) of ERISA following an adverse
determination upon review.
(b) Request for Appeal . The claimant has the right to appeal the Administrator’s decision by filing a
written appeal to the Administrator within sixty (60) days after the claimant’s receipt of the Administrator’s decision,
although to avoid penalties under Code Section 409A, the claimant’s appeal must be filed within one hundred eighty
(180) days of the date payment could have been timely
15
made in accordance with the terms of the Plan and pursuant to Regulations promulgated under Code Section 409A. The
claimant will have the opportunity, upon request and free of charge, to have reasonable access to and copies of all
documents, records and other information relevant to the claimant’s appeal. The claimant may submit written comments,
documents, records and other information relating to his claim with the appeal. The Administrator will review all
comments, documents, records and other information submitted by the claimant relating to the claim, regardless of
whether such information was submitted or considered in the initial claim determination. The Administrator shall make a
determination on the appeal within sixty (60) days after receiving the claimant’s written appeal; provided that the
Administrator may determine that an additional sixty (60)-day extension is necessary due to circumstances beyond the
Administrator’s control, in which event the Administrator shall notify the claimant prior to the end of the initial period
that an extension is needed, the reason therefor and the date by which the Administrator expects to render a decision. If
the claimant’s appeal is denied in whole or part, the Administrator shall provide written notice to the claimant of such
denial. The written notice shall include: the specific reason(s) for the denial; reference to specific Plan provisions upon
which the denial is based; a statement that the claimant is entitled to receive, upon request and free of charge, reasonable
access to and copies of all documents, records, and other information relevant to the claimant’s claim; and a statement of
the claimant’s right to bring a civil action under section 502(a) of ERISA. If the claimant does not receive a written
decision within the time period(s) described above, the appeal shall be deemed denied on the last day of such period(s).
(c) ERISA Fiduciary . For purposes of ERISA, the Committee shall be considered the named fiduciary
under the Plan and the plan administrator, except with respect to claims and appeals, for which the Administrator shall
be considered the named fiduciary.
Section 9.5 Participant Rights Unsecured .
(a) Unsecured Claim . The right of a Participant or his Beneficiary to receive a distribution hereunder
shall be an unsecured claim, and neither the Participant nor any Beneficiary shall have any rights in or against any
amount credited to his Account or any other specific assets of the Company or an Affiliate. The right of a Participant or
Beneficiary to the payment of benefits under this Plan shall not be assigned, encumbered, or transferred, except as
permitted under Section 6.8(a)(2) or 9.2. The rights of a Participant hereunder are exercisable during the Participant’s
lifetime only by him or his guardian or legal representative.
(b) Contractual Obligation . The Company or an Affiliate may authorize the creation of a trust or other
arrangements to assist it in meeting the obligations created under the Plan, subject to the restrictions on funding such
trust or arrangement imposed by Code Sections 409A(b)(2) or (3). However, any liability to any person with respect to
the Plan shall be based solely upon any contractual obligations that may be created pursuant to the Plan. No obligation of
the Company or an Affiliate shall be deemed to be secured by any pledge of, or other encumbrance on, any property of
the Company or any Affiliate. Nothing contained in this Plan and no action taken pursuant to its terms shall create or be
construed to create a trust of any kind, or a fiduciary relationship between the Company or an Affiliate and any
Participant or Beneficiary, or any other person.
(c) No Right to Employment . Participation in this Plan, or any modifications thereof, or the payments
of any benefits hereunder, shall not be construed as giving to any person any right to be retained in the service of the
Company or any Affiliate, limiting in any way the right of the Company or any Affiliate to terminate such person’s
employment at any time, evidencing any agreement or understanding that the Company or any Affiliate will employ
such person in any particular position or any
16
particular rate of compensation or guaranteeing such person any right to receive any other form or amount of
remuneration from the Company or any Affiliate.
Section 9.6 Amendment or Termination of Plan .
(a) Amendment . The Committee may at any time amend the Plan, including but not limited to
modifying the terms and conditions applicable to (or otherwise eliminating) Deferrals to be made on or after the
amendment date to the extent not prohibited by Code Section 409A; provided, however, that no amendment may reduce
or eliminate any Account balance accrued to the date of such amendment (except as such Account balance may be
reduced as a result of investment losses allocable to such Account) without a Participant’s consent except as otherwise
specifically provided herein; and provided further that the Board must approve any amendment that expands the class of
employees eligible for participation under the Plan, that materially increases the benefits provided under the Plan or that
is required to be approved by the Board by any applicable law or the listing requirements of the national securities
exchange upon which the Company’s common stock is then traded. In addition, the Administrator may at any time
amend the Plan to make administrative changes and changes necessary to comply with applicable law.
(b) Termination . The Committee may terminate the Plan in accordance with the following provisions.
Upon termination of the Plan, any deferral elections then in effect shall be cancelled to the extent permitted by Code
Section 409A. Upon termination of the Plan, the Committee may authorize the payment of all amounts accrued under the
Plan in a single sum payment without regard to any distribution election then in effect, only in the following
circumstances:
(1)
(2)
The Plan is terminated within twelve (12) months of a corporate dissolution taxed under Code
Section 331, or with the approval of a bankruptcy court pursuant to 11 U.S.C. §503(b)(1)(A). In
such event, the single sum payment must be distributed by the latest of: (A) the last day of the
calendar year in which the Plan termination occurs, (B) the first calendar year in which the
amount is no longer subject to a substantial risk of forfeiture, or (C) the first calendar year in
which payment is administratively practicable.
The Plan is terminated at any other time, provided that such termination does not occur proximate
to a downturn in the financial health of the Company or an Affiliate, and all other plans required
to be aggregated with this Plan under Code Section 409A are also terminated and liquidated. In
such event, the single sum payment shall be paid no earlier than twelve (12) months (and no later
than twenty-four (24) months) after the date of the Plan’s termination. Notwithstanding the
foregoing, any payment that would otherwise be paid during the twelve (12)-month period
beginning on the Plan termination date pursuant to the terms of the Plan shall be paid in
accordance with such terms. In addition, the Company or any Affiliate shall be prohibited from
adopting a similar arrangement within three (3) years following the date of the Plan’s termination.
Section 9.7 Administrative Expenses . Costs of establishing and administering the Plan will be paid by
the Company and its participating Affiliates.
17
Section 9.8 Successors and Assigns . This Plan shall be binding upon and inure to the benefit of the
Company, its successors and assigns and the Participants and their heirs, executors, administrators, and legal
representatives.
Section 9.9 Governing Law; Limitation on Actions; Dispute Resolution .
(a) Governing Law . This Plan is intended to be a plan of deferred compensation maintained for a
select group of management or highly compensated employees as that term is used in ERISA, and shall be interpreted so
as to comply with the applicable requirements thereof. In all other respects, the Plan is to be construed and its validity
determined according to the laws of the State of Wisconsin (without reference to conflict of law principles thereof) to the
extent such laws are not preempted by federal law.
(b) Limitation on Actions . Any action or other legal proceeding with respect to the Plan may be
brought only after the claims and appeals procedures of Section 9.4 are exhausted and only within period ending on the
earlier of (1) one year after the date claimant receives notice or deemed notice of a denial upon appeal under Section 9.4
(b), or (2) the expiration of the applicable statute of limitations period under applicable federal law. Any action or other
legal proceeding not adjudicated under ERISA must be arbitrated in accordance with the provisions of subsection (c).
(c) Arbitration .
(1) Application . Notwithstanding any employee agreement in effect between a Participant and the
Company or any Affiliate, if a Participant or Beneficiary brings a claim that relates to benefits
under this Plan that is not covered under ERISA, and regardless of the basis of the claim
(including but not limited to, actions under Title VII, wrongful discharge, breach of employment
agreement, etc.), such claim shall be settled by final binding arbitration in accordance with the
rules of the American Arbitration Association (“AAA”) and judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof.
(2)
Initiation of Action . Arbitration must be initiated by serving or mailing a written notice of the
complaint to the other party. Normally, such written notice should be provided to the other party
within one year (365 days) after the day the complaining party first knew or should have known of
the events giving rise to the complaint. However, this time frame may be extended if the
applicable statute of limitation provides for a longer period of time. If the complaint is not
properly submitted within the appropriate time frame, all rights and claims that the complaining
party has or may have against the other party shall be waived and void. Any notice sent to the
Company shall be delivered to:
Office of General Counsel
Johnson Controls, Inc.
5757 North Green Bay Avenue
P.O. Box 591
Milwaukee, WI 53201-0591
18
The notice must identify and describe the nature of all complaints asserted and the facts upon
which such complaints are based. Notice will be deemed given according to the date of any
postmark or the date of time of any personal delivery.
(3) Compliance with Personnel Policies . Before proceeding to arbitration on a complaint, the
Participant or Beneficiary must initiate and participate in any complaint resolution procedure
identified in the Company’s or Affiliate’s personnel policies. If the claimant has not initiated the
complaint resolution procedure before initiating arbitration on a complaint, the initiation of the
arbitration shall be deemed to begin the complaint resolution procedure. No arbitration hearing
shall be held on a complaint until any applicable complaint resolution procedure has been
completed.
(4) Rules of Arbitration . All arbitration will be conducted by a single arbitrator according to the
Employment Dispute Arbitration Rules of the AAA. The arbitrator will have authority to award
any remedy or relief that a court of competent jurisdiction could order or grant including, without
limitation, specific performance of any obligation created under policy, the awarding of punitive
damages, the issuance of any injunction, costs and attorney’s fees to the extent permitted by law,
or the imposition of sanctions for abuse of the arbitration process. The arbitrator’s award must be
rendered in a writing that sets forth the essential findings and conclusions on which the
arbitrator’s award is based.
(5) Representation and Costs . Each party may be represented in the arbitration by an attorney or
other representative selected by the party. The Company or Affiliate shall be responsible for its
own costs, the AAA filing fee and all other fees, costs and expenses of the arbitrator and AAA for
administering the arbitration. The claimant shall be responsible for his attorney’s or
representative’s fees, if any. However, if any party prevails on a statutory claim which allows the
prevailing party costs and/or attorneys’ fees, the arbitrator may award costs and reasonable
attorneys’ fees as provided by such statute.
(6) Discovery; Location; Rules of Evidence . Discovery will be allowed to the same extent afforded
under the Federal Rules of Civil Procedure. Arbitration will be held at a location selected by the
Company. AAA rules notwithstanding, the admissibility of evidence offered at the arbitration
shall be determined by the arbitrator who shall be the judge of its materiality and relevance. Legal
rules of evidence will not be controlling, and the standard for admissibility of evidence will
generally be whether it is the type of information that responsible people rely upon in making
important decisions.
(7) Confidentiality . The existence, content or results of any arbitration may not be disclosed by a
party or arbitrator without the prior written consent of both parties. Witnesses who are not a party
to the arbitration shall be excluded from the hearing except to testify.
19
Pursuant to the provisions of IRS Notice 2005-1:
ADDENDUM
SPECIAL TRANSITION RULES
1.
2.
In reliance on the 6-month advance deferral election for performance-based compensation, the Company
provided each Participant with an opportunity to file a new deferral election by March 31, 2005, with respect to
each of such Participant’s Annual and Long-Term Incentive Awards that had not yet been paid as of the date the
election was filed.
The Company provided each Participant with an opportunity to file a new distribution election (including a death
benefit election for Mr. Andrew Schildt) during calendar year 2005, with respect to each of his Annual Incentive
Deferrals sub-account, Long-Term Incentive Deferrals sub-account and Share Deferrals sub-account. The new
distribution election allowed the Participant to select a lump sum or up to ten (10) annual installments for each of
his sub-accounts.
3.
The Company permitted the following individuals to cancel participation in the Plan and receive a lump sum
payout in 2005 of his Account Balance: John Fiori
Pursuant to the provisions of IRS Notice 2006-79:
4.
The Company provided each Participant with an opportunity to file a new distribution election during calendar
year 2006 and/or 2007. The new distribution election allowed the Participant to select a lump sum or up to ten
(10) annual installments for his Plan Account, and allowed Participants to elect a whole or partial lump sum
payment to be made either in 2007 (provided the election was made by December 31, 2006 and was irrevocable
with respect to the 2007 payment) or 2008 (provided the election was made by December 31, 2007). The last
distribution election received by the Administrator before January 1, 2008 is irrevocable with respect to 2008.
Pursuant to the provisions of IRS Notice 2007-86:
5.
The Company will provide each Participant with an opportunity to file a new distribution election during
calendar year 2008. The new distribution election allows the Participant to select a lump sum or up to ten (10)
annual installments for his Plan Account, and allows Participants to elect a whole or partial lump sum payment to
be made in 2009 (provided the election was made by December 31, 2008). The last distribution election received
by the Administrator before January 1, 2009 is irrevocable.
20
JOHNSON CONTROLS, INC.
COMPENSATION SUMMARY FOR NON-EMPLOYEE DIRECTORS
EXHIBIT 10.Q
1. Annual Compensation for Non-Employee Directors
Compensation for non-employee members of the Board of Directors (the “Board”) of Johnson Controls,
Inc. (the “Company”), effective October 1, 2013, consists of the payment for the Company’s fiscal year of the following:
(a)
Retainer
A retainer at the annual rate of $245,000 to each non-employee director in the form of $110,000 in cash
and $135,000 in common stock of the Company (the “Retainer”).
(b) Committee Chair Fee
A Committee Chair fee at the annual rate of $25,000 in cash to each non-employee chair and successor
chair for the Audit, Compensation, Corporate Governance and Finance Committees of the Board (the
“Committee Chair Fee”). References to a successor chair or successor lead director in this summary are to
directors who have been designated to succeed a then-current committee chair or the then-current lead
director, respectively, pursuant to the Company’s policies or practices regarding Board succession.
(c)
Lead Director Fee
A Lead Director Fee to the non-employee lead director and successor lead director in cash at the annual
rate of:
(i)
(ii)
$30,000 if the non-employee director is not also a non-employee chair or successor chair for the
Audit, Compensation, Corporate Governance or Finance Committee of the Board (a “Non-Chair
Lead Director”); or
$15,000 if the non-employee director is also a non-employee chair or successor chair for the
Audit, Compensation, Corporate Governance or Finance Committee of the Board (a “Committee
Chair Lead Director”).
2. 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:
(a) Directors Retiring or Newly or Recently Elected as of the Annual Shareholders Meeting
(i)
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 which such annual shareholders
meeting occurs to the date of the annual shareholders meeting divided by (y) 365, multiplied by
$135,000.
1
(ii)
If a director is newly elected to the Board at such annual shareholders meeting, or was appointed
as a director on or after the October 1 of the fiscal year in which such annual shareholders meeting
occurs, 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 which such annual shareholders
meeting occurs divided by (y) 365, multiplied by $135,000.
(b) Director Newly Elected or Appointed After the Annual Shareholders Meeting
If a director is newly appointed or elected to the Board after the annual shareholders meeting in the fiscal
year of such appointment or election, 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 (i) 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 of such appointment or election divided by (ii) 365, multiplied by $135,000.
(c) Director Retiring Prior to the Date of the Annual Shareholders Meeting
If a director retires from the Board either on October 1 or after October 1 of a fiscal year 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 (i) the number of
days that have elapsed from October 1 of the fiscal year in which the retirement occurs to the date of the
director’s retirement divided by (ii) 365, multiplied by $135,000.
3. Payment of the Cash Portion of the Retainer and Committee Chair or Lead Director Fee
(a) Quarterly Payments
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, $6,250 per
quarter for the Committee Chair Fee and $7,500 or $3,750 for the Lead Director Fee, as applicable) in
advance on the first business day of each quarter (except for the second quarter, which will be typically
paid as of the annual shareholders meeting) to each director then in office entitled to receive such fees.
(b) Newly Appointed Directors and Newly Appointed Committee Chairs and Lead Director (and Successors)
If a director is either (i) newly elected or appointed to the Board or (ii) newly appointed as a Committee
Chair (or successor to a Committee Chair) or Lead Director (or successor to the 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:
(i)
Cash Portion of Retainer : The director newly elected or appointed to the Board shall receive a
cash amount equal to (x) the number of days from the effective date of the
2
appointment or election to the first day of the next quarter divided by (y) 90, multiplied by
$27,500.
(ii) Committee Chair Fee : The director appointed as a Committee Chair (or successor to a Committee
Chair) shall receive a cash amount equal to (x) the number of days from the effective date of the
appointment to the first day of the next quarter divided by (y) 90, multiplied by $6,250.
(iii) Lead Director Fee : The director appointed as Lead Director (or successor to the Lead Director)
shall receive a cash amount equal to (x) the number of days from the effective date of the
appointment to the first day of the next quarter divided by (y) 90, multiplied by (A) $7,500, if the
director is a Non-Chair Lead Director, or (B) $3,750, if the director is a Committee Chair Lead
Director.
4. Other Provisions
(a) No Attendance Fees
The Company will not pay any fees for attendance at meetings of the Board or any committee of the
Board.
(b) Stock Issued Under 2003 Stock Plan for Outside Directors
All shares of stock to be issued to directors as contemplated above will be issued pursuant to the 2003
Stock Plan for Outside Directors.
(c) Deferrals
Non-employee directors are permitted to defer all or any part of their Retainer, Committee Chair Fees,
and Lead Director Fees under the Johnson Controls, Inc. Deferred Compensation Plan for Certain Directors.
(d) Reimbursements
The Company will also reimburse non-employee directors for any expenses related to their service on the
Board.
3
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, 2013, 2012, 2011, 2010 and 2009.
(Dollars in millions)
2013
Year Ended September 30,
2011
2010
2012
Net income (loss) attributable to Johnson Controls, Inc. $
Income tax provision (benefit)
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
$
$
$
$
1,178 $
1,168
119
(402 )
210
18
448
2,739 $
1,184 $
209
127
(340 )
190
9
409
1,788 $
1,415 $
258
117
(298 )
194
10
331
2,027 $
1,354 $
157
75
(254 )
212
11
302
1,857 $
333 $
157
490 $
(42 )
448 $
313 $
151
464 $
(55 )
409 $
224 $
141
365 $
(34 )
331 $
193 $
130
323 $
(21 )
302 $
2009
(661 )
(162 )
(12 )
77
158
11
492
(97 )
375
134
509
(17 )
492
Ratio of earnings to fixed charges
5.6
3.9
5.6
5.7
*
*
The ratio coverage for the year ended September 30, 2009 was less than 1:1. The Company must generate additional earnings of $606
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 21, 2013
Board of Directors
5757 North Green Bay Avenue
Milwaukee, Wisconsin 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 been provided a copy of the Company’s Annual Report on Form 10-K for the year ended September 30, 2013. Note 1 therein describes
a change in accounting principle for inventory costing in the Company’s Power Solutions business to the first-in first-out (FIFO) method from
the last-in first-out (LIFO) method. It should be understood that the preferability of one acceptable method of accounting over another for
inventory costing 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
The following is a list of significant subsidiaries of the Company, as defined by Section 1.02(w) of Regulation S-X, as of October 31, 2013.
JOHNSON CONTROLS, INC.
EXHIBIT 21
Name
York International Corporation
Johnson Controls Battery Group, Inc.
Hoover Universal, Inc.
Jurisdiction Where Subsidiary is
Incorporated
Delaware
Wisconsin
Michigan
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23
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 21, 2013 relating to the financial statements, financial statement schedule and the effectiveness of internal
control over financial reporting, which appears in this Form 10-K.
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-8 (Registration No. 33-58094)
4. Registration Statement on Form S-8 (Registration No. 333-10707)
5. Registration Statement on Form S-8 (Registration No. 333-41564)
6. Registration Statement on Form S-8 (Registration No. 333-141578)
7. Registration Statement on Form S-8 (Registration No. 333-173326)
8. Registration Statement on Form S-8 (Registration No. 333-188430)
9. Registration Statement on Form S-3 (Registration No. 333-157502)
10. Registration Statement on Form S-3 (Registration No. 333-178148)
11. Registration Statement on Form S-3 (Registration No. 333-179613)
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
November 21, 2013
EXHIBIT 31.1
I, Alex A. Molinaroli, President 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 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 21, 2013
/s/ Alex A. Molinaroli
Alex A. Molinarioli
President 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 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 21, 2013
/s/ R. Bruce McDonald
R. Bruce McDonald
Executive Vice President and
Chief Financial Officer
CERTIFICATION OF PERIODIC FINANCIAL REPORTS
EXHIBIT 32
We, Alex A. Molinaroli, President 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, 2013 (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.
Date: November 21, 2013
/s/ Alex A. Molinaroli
Alex A. Molinaroli
President and Chief Executive Officer
/s/ R. Bruce McDonald
R. Bruce McDonald
Executive Vice President and Chief Financial Officer