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, 2014
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
Name of Each Exchange on Which Registered
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, 2014 , the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was approximately
$31.5 billion based on the closing sales price as reported on the New York Stock Exchange. As of October 31, 2014, 666,188,889 shares 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 28,
2015 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, 2014
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
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV.
SIGNATURES
INDEX TO EXHIBITS
114
114
115
116
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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 seating 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. On June 16, 2014, the Company acquired Air Distribution Technologies, Inc. (ADT), one of the largest independent providers of
air distribution and ventilation products in North America.
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 seating and interior systems
through our design and engineering expertise. The Company’s technologies extend into virtually every area of the interior including seating,
door systems, floor consoles, instrument panels and cockpits. 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 seven reportable segments for
financial reporting purposes. The Company’s seven 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 four Building Efficiency reportable segments and the two
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, products, services and solutions designed
to improve the comfort, safety and energy efficiency of non-residential buildings and residential properties with operations in 56 countries.
Revenues come from facilities management, technical services, and the replacement and upgrade of HVAC controls and mechanical equipment
in the existing buildings market, where the Company’s large base of current customers leads to repeat business, as well as with installing
controls and equipment during the construction of new buildings. Customer relationships often span entire building lifecycles.
Building Efficiency sells its control systems, mechanical equipment and services primarily through the Company’s extensive global network of
sales and service offices. Some building controls, products and mechanical systems are sold to distributors of air-conditioning, refrigeration and
commercial heating systems throughout the world. In fiscal 2014 , approximately 45% of Building Efficiency’s sales are derived from HVAC
products and installed control systems for construction and retrofit markets, including 15% of total sales related to new commercial
construction. Approximately 55% of its sales in fiscal 2014 originated from its service offerings. In fiscal 2014 , Building Efficiency accounted
for 33% 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. The Company also produces air conditioning and
heating equipment and products, including Titus® and Ruskin® brands, for the residential market. 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.
Automotive Experience
Automotive Experience designs and manufactures interior products and systems for passenger cars and light trucks, including vans, pick-up
trucks and sport/crossover utility vehicles. The business produces automotive interior systems for OEMs and operates approximately 264
wholly- and majority-owned manufacturing or assembly plants, with operations in 32 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 interior components, including instrument panels, floor
consoles, and door systems. In fiscal 2014 , 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 140 million lead-acid batteries annually in approximately 61 wholly- and majority-owned manufacturing or
assembly plants, distribution centers and sales offices in 22 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 74% of unit sales worldwide in fiscal 2014 were to the
automotive replacement market, with the remaining sales to the OEM market.
Power Solutions accounted for 16% of the Company’s fiscal 2014 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 equipment and controls 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.; 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, 2014 ,
the backlog was $4.8 billion, the majority of which relates to fiscal 2015. The backlog as of September 30, 2013 was $4.8 billion. The
consistency in backlog year over year was primarily due to the increase in the Other segment, offset
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by a decline in the Asia 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 fiscal 2014 , and the Company expects such availability to continue. In fiscal
2015, 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 with regulatory authorities through 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 2014 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, 2014 , the Company employed approximately 168,000 employees, of whom approximately 106,000 were hourly and
62,000 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.
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 our initial disclosure relating to conflict minerals occurring 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. Our continued compliance with these disclosure
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, mortality assumptions 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. Generally accepted accounting principles in the U.S. 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, 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 additional 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 income tax provision on our consolidated
statement of income.
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 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 a global enterprise resource planning
system over a period of several years in addition to other IT systems in certain of our businesses. 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 and quantity
of corporate initiatives 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 commercial and residential new construction markets may adversely affect our results of operations.
HVAC equipment sales in the commercial and residential new construction markets correlate to the number of new buildings and homes that
are built. The strength of the commercial and residential markets depends in part on the availability of commercial and consumer financing for
our customers, along with inventory and pricing of existing buildings and homes. If economic and credit market conditions decline, it may
result in a decline in the construction of new commercial buildings and residential housing construction market. 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 or refrigerant 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 2014, our largest customers globally were
automobile manufacturers Ford Motor Company (Ford), Fiat Chrysler Automobiles N.V. (Chrysler), General Motors Corporation (GM),
Daimler AG and Volkswagen AG (VW). 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.
The financial performance of 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 and prevalence of our joint ventures and relationships with our strategic business partners; global overcapacity and vehicle platform
proliferation; and potential complications or the failure to consummate the anticipated joint venture formation for a majority of our Interiors
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 26% of the total sales of the Power Solutions business in fiscal 2014 . 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 market, including replacement
cycle; 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;
13
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, 2014 , the Company conducted its operations in 58 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 96 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
Alabama
Arizona
California
Delaware
Florida
Georgia
Idaho
Illinois
Indiana
Kansas
Kentucky
Maryland
Massachusetts
Michigan
Dothan (3)
Geneva (3)
Huntsville (2)
Tucson (3)
Mira Loma (2),(3)
Roseville (1),(4)
San Jose (1)
Sanger (1)
Simi Valley (1),(4)
Newark (1),(4)
Largo (1),(3)
Medley (1),(4)
Tampa (1),(4)
Roswell (1),(4)
Nampa
Arlington Heights (4)
Carol Stream (1)
Elmhurst (1),(4)
Wheeling (1)
Lebanon
Rochester (3)
Lenexa (1),(4)
Parson (3)
Wichita (2),(3)
Lexington (1),(3)
Louisville (2),(3)
Baltimore (1),(4)
Capitol Heights (1),(4)
Rossville (1)
Sparks (1),(4)
Lynnfield (4)
Turner Falls (1)
Grand Rapids (1),(4)
Sterling Heights (1),(4)
Minnesota
Mississippi
Missouri
New Jersey
North Carolina
Ohio
Oklahoma
Oregon
Pennsylvania
Texas
Washington
Wisconsin
Fridley (3)
Plymouth (1),(4)
Hattiesburg (1)
Olive Branch
Albany
Grandview (4)
St. Louis (1),(4)
Hainesport (1),(4)
Charlotte (1),(4)
Sanford
Tarboro
Cincinnati (3)
Clayton
Dayton (4)
Norman (3)
Ponca City (1)
Portland (1),(4)
Audubon (1),(4)
East Greenville (1),(3)
Waynesboro (3)
York (1)
Carrollton (1),(3)
Coppell (1)
El Paso (2)
Houston (1),(3)
Irving (4)
Plano (1),(4)
Richardson (1),(4)
San Antonio
Fife (1),(4)
Milwaukee (2),(4)
Waukesha (1),(4)
15
Austria
Belgium
Brazil
Canada
China
Denmark
France
Germany
Hong Kong
India
Vienna (4)
Diegem (1),(4)
Curitiba (1),(4)
Ajax (1),(3)
Markham (2),(4)
Nobel (1)
Oakville (1),(4)
Prescott (1)
Beijing (1),(4)
Qingyuan (2),(3)
Suzhou (1),(3)
Wuxi (2),(3)
Hojbjerg (3)
Hornslet (2),(3)
Viby (3)
Carquefou Cedex (2),(3)
Colombes (1),(3)
Essen (1),(3)
Hamburg (1),(3)
Mannheim (1),(3)
Hong Kong (1),(4)
Bangalore (1)
Gurgaon (1)
Mumbai (1),(4)
Pune (1)
Building Efficiency (continued)
Italy
Japan
Macau
Malaysia
Mexico
Netherlands
Poland
Russia
South Africa
Spain
Thailand
Turkey
United Kingdom
Milan (1),(3)
Tokyo (1),(4)
Macau (1),(4)
Petaling Jaya (1),(4)
Apodaca (1),(3)
Durango
Juarez (2)
Mexicali (1)
Monterrey (1),(4)
Ojinga (1)
Reynosa (3)
Santa Catarina (1),(3)
Dordrecht (3)
Gorinchem (1),(3)
Warsaw (1),(3)
Moscow (1),(3)
Isando (1),(4)
Sabadell (1),(3)
Amper Kabinburi (1),(3)
Manisa (1)
Bridgnorth (3)
Whitstable (3)
United Arab Emirates
Dubai (1)
16
Alabama
Georgia
Illinois
Kentucky
Michigan
Missouri
Ohio
Tennessee
Texas
Automotive Experience
Argentina
Buenos Aires (1)
Australia
Austria
Belgium
Brazil
Canada
China
Czech Republic
France
Rosario
Adelaide (1)
Graz (1)
Mandling
Assenede (1)
Pouso Alegre
Quatro Barras (2)
Santo Andre (1)
Sao Bernardo do Campo
Sao Jose dos Pinhais (1)
Milton
Mississauga (1)
Tillsonburg
Whitby (2)
Guangzhou (2)
Shanghai (1),(3)
Wuhu (2)
Bezdecin (1)
Ceska Lipa (4)
Mlada Boleslav (1)
Roudnice
Rychnov (1)
Strakonice
Straz pod Ralskem
Zatec
Conflans-sur-Lanterne
Fesches-le-Chatel (1)
Laroque D'Olmes
Rosny
Strasbourg
Bessemer (1)
Clanton
Eastaboga
McCalla (1)
West Point (1)
Sycamore
Cadiz
Georgetown (2)
Louisville (1)
Shelbyville (1)
Winchester (1)
Auburn Hills (1)
Battle Creek
Cascade (1)
Detroit
Highland Park (1)
Holland (2),(3)
Lansing (2)
Monroe (1)
Plymouth (2),(4)
Romulus (1)
Taylor (1)
Warren (1)
Zeeland (1)
Eldon (2)
Riverside (1)
Bryan
Greenfield
Northwood
Wauseon
Athens
Lexington (1)
Murfreesboro
Pulaski (1)
El Paso (1)
San Antonio (1)
17
Germany
Hungary
India
Indonesia
Italy
Japan
Korea
Malaysia
Automotive Experience (continued)
Mexico
Poland
Portugal
Romania
Russia
Slovak Republic
South Africa
Spain
Boblingen (1)
Bochum (2)
Bremen (1)
Burscheid (2),(4)
Dautphe
Espelkamp
Grefrath
Grobbottwar (1)
Hilchenbach (1)
Kaiserslauten
Luneburg
Mannweiler (1)
Markgroningen (2)
Neuenburg (1)
Neuss (1),(4)
Neustadt
Rastatt (1)
Remscheid (1)
Rockenhausen
Saarlouis (1)
Solingen (3)
Ueberherrn
Waghausel
Wuppertal (1),(3)
Zwickau (1)
Mezolak
Mor
Dharwad (1)
Pune (2),(3)
Bekasi (1)
Purwakarta (1)
Grugliasco (1)
Melfi
Ogliastro Cilento
Rocca D'Evandro
Hamamatsu
Higashiomi
Yokohama (1),(4)
Yokosuka (2)
Ansan (1),(4)
Asan
Melaka (1)
Pekan (1)
Selangor Darul Ehsan
Coahuila (1)
El Marquez
Juarez
Lerma (1)
Matamaros (1)
Monclova
Puebla (1)
Ramos Arizpe
Saltillo (2)
Tlaxcala
Toluca (1)
Bierun
Siemianowice
Skarbimierz (1)
Swiebodzin
Zory
Palmela
Bradu
Craiova (1)
Jimbolia
Mioveni (1)
Pitesti (1)
Ploesti
Timisoara (1)
St. Petersburg (2)
Togliatti (1)
Bratislava (1),(4)
Kostany nad Turcom (2)
Lozorno (1)
Lucenec
Trencin (1),(4)
Zilina (2)
Chloorkop (1)
East London (1)
Eastern Cape (1)
Joannesburg
Port Elizabeth (1)
Pretoria
Swartkops (1)
Uitenhage (1)
Wynberg (1)
Abrera
Alagon
Almussafes (1)
Pedrola
Redondela (1)
Valladolid
18
Sweden
Thailand
Turkey
United Kingdom
Arizona
Delaware
Florida
Georgia
Illinois
Indiana
Iowa
Kentucky
Michigan
Missouri
North Carolina
Ohio
Oregon
South Carolina
Texas
Wisconsin
Goteburg (1)
Chonburi (1)
Rayong
Bursa (1)
Kocaeli
Birmingham
Burton-Upon-Trent
Ellesmere (1)
Garston (1)
Sunderland
Telford (1)
Wednesbury
Yuma (3)
Middletown (3)
Tampa (3)
Columbus (1)
Geneva (3)
Ft. Wayne (3)
Red Oak (3)
Florence (2),(3)
Holland (3)
St. Joseph (3)
Kernersville (3)
Toledo (3)
Canby (2),(3)
Florence (3)
Oconee (2),(3)
San Antonio (3)
Milwaukee (4)
Automotive Experience (continued)
Power Solutions
Austria
Brazil
China
Colombia
Czech Republic
France
Germany
Korea
Mexico
Peru
Spain
Sweden
Corporate
Vienna (1),(3)
Sorocaba (3)
Changxing (3)
Chongqing (3)
Shanghai (2),(3)
Yumbo (2),(3)
Ceska Lipa (2),(3)
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
Lima (1),(4)
Burgos
Guadalajara (1)
Guadamar del Segura
Ibi (3)
Hultsfred
Wisconsin
Milwaukee (2),(4)
China
Mexico
Singapore
Slovak Republic
Dalian (1),(4)
Monterrey (1),(4)
Singapore (1),(4)
Bratislava (1),(4)
19
(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 534 Building
Efficiency branch offices and other administrative offices located in major cities throughout the world. These offices are primarily leased
facilities and vary in size in proportion to the volume of business in the particular locality.
ITEM 3 LEGAL PROCEEDINGS
As noted in Item 1, liabilities potentially arise globally under various environmental laws and worker safety laws for activities that are not in
compliance with such laws and for the cleanup of sites where Company-related substances have been released into the environment.
Currently, the Company is responding to allegations that it is responsible for performing environmental remediation, or for the repayment of
costs spent by governmental entities or others performing remediation, at approximately 40 sites in the United States. Many of these sites are
landfills used by the Company in the past for the disposal of waste materials; others are secondary lead smelters and lead recycling sites where
the Company returned lead-containing materials for recycling; a few involve the cleanup of Company manufacturing facilities; and the
remaining fall into miscellaneous categories. The Company may face similar claims of liability at additional sites in the future. Where potential
liabilities are alleged, the Company pursues a course of action intended to mitigate them.
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 $24 million and $25 million at September 30, 2014 and 2013 , respectively. The Company reviews the status
of its environmental sites on a quarterly basis and adjusts its reserves accordingly. Such potential liabilities accrued by the Company do not
take into consideration possible recoveries of future insurance proceeds. They do, however, take into account the likely share other parties will
bear at remediation sites. It is difficult to estimate the Company’s ultimate level of liability at many remediation sites due to the large number
of other parties that may be involved, the complexity of determining the relative liability among those parties, the uncertainty as to the nature
and scope of the investigations and remediation to be conducted, the uncertainty in the application of law and risk assessment, the various
choices and costs associated with diverse technologies that may be used in corrective actions at the sites, and the often quite lengthy periods
over which eventual remediation may occur. Nevertheless, the Company does not currently believe that any claims, penalties or costs in
connection with known environmental matters will have a material adverse effect on the Company’s financial position, results of operations or
cash flows. In addition, the Company has identified asset retirement obligations for environmental matters that are expected to be addressed at
the retirement, disposal, removal or abandonment of existing owned facilities, primarily in the Power Solutions business. At September 30,
2014 and 2013 , the Company recorded conditional asset retirement obligations of $52 million and $56 million , respectively.
In June 2013, the Company self-reported to the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) alleged
Foreign Corrupt Practices Act (FCPA) violations related to its Building Efficiency marine business in China dating back to 2007. These
allegations were isolated to the Company’s marine business in China which had annual sales ranging from $20 million to $50 million during
this period. The Company, under the oversight of its Audit Committee and Board of Directors, proactively initiated an investigation into this
matter with the assistance of external legal counsel and external forensic accountants. In connection with this investigation, the Company has
made and continues to evaluate certain enhancements to its FCPA compliance program. The Company continues to fully cooperate with the
SEC and the DOJ; however, at this time, the Company is unable to predict the ultimate resolution of this matter with these agencies.
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.
20
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 19, 2014 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 28, 2015.
Michael K. Bartschat , 52, was elected a Vice President and named Chief Procurement Officer in July 2014. He previously served as
Group Vice President and General Manager, Metals and Mechanisms, Automotive Seating from January 2013 to July 2014, as Group Vice
President and General Manager, Trim and Fabrics, Automotive Seating from November 2011 to December 2012 and as Group Vice
President, Global Purchasing from November 2004 to November 2011. Mr. Bartschat joined the Company in 2004.
Beda Bolzenius , 58, was elected a Vice President in November 2005 and has served as President - Automotive Experience and as Vice
Chairman, Asia Pacific since May 2014. He previously served as President, Automotive Seating from October 2012 to May 2014, 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.
Brian J. Cadwallader, 55, was elected a Vice President in January 2014 and named General Counsel and Secretary in October 2014. He
previously served as Assistant Secretary from January 2014 to September 2014, as Assistant General Counsel from September 2011 to
September 2014 and as Group Vice President and General Counsel, Building Efficiency from August 2010 to September 2011. Mr.
Cadwallader joined the Company in 2010. Prior to joining the Company, Mr. Cadwallader served as Associate General Counsel,
International Business and Shared Services from 2009 to 2010 of International Paper Company, Memphis, Tennessee (a paper and
packaging company) and as Associate General Counsel, Shared Services of International Paper Company from 2005 to 2009.
Grady L. Crosby, 48, was elected Vice President, Public Affairs and named Chief Diversity Officer in October 2014. He previously served
as Vice President and Global General Counsel, Power Solutions from October 2013 to September 2014, as Vice President and General
Counsel, Power Solutions Americas and Global Aftermarket from August 2012 to October 2013 and as Vice President and General
Counsel, Power Solutions Americas from August 2011 to August 2012. Prior to joining the Company in August 2011, Mr. Crosby served
as Associate General Counsel of Hanesbrands Inc., Winston-Salem, North Carolina (an apparel manufacturer and marketer) from 2005 to
2011.
Simon Davis , 50, was elected a Vice President and named Assistant Chief Human Resources Officer in May 2014. He previously
served as Vice President - Talent Strategy & Organizational Excellence from July 2011 to May 2014 and as Vice President - Human
Resources for Power Solutions from January 2007 to July 2011. Mr. Davis has held human resources positions of increasing responsibility
since joining the Company in 1997.
Susan F. Davis , 61, was elected an Executive Vice President in September 2006 and named Chief Human Resources Officer in May
2014. She previously served as Executive Vice President of Human Resources from September 2006 to May 2014, 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, Houston, Texas (building products manufacturer), where she is the Chairwoman of the Compensation and
Management Development Committee and serves on the Nominating and Corporate Governance Committee.
Charles A. Harvey , 62, was elected a Vice President in November 2005. He previously served as Vice President of Diversity and
Public Affairs from November 2005 to September 2014 and as Chief Diversity Officer from 2013 to September 2014. Mr. Harvey also
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 , 54, was elected a Vice President and named President, Building Efficiency in September 2014. He previously
served as Executive Vice President, Corporate Development from September 2013 to September 2014, as President, Automotive
Electronics & Interiors from March 2012 to July 2014 and 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, (an integrated retailer) from 2009 to 2010. Prior to that, he served as Senior Vice
21
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 , 48, was elected a Vice President and named President, Power Solutions 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 , 54, was elected Vice Chairman in September 2014 and has served as an Executive Vice President since
September 2006. He previously served as Chief Financial Officer from May 2005 to September 2014, as Vice President from January 2002
to September 2006, as 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. Mr. McDonald is a Director of Dana Holding Corporation, Maumee, Ohio
(global provider of high technology driveline, sealing and thermal-management products), where he serves on the Audit Committee and
Compensation Committee.
Kim Metcalf-Kupres , 53, was elected a Vice President and named Chief Marketing Officer in May 2013. She previously served as
Vice President, Strategy, Marketing and Sales in the Power Solutions business from 2007 to May 2013. Ms. Metcalf-Kupres also 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 , 55, was elected Chief Executive Officer and President effective October 2013. He also serves as the Company’s
Principal Executive Officer. He was also elected Chairman of the Board of Directors in January 2014 and has served as a Director since
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.
Jerome D. Okarma , 62, was elected a Vice President in September 2003. He previously served as Secretary and General Counsel from
November 2004 to September 2014, 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.
Brian J. Stief , 58, was elected an Executive Vice President and Chief Financial Officer in September 2014. He also serves as the
Company’s Principal Financial Officer. He previously served as Vice President and Corporate Controller from July 2010 to September
2014. Prior to joining the Company in July 2010, Mr. Stief was a partner with PricewaterhouseCoopers LLP, (an audit and assurance, tax
and consulting services provider) which he joined in 1979 and in which he became partner in 1989.
Suzanne M. Vincent , 44, was elected a Vice President and Corporate Controller in September 2014. She also serves as the Company’s
Principal Accounting Officer. She previously served as Vice President, Internal Audit since joining the Company in October 2012. Prior to
joining the Company, Ms. Vincent was a partner with KPMG LLP, (an audit and assurance, tax and consulting services provider) which
she joined in November 2001 and in which she became an audit partner in October 2008.
Frank A. Voltolina , 54, was elected a 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., (now known as Meritor, Inc. - an automobile
component manufacturer for military suppliers, trucks, and trailers).
There are no family relationships, as defined by the instructions to this item, among the Company’s executive officers.
All officers are elected for terms that expire on the date of the meeting of the Board of Directors following the Annual Meeting of Shareholders
or until their successors are duly-elected and qualified or until their earlier resignation or removal.
22
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, 2014
36,687
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year
Common Stock Price Range
2013
2014
Dividends
2014
2013
$ 39.42 - 51.90
43.85 - 52.50
43.16 - 50.71
43.74 - 51.60
$ 39.42 - 52.50
$ 24.75 - 30.74 $
30.30 - 35.17
31.95 - 38.33
35.43 - 43.49
$ 24.75 - 43.49 $
0.22 $
0.22
0.22
0.22
0.88 $
0.19
0.19
0.19
0.19
0.76
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. The Company spent approximately $1,249 million on
repurchases under the stock repurchase program in fiscal 2014. As of November 19, 2014, the Company has spent approximately $395 million
on repurchases under the stock repurchase program in fiscal 2015.
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, 2014 .
23
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, 2014 .
Period
7/1/14 - 7/31/14
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
Purchases by Company
1,009,379
$49.51
1,009,379
$2,400,629,831
8/1/14 - 8/31/14
Purchases by Company
9/1/14 - 9/30/14
Purchases by Company
7/1/14 - 7/31/14
Purchases by Citibank (1)
8/1/14 - 8/31/14
Purchases by Citibank
9/1/14 - 9/30/14
Purchases by Citibank
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$2,400,629,831
$2,400,629,831
NA
NA
NA
(1)
In July 2014, Citibank reduced its holding of the Company's stock by 250,000 shares in connection with the Equity Swap Agreement.
24
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, 2009 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
25
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, 2010 through September 30, 2014 (dollars in millions, except per share data). Certain amounts have been revised to
reflect the retrospective application of the classification of the Automotive Experience Electronics segment as a discontinued operation for all
periods presented.
2014
Year ended September 30,
2012
2013
2011
2010
OPERATING RESULTS
Net sales
Segment income (1)
Income from continuing operations attributable to Johnson
Controls, Inc. (6)
Net income attributable to Johnson Controls, Inc.
Earnings per share from continuing operations (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
$
$
42,828
2,877
41,410
2,686
$
40,604
2,349
$
$
39,543
2,187
33,381
1,966
$
$
$
1,433
1,215
1,077
1,178
1,099
1,184
1,326
1,415
$
2.15
2.12
$
1.58
1.56
$
1.61
1.60
$
1.96
1.93
1,322
1,354
1.97
1.94
12 %
9 %
10 %
12 %
1,199
955
168,000
$
1,377
952
170,000
$
1,831
824
170,000
$
1,325
731
162,000
$
14 %
777
691
137,000
$
$
971
32,804
6,357
6,680
11,311
$
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
37 %
31 %
34 %
32 %
25 %
$
17.00
$
17.99
$
17.04
$
16.40
$
15.11
$
$
0.88
$
0.76
$
0.72
$
0.64
$
0.52
$
52.50
39.42
43.49
24.75
$
35.95
23.37
$
$
42.92
25.91
35.77
23.62
666.9
674.8
36,687
683.7
689.2
38,067
681.5
688.6
40,019
677.7
689.9
43,340
672.0
682.5
44,627
(1)
Segment income is calculated 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.
(2)
Return on average shareholders’ equity attributable to Johnson Controls, Inc. (ROE) represents income from continuing operations
attributable to Johnson Controls, Inc. divided by average shareholders’ equity attributable to Johnson Controls, Inc.
26
(3) Working capital is defined as current assets less current liabilities, excluding cash, short-term debt, the current portion of long-term
debt, and the current portion of 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)
Income from continuing operations attributable to Johnson Controls, Inc. includes $324 million, $957 million and $287 million of
significant restructuring and impairment costs in fiscal year 2014, 2013 and 2012, respectively. It also includes $274 million, $(405)
million, $445 million, $383 million and $268 million of net mark-to-market charges (gains) on pension and postretirement plans in
fiscal year 2014, 2013, 2012, 2011 and 2010, respectively. The preceding amounts are stated on a pre-tax basis.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 7
General
The Company operates in three primary businesses: Building Efficiency, Automotive Experience and Power Solutions. Building Efficiency
provides facility systems, services and workplace solutions including comfort, energy and security management for the residential and non-
residential buildings markets. Automotive Experience designs and manufactures interior systems and products for passenger cars and light
trucks, including vans, pick-up trucks and sport/crossover utility vehicles. Power Solutions designs and manufactures automotive batteries for
the replacement and original equipment markets.
This discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity of the
Company for the three-year period ended September 30, 2014 . This discussion should be read in conjunction with Item 8, the consolidated
financial statements and the notes to consolidated financial statements.
Effective October 1, 2013, the Company reorganized the reportable segments within its Building Efficiency business to align with its new
management reporting structure and business activities. Prior to this reorganization, Building Efficiency was comprised of five reportable
segments for financial reporting purposes: North America Systems, North America Service, Global Workplace Solutions, Asia and Other. As a
result of this change, Building Efficiency is now comprised of four reportable segments for financial reporting purposes, with the only change
being the the combination of North America Systems and North America Service into one reportable segment called North America Systems
and Service. Historical information has been revised to reflect the new Building Efficiency reportable segment structure.
At March 31, 2014, the Company determined that its Automotive Experience Electronics segment met the criteria to be classified as a
discontinued operation, which required retrospective application to financial information for all periods presented. Refer to Note 3,
"Discontinued Operations," of the notes to consolidated financial statements for further information regarding the Company's discontinued
operations.
Outlook
On October 30, 2014, the Company gave a preliminary outlook of its market and financial expectations for fiscal 2015, saying it believes
improving markets, ongoing business portfolio changes and focused capital allocation strategies will enable the Company to pursue growth
markets with higher returns in the upcoming year. Additionally, the Company announced that it expects fiscal 2015 first quarter earnings from
continuing operations, excluding transaction/integration related costs, to be $0.74-$0.77 per diluted share. The Company will provide further
detailed fiscal 2015 guidance at an analyst meeting on December 2, 2014, which will be accessible to the public in a manner that the Company
will disclose in advance.
27
FISCAL YEAR 2014 COMPARED TO FISCAL YEAR 2013
Net Sales
(in millions)
Net sales
Year Ended
September 30,
2014
2013
Change
$
42,828 $
41,410
3 %
The increase in consolidated net sales was due to higher sales in the Automotive Experience business ($1.5 billion) and Power Solutions
business ($244 million), and the favorable impact of foreign currency translation ($60 million), partially offset by lower sales in the Building
Efficiency business ($370 million). Excluding the favorable impact of foreign currency translation, consolidated net sales increased 3% as
compared to the prior year. The favorable impacts of higher Automotive Experience volumes globally, and higher global battery shipments and
improved pricing in the Power Solutions business were partially offset by lower market demand for Building Efficiency in North America, the
Middle East, Latin America and Europe. The incremental sales related to business acquisitions were $622 million across all segments. 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,
2014
2013
Change
$
$
36,201
6,627
15.5 %
34,945
6,465
15.6 %
4 %
3 %
The increase in cost of sales year over year corresponds to the sales growth noted above, with gross profit percentage decreasing by 10 basis
points. Gross profit in the Automotive Experience business was favorably impacted by higher volumes globally, and lower operating and
purchasing costs due to improved operational performance, partially offset by net unfavorable pricing and commercial settlements. The Power
Solutions business was impacted by favorable pricing and product mix including lead acquisition costs and battery cores, and increased benefits
of vertical integration. Gross profit in the Building Efficiency business was unfavorably impacted by lower market demand in North America,
the Middle East, Latin America and Europe, and contract related charges in the Middle East, partially offset by strong operating performance in
Asia due to cost and pricing initiatives. Foreign currency translation had an unfavorable impact on cost of sales of approximately $62 million.
Net mark-to-market adjustments on pension and postretirement plans had a net unfavorable year over year impact on cost of sales of $227
million ($43 million charge in fiscal 2014 compared to a $184 million gain in fiscal 2013) primarily due to a decrease 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
2014
2013
Change
$
$
4,308
10.1 %
3,780
9.1 %
14 %
Year Ended
September 30,
Selling, general and administrative expenses (SG&A) increased by $528 million year over year, and SG&A as a percentage of sales increased
100 basis points. Net mark-to-market adjustments on pension and postretirement plans had a net unfavorable year over year impact on SG&A
of $452 million ($231 million charge in fiscal 2014 compared to a $221 million gain in fiscal 2013) primarily due to a decrease in year over
year discount rates. Net pension settlement activity had a net unfavorable year over year impact on SG&A of $85 million ($16 million charge
in fiscal 2014 compared to a $69 million gain in fiscal 2013) primarily related to lump-sum buyouts of participants in the U.S. pension plan.
The Automotive Experience business SG&A increased primarily due to higher employee related expenses, partially offset by lower engineering
expenses, prior year distressed supplier costs and the benefits of cost reduction initiatives. The Power Solutions business SG&A increased
primarily due to prior year net favorable legal settlements and higher employee related expenses. The Building Efficiency business SG&A
decreased primarily due to lower employee related expenses and other cost reduction initiatives, partially offset by a prior year pension
curtailment gain resulting
28
from a lost Global Workplace Solutions contract and transaction-related costs. Foreign currency translation had an unfavorable impact on
SG&A of $1 million. Refer to the segment analysis below within Item 7 for a discussion of segment income by segment.
Gain (Loss) on Business Divestitures - Net
(in millions)
Gain (loss) on business divestitures - net
* Measure not meaningful
Year Ended
September 30,
2014
2013
Change
$
(111 ) $
7
*
Refer to Note 2, "Acquisitions and Divestitures," of the notes to consolidated financial statements for information on the gain (loss) on business
divestitures - net.
Restructuring and Impairment Costs
(in millions)
Restructuring and impairment costs
2014
2013
Change
$
324 $
957
-66 %
Year Ended
September 30,
Refer to Note 16, "Significant Restructuring and Impairment Costs," of the notes to consolidated financial statements for information on the
restructuring and impairment costs.
Net Financing Charges
(in millions)
Net financing charges
2014
2013
Change
$
244 $
247
-1 %
Year Ended
September 30,
Net financing charges decreased slightly in fiscal 2014 as compared to fiscal 2013 primarily due to lower interest expense as a result of lower
interest rates, partially offset by higher average borrowing levels.
Equity Income
(in millions)
Equity income
Year Ended
September 30,
2014
2013
Change
$
395 $
399
-1 %
The decrease in equity income was primarily due to prior year gains on acquisitions of a partially-owned affiliates in the Automotive
Experience business ($106 million) and lower current year income at certain Power Solutions and Building Efficiency partially-owned
affiliates, partially offset by higher current year income at certain Automotive Experience partially-owned affiliates and gains on acquisitions
of partially-owned affiliates in the Power Solutions business ($19 million) and Building Efficiency business ($19 million). Refer to the segment
analysis below within Item 7 for a discussion of segment income by segment.
Income Tax Provision
(in millions)
Income tax provision
* Measure not meaningful
Year Ended
September 30,
2014
2013
Change
$
482 $
696
-31 %
The effective rate is below the U.S. statutory rate for fiscal 2014 primarily due to 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, partially offset by the
29
tax consequences of business divestitures, significant restructuring and impairment costs, the change in assertion over reinvestment of foreign
undistributed earnings related to the Global Workplace Solutions business and valuation allowance adjustments. The effective rate is above the
U.S. statutory rate for fiscal 2013 primarily due to the tax consequences of significant restructuring and impairment costs, 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. 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 2014 , 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 Italy would not be realized. Therefore, the Company recorded $34 million of net valuation allowances
as income tax expense in the three month period ended September 30, 2014 .
In the first quarter of fiscal 2014, the Company determined that it was more likely than not that the deferred tax asset associated with a capital
loss in Mexico would not be utilized. Therefore, the Company recorded a $21 million valuation allowance as income tax expense.
In the fourth quarter of fiscal 2013, 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.
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.
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, 2014, 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.
It is reasonably possible that certain tax examinations, appellate proceedings and/or tax litigation will conclude within the next twelve months,
the impact of which could be up to a $50 million adjustment to tax expense.
30
Other Tax Matters
During fiscal 2014 and 2013, the Company incurred significant charges for restructuring and impairment costs. Refer to Note 16, "Significant
Restructuring and Impairment Costs," of the notes to consolidated financial statements for additional information. 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 $75 million and $229 million incremental tax expense in fiscal 2014 and 2013, respectively.
During the fourth quarter of fiscal 2014, the Company recorded a discrete tax benefit of $51 million due to change in entity status.
In the fourth quarter of fiscal 2014, the Company provided income tax expense on the foreign undistributed earnings of the non-U.S.
subsidiaries related to the Global Workplace Solutions business, which resulted in $35 million of tax expense.
In the third quarter of fiscal 2014, the Company disposed of its Automotive Experience Interiors headliner and sun visor product lines. Refer to
Note 2, "Acquisitions and Divestitures," of the notes to consolidated financial statements for additional information. As a result, the Company
recorded a pre-tax loss on divestiture of $95 million and income tax expense of $38 million. The income tax expense is due to the jurisdictional
mix of gains and losses on the sale, which resulted in non-benefited losses in certain countries and taxable gains in other countries.
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
The "look-through rule," under subpart F of the U.S. Internal Revenue Code, expired for the Company on September 30, 2014 . The "look-
through rule" had provided an exception to the U.S. taxation of certain income generated by foreign subsidiaries. It is generally thought that
this rule will be extended with the possibility of retroactive application. The "look-through rule" previously expired for the Company on
September 30, 2012 but was extended in January 2013 retroactive to the beginning of the Company's 2013 fiscal year.
As a result of changes to Mexican tax law in the first quarter of fiscal 2014, the Company recorded a benefit to income tax expense of $25
million. Tax legislation was also adopted in various other jurisdictions during the fiscal year ended September 30, 2014. These law changes did
not have a material impact on the Company's consolidated financial statements.
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.
Income (Loss) From Discontinued Operations, Net of Tax
(in millions)
Income (loss) from discontinued operations,
net of tax
* Measure not meaningful
Year Ended
September 30,
2014
2013
Change
$
(218 ) $
101
*
The change in income (loss) from discontinued operations, net of tax, was primarily due to a prior year gain, net of tax, of $257 million related
to the sale of the Automotive Experience Electronics' HomeLink® product line, a fiscal 2014 discrete non-cash tax charge of $180 million
related to the repatriation of foreign cash associated with the divestiture of the Electronics business and $80 million of divestiture related losses
recorded in fiscal 2014, partially offset by a fiscal 2013 tax charge of $210 million related to foreign undistributed earnings of the non-U.S.
subsidiaries related to the Electronics business.
Refer to Note 3, "Discontinued Operations," of the notes to consolidated financial statements for further information regarding the Company's
discontinued operations.
31
Income from Continuing Operations Attributable to Noncontrolling Interests
(in millions)
Income from continuing operations attributable
to noncontrolling interests
Year Ended
September 30,
2014
2013
Change
$
120 $
114
5 %
The increase in income from continuing operations attributable to noncontrolling interests for fiscal 2014 was primarily due to higher income at
certain Automotive Experience and Building Efficiency partially-owned affiliates, partially offset by lower income at certain Power Solutions
partially-owned affiliates and the effects of an increase in ownership percentage in a Power Solutions partially-owned affiliate.
Net Income Attributable to Johnson Controls, Inc.
(in millions)
Net income attributable to Johnson Controls, Inc.
2014
2013
Change
$
1,215 $
1,178
3 %
Year Ended
September 30,
The increase in net income attributable to Johnson Controls, Inc. was primarily due to lower restructuring and impairment costs, a decrease in
the income tax provision and higher gross profit, partially offset by higher selling, general and administrative expenses, a loss from
discontinued operations, and a loss on business divestitures. Fiscal 2014 diluted earnings per share attributable to Johnson Controls, Inc. was
$1.80 compared to $1.71 in fiscal 2013.
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 and Service
Global Workplace Solutions
Asia
Other
Net Sales:
Net Sales
for the Year Ended
September 30,
Segment Income
for the Year Ended
September 30,
2014
2013
Change
2014
2013
Change
$
$
4,336 $
4,079
2,069
3,680
14,164 $
4,492
4,265
2,022
3,812
14,591
-3 % $
-4 %
2 %
-3 %
-3 % $
455 $
95
336
44
930 $
506
113
277
88
984
-10 %
-16 %
21 %
-50 %
-5 %
•
•
•
•
The decrease in North America Systems and Service was due to lower volumes of equipment, controls systems and energy solutions
($132 million), and the unfavorable impact of foreign currency translation ($24 million).
The decrease in Global Workplace Solutions was due to lost customer accounts and lower project work ($264 million), partially offset
by incremental sales from a prior year business acquisition ($66 million) and the favorable impact of foreign currency translation ($12
million).
The increase in Asia was due to higher volumes of equipment and controls systems ($74 million), and higher service volumes ($24
million), partially offset by the unfavorable impact of foreign currency translation ($51 million).
The decrease in Other was due to lower volumes related to a prior period business divestiture ($225 million), and lower volumes in the
Middle East ($156 million), Latin America ($58 million) and Europe ($28 million), partially offset by
32
incremental sales related to a business acquisition ($276 million), higher volumes in unitary products ($44 million) and other
businesses ($9 million), and the favorable impact of foreign currency translation ($6 million).
Segment Income:
•
•
•
•
The decrease in North America Systems and Service was due to unfavorable mix and margin rates ($116 million), lower volumes ($26
million), a prior year pension settlement gain ($12 million), net unfavorable current year contract related charges ($9 million), the
unfavorable impact of foreign currency translation ($3 million) and a current year pension settlement loss ($3 million), partially offset
by lower selling, general and administrative expenses ($118 million).
The decrease in Global Workplace Solutions was due to the indemnification of certain costs associated with a previously divested
business ($25 million), a prior year pension curtailment gain resulting from a lost contract net of other contract losses ($24 million), a
prior year pension settlement gain ($14 million), lower volumes ($13 million) and a current year pension settlement loss ($4 million),
partially offset by lower selling, general and administrative expenses ($46 million), and favorable margin rates ($16 million).
The increase in Asia was due to higher volumes ($29 million), favorable margin rates ($19 million) and a gain on acquisition of
partially-owned affiliates ($19 million), partially offset by the unfavorable impact of foreign currency translation ($7 million), and
higher selling, general and administrative expenses ($1 million).
The decrease in Other was due to net unfavorable current year contract related charges in the Middle East ($50 million), lower
volumes ($40 million), acquisition related costs ($27 million), lower equity income ($12 million) and a prior year pension settlement
gain ($2 million), partially offset by lower selling, general and administrative expenses ($27 million), a prior year loss on business
divestiture including transaction costs ($22 million), incremental operating income due to a business acquisition ($20 million),
favorable margin rates ($8 million), net unfavorable prior year contract related charges ($7 million) and higher operating income
related to a prior year business divestiture ($3 million).
Automotive Experience
(in millions)
Seating
Interiors
* Measure not meaningful
Net Sales:
Net Sales
for the Year Ended
September 30,
2014
$
$
17,531 $
4,501
22,032 $
2013
16,285
4,176
20,461
Segment Income (Loss)
for the Year Ended
September 30,
Change
2014
2013
Change
8 % $
8 %
8 % $
880 $
6
886 $
710
(12 )
698
24 %
*
27 %
•
•
The increase in Seating was due to higher volumes ($1.0 billion), incremental sales related to business acquisitions ($139 million),
favorable sales mix ($115 million) and the favorable impact of foreign currency translation ($44 million), partially offset by lower
volumes due to a prior year business divestiture ($53 million), and net unfavorable pricing and commercial settlements ($25 million).
The increase in Interiors was due to higher volumes ($346 million), net favorable pricing and commercial settlements ($79 million),
and the favorable impact of foreign currency translation ($43 million), partially offset by lower volumes related to business
divestitures ($134 million) and unfavorable sales mix ($9 million).
Segment Income:
•
The increase in Seating was due to higher volumes ($185 million), lower operating costs ($130 million), lower purchasing costs ($88
million), higher equity income ($71 million), prior year distressed supplier costs ($21 million), lower engineering expenses ($20
million), incremental operating income due to business acquisitions ($9 million) and the favorable impact of foreign currency
translation ($4 million), partially offset by prior year gains on acquisitions of partially-owned affiliates ($106 million), higher selling,
general and administrative expenses ($80 million), net unfavorable pricing and commercial settlements ($58 million), unfavorable mix
($51 million), a prior year gain on business divestiture ($29
33
million), a prior year pension settlement gain ($21 million), lower operating income due to a prior year business divestiture ($9
million) and a current year pension settlement loss ($4 million).
•
The increase in Interiors was due to higher volumes ($69 million), lower operating costs ($50 million), higher equity income ($19
million) and lower purchasing costs ($6 million), partially offset by a net loss on business divestitures ($86 million), lower operating
income due to a business divestiture ($15 million), unfavorable mix ($10 million), net unfavorable pricing and commercial settlements
($8 million), a prior year pension settlement gain ($4 million), higher engineering expenses ($2 million) and a current year pension
settlement loss ($1 million).
Power Solutions
(in millions)
Net sales
Segment income
Year Ended
September 30,
2014
2013
Change
$
6,632 $
1,061
6,358
1,004
4 %
6 %
•
•
Net sales increased due to incremental sales related to a business acquisition ($141 million), higher sales volumes ($74 million),
favorable pricing and product mix ($48 million), and the favorable impact of foreign currency translation ($30 million), partially offset
by the impact of lower lead costs on pricing ($19 million).
Segment income increased due to favorable product mix including lead acquisition costs and battery cores ($81 million), lower
operating costs ($54 million), higher volumes ($21 million), a gain on acquisition of a partially-owned affiliate ($19 million),
incremental operating income related to a business acquisition ($14 million) and the favorable impact of foreign currency translation
($3 million), partially offset by higher selling, general and administrative expenses ($54 million), prior year favorable legal settlements
($20 million), higher transportation costs ($20 million), a prior year change in asset retirement obligations ($17 million), a prior year
pension settlement gain ($16 million), a current year pension settlement loss ($4 million) and lower equity income ($4 million).
34
FISCAL YEAR 2013 COMPARED TO FISCAL YEAR 2012
Net Sales
(in millions)
Net sales
Year Ended
September 30,
2013
2012
Change
$
41,410 $
40,604
2 %
The increase in consolidated net sales was due to higher sales in the Automotive Experience business ($616 million) and Power Solutions
business ($459 million), partially offset by the unfavorable impact of foreign currency translation ($234 million) and lower sales in the
Building Efficiency business ($35 million). Excluding the unfavorable impact of foreign currency translation, consolidated net sales increased
3% as compared to fiscal 2012. 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
$
$
34,945
6,465
15.6 %
34,767
5,837
14.4 %
1 %
11 %
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 $205 million. Net mark-to-market adjustments on pension and postretirement plans had a net favorable year over year
impact on cost of sales of $216 million ($184 million gain in fiscal 2013 compared to a $32 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
$
3,780
$
9.1 %
4,311
10.6 %
-12 %
Year Ended
September 30,
Selling, general and administrative expenses (SG&A) decreased by $531 million year over year, and SG&A as a percentage of sales decreased
by 150 basis points. The favorable impact of net mark-to-market adjustments on pension and postretirement plans in SG&A increased year
over year by $634 million ($221 million gain in fiscal 2013 compared to a $413 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 fiscal 2012 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 fiscal 2013 pension curtailment
gain resulting
35
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
2013
2012
Change
$
7 $
40
-83 %
Year Ended
September 30,
Refer to Note 2, "Acquisitions and Divestitures," of the notes to consolidated financial statements for information on the gain on business
divestitures - net.
Restructuring and Impairment Costs
(in millions)
Restructuring and impairment costs
* Measure not meaningful
Year Ended
September 30,
2013
2012
Change
$
957 $
287
*
Refer to Note 16, "Significant Restructuring and Impairment Costs," of the notes to consolidated financial statements for information on the
restructuring and impairment costs.
Net Financing Charges
(in millions)
Net financing charges
2013
2012
Change
$
247 $
231
7 %
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 fiscal 2012.
Equity Income
(in millions)
Equity income
Year Ended
September 30,
2013
2012
Change
$
399 $
338
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 fiscal 2012 redemption of a warrant for an existing partially-owned affiliate in the Power Solutions business
($25 million), a fiscal 2012 equity interest gain in the Automotive Experience business ($15 million) and a fiscal 2012 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.
Income Tax Provision
(in millions)
Income tax provision
* Measure not meaningful
Year Ended
September 30,
2013
2012
Change
$
696 $
161
*
The effective rate is above the U.S. statutory rate for fiscal 2013 primarily due to significant restructuring and impairment costs and valuation
allowance and uncertain tax position adjustments, partially offset by favorable tax audit resolutions, the benefits of
36
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 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.
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.
Other Tax Matters
During fiscal 2013 and 2012, the Company incurred significant charges for restructuring and impairment costs. Refer to Note 16, "Significant
Restructuring and Impairment Costs," of the notes to consolidated financial statements for additional information. A substantial portion of these
charges cannot be benefited for tax purposes due to our current tax position in these jurisdictions and
37
the underlying tax basis in the impaired assets, thus causing $229 million and $78 million incremental tax expense in fiscal 2013 and 2012,
respectively.
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.
Income From Discontinued Operations, Net of Tax
(in millions)
Income from discontinued operations, net of tax
2013
2012
Change
$
101 $
85
19 %
Year Ended
September 30,
The increase in income from discontinued operations, net of tax, was primarily due to a gain, net of tax, of $257 million related to the fiscal
2013 sale of the Automotive Experience Electronics' HomeLink® product line, partially offset by a fiscal 2013 tax charge of $210 million
related to foreign undistributed earnings of the non-U.S. subsidiaries primarily related to the Electronics business, and higher selling, general
and administrative expenses.
Refer to Note 3, "Discontinued Operations," of the notes to consolidated financial statements for further information regarding the Company's
discontinued operations.
Income from Continuing Operations Attributable to Noncontrolling Interests
(in millions)
Income from continuing operations attributable to
noncontrolling interests
Year Ended
September 30,
2013
2012
Change
$
114 $
126
-10 %
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.
Year Ended
September 30,
(in millions)
Net income attributable to Johnson Controls, Inc.
2013
2012
Change
$
1,178 $
1,184
-1 %
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 income tax provision 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
38
net of transaction costs, higher equity income and lower income attributable to noncontrolling interests. Fiscal 2013 diluted earnings per share
attributable to Johnson Controls, Inc. was $1.71 compared to $1.72 in fiscal 2012.
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 and 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
$
$
4,492 $
4,265
2,022
3,812
14,591 $
4,534
4,294
1,987
3,900
14,715
-1 % $
-1 %
2 %
-2 %
-1 % $
506 $
113
277
88
984 $
449
51
266
140
906
13 %
*
4 %
-37 %
9 %
•
•
•
•
The decrease in North America Systems and Service was due to a reduction in truck-based volumes ($46 million), lower volumes of
equipment and controls systems ($25 million), and the unfavorable impact of foreign currency translation ($3 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).
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 fiscal 2012 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 increase in North America Systems and Service was due to favorable mix and margin rates ($87 million), a pension settlement
gain ($12 million) and a fiscal 2012 loss on business divestitures ($3 million), partially offset by higher selling, general and
administrative expenses ($24 million), and lower volumes ($21 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 fiscal 2012 gains on business divestitures net of transaction costs ($43 million), a fiscal 2013 loss on
business divestiture including transaction costs ($22 million), higher selling, general and administrative expenses ($21 million), lower
operating income due to fiscal 2012 divestitures ($11 million), contract related charges ($7
39
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
Net Sales:
Net Sales
for the Year Ended
September 30,
2013
$
$
16,285 $
4,176
20,461 $
2012
15,854
4,129
19,983
Segment Income (Loss)
for the Year Ended
September 30,
Change
2013
2012
Change
3 % $
1 %
2 % $
710 $
(12 )
698 $
683
(23 )
660
4 %
-48 %
6 %
•
•
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 fiscal 2012 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).
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 fiscal
2012 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 ($61 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 fiscal 2012 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).
Power Solutions
(in millions)
Net sales
Segment income
Year Ended
September 30,
2013
2012
Change
$
6,358 $
1,004
5,906
783
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 fiscal 2012 impairment of
an equity investment ($14 million), change in asset retirement obligations ($7 million) and higher equity income ($2 million), partially
offset by a fiscal 2012 gain on redemption of a warrant for an existing partially-owned affiliate ($25 million), higher selling, general
and administrative expenses ($15 million), a fiscal 2012 gain on
40
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).
GOODWILL, LONG-LIVED ASSETS AND OTHER INVESTMENTS
Goodwill at September 30, 2014 was $7.1 billion, $538 million higher than the prior year. The increase was primarily due to the business
acquisitions in the Building Efficiency Other and Power Solutions segments, partially offset by the reclassification of goodwill as assets held
for sale for the Building Efficiency Global Workplace Solutions segment and impairment in the Building Efficiency Other segment, as
discussed below.
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.
During fiscal 2014, as a result of recent operating results, restructuring actions and expected future profitability, the Company's forecasted cash
flow estimates used in the goodwill assessment were negatively impacted as of September 30, 2014 for the Building Efficiency Other - Latin
America reporting unit. As a result, the Company concluded that the carrying value of the Building Efficiency Other - Latin America reporting
unit exceeded its fair value as of September 30, 2014. The Company recorded a goodwill impairment charge of $47 million in the fourth
quarter of fiscal 2014, 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 Building Efficiency Other - Latin America reporting unit has no remaining goodwill at September 30,
2014.
The Company's impairment testing in the fourth quarter of fiscal 2014 indicated that the estimated fair value of the Building Efficiency Other -
Middle East reporting unit exceeded its corresponding carrying amount including goodwill by approximately 9%. Accordingly, the Company
has not recognized any impairment of goodwill associated with this reporting unit, which as of September 30, 2014 had a goodwill balance of
$85 million. The Company continuously monitors for events and circumstances that could negatively impact the key assumptions in
determining fair value, including long-term revenue growth projections, profitability, discount rates, recent market valuations from transactions
by comparable companies, volatility in the Company's market capitalization, and general industry, market and macro-economic conditions. It is
possible that future changes in such circumstances, or in the variables associated with the judgments, assumptions and estimates used in
assessing the fair value of the reporting unit, would require the Company to record a non-cash impairment charge. Except as described above,
no other reporting units were 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, 2014, 2013 and 2012.
During fiscal 2013, 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 tests require judgment, and changes to these inputs could impact the results of the calculations.
Other than management's internal projections of future cash flows, the primary assumptions used in the impairment tests 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 plans and estimates management is using to operate the underlying businesses, there are
significant judgments in determining the expected future cash flows attributable to a reporting unit. The impairment charges are non-cash
expenses recorded within restructuring and impairment costs on the
41
consolidated statements 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. 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, 2014, 2013 and 2012, 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 third and fourth quarters of fiscal 2014, the Company concluded it had triggering events requiring assessment of impairment for certain
of its long-lived assets in conjunction with its restructuring actions announced in fiscal 2014. In addition, in the fourth quarter of fiscal 2014,
the Company concluded that it had a triggering event requiring assessment of impairment of long-lived assets held by the Building Efficiency
Other - Latin America reporting unit due to the impairment of goodwill in the quarter. As a result, the Company reviewed the long-lived assets
for impairment and recorded a $91 million impairment charge within restructuring and impairment costs on the consolidated statement of
income, of which $45 million was recorded in the third quarter and $46 million in the fourth quarter of fiscal 2014. Of the total impairment
charge, $45 million related to the Automotive Experience Interiors segment, $34 million related to the Building Efficiency Other segment, $7
million related to the Automotive Experience Seating segment and $5 million related to corporate assets. In addition, the Company recorded
$43 million of asset and investment impairments within discontinued operations in the third quarter of fiscal 2014 related to the divestiture of
the Automotive Experience Electronics business. Refer to Note 3, "Discontinued Operations," and 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, 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
42
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 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.
Investments in partially-owned affiliates ("affiliates") at September 30, 2014 were $1.0 billion, $6 million lower than the prior year. The
decrease was primarily due to acquisitions of the controlling interest in formerly unconsolidated Building Efficiency and Power Solutions
affiliates, partially offset by positive earnings at certain Automotive Experience 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,
2014
September 30,
2013
Change
$
13,107 $
(11,694 )
1,413
13,698
(12,117 )
1,581
409
183
140
2,157
1,801
$
971 $
5,871
2,477
5,270
1,055
119
819
804
402
1,062
7,206
2,325
6,318
-11 %
-9 %
-19 %
7 %
-17 %
•
•
•
•
The Company defines working capital as current assets less current liabilities, excluding cash, short-term debt, the current portion of
long-term debt, and the current portion of 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.
Excluding the impact of amounts classified as held for sale, the decrease in working capital at September 30, 2014 as compared to
September 30, 2013 was primarily due to higher accounts payable and an increase in other current liabilities
related to accrued income taxes, partially offset by higher inventory levels.
The Company’s days sales in accounts receivable at September 30, 2014 were 54, a slight increase from 51 at September 30, 2013 .
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, 2014 were lower than the comparable period ended September 30,
2013 primarily due to higher inventory production to meet higher sales levels.
•
Days in accounts payable at September 30, 2014 were 74, a slight increase from 72 at September 30, 2013 .
43
Cash Flows
(in millions)
Cash provided by operating activities
Cash used by investing activities
Cash used by financing activities
Capital expenditures
$
Year Ended September 30,
2013
2014
2,395 $
(2,593 )
(412 )
(1,199 )
2,686
(580 )
(1,214 )
(1,377 )
•
•
•
•
The decrease in cash provided by operating activities was primarily due to unfavorable changes in accounts payable and accrued
liabilities, unfavorable changes in inventories, higher income tax payments and higher pension and postretirement contributions,
partially offset by favorable changes in accounts receivable.
The increase in cash used by investing activities was primarily due to cash paid for the ADT acquisition and lower cash received from
business divestitures, partially offset by lower capital expenditures.
The decrease in cash used by financing activities was primarily due to an increase in long-term debt incurred to finance the acquisition
of ADT, partially offset by current year stock repurchases and higher debt repayments. 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 prior year capacity expansion and vertical integration
efforts in the Power Solutions 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,
2014
September 30,
2013
Change
$
$
$
183
140
6,357
6,680
$
$
11,311
17,991
$
119
819
4,560
5,498
12,314
17,812
21 %
-8 %
1 %
Total debt as a % of total capitalization
37 %
31 %
•
•
•
•
•
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, 2014, a 100 million euro revolving credit facility, two 50 million euro revolving credit facilities, and a 37 million euro
revolving credit facility expired. The Company entered into a new 100 million euro revolving credit facility scheduled to expire in
August 2015 and two new 50 million euro credit facilities scheduled to expire in August and September 2015 , respectively. The
Company also entered into a new 37 million euro credit facility scheduled to expire in September 2015 . There were no draws on the
facilities in fiscal 2014.
At September 30, 2014, a $50 million revolving credit facility expired. The Company entered into a new $50 million revolving credit
facility scheduled to expire in September 2015 . There were no draws on this facility during fiscal 2014.
In September 2014, the Company retired a $500 million , floating rate term loan plus accrued interest that matured in September 2014.
The Company also retired a $150 million , floating rate term loan plus accrued interest initially scheduled to mature in January 2015.
In June 2014, the Company issued $300 million aggregate principal amount of 1.4% senior unsecured fixed rate notes due in fiscal
2018 , $500 million aggregate principal amount of 3.625% senior unsecured fixed rate notes due in fiscal 2024 ,
44
•
•
•
•
•
•
•
•
•
•
•
•
•
$450 million aggregate principal amount of 4.625% senior unsecured fixed rate notes due in fiscal 2044 and $450 million aggregate
principal amount of 4.95% senior unsecured fixed rate notes due in fiscal 2064 . Aggregate net proceeds of $1.7 billion from the
issuance were used to finance the acquisition of ADT and for other general corporate purposes. Refer to Note 2, "Acquisitions and
Divestitures," of the notes to consolidated financial statements for further information regarding the ADT acquisition.
In March 2014, the Company entered into a nine -month, $150 million , floating rate term loan scheduled to mature in December 2014 .
Proceeds from the term loan were used for general corporate purposes. The loan was repaid during the quarter ended June 30, 2014.
In March 2014, the Company retired $450 million in principal amount, plus accrued interest, of its 1.75% fixed rate notes that matured
March 2014.
In February 2014, the Company retired $350 million in principal amount, plus accrued interest, of its floating rate notes that matured
February 2014.
In January 2014, the Company entered into a one -year, $150 million , floating rate term loan scheduled to mature in January 2015 .
Proceeds from the term loan were used for general corporate purposes. The loan was repaid during the quarter ended September 2014.
In November 2013 and December 2013, a $35 million and $100 million committed revolving credit facility expired, respectively. The
Company entered into a new $35 million committed revolving credit facility scheduled to expire in November 2014 and a new $100
million committed revolving credit facility scheduled to expire in December 2014 . As of September 30, 2014, there were no draws on
either facility.
In December 2013, the Company entered into a five -year, 220 million euro, floating rate credit facility scheduled to mature in fiscal
2019 . The Company drew on the full credit facility during the quarter ended December 31, 2013. Proceeds from the facility were used
for general corporate purposes.
In September 2013, the Company retired $300 million in principal amount, plus accrued interest, of its 4.875% fixed rate notes that
matured September 2013.
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.
In November 2012, the Company entered into a five -year, 70 million euro, floating rate credit facility scheduled to mature in
November 2017. 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 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 also selectively makes use of short-term credit lines. The Company estimates that, as of September 30, 2014 , it could
borrow up to $1.8 billion on committed credit lines.
The Company believes its capital resources and liquidity position at September 30, 2014 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 2015 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, 2014 . 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
45
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, 2014 , consolidated
shareholders’ equity attributable to Johnson Controls, Inc. as defined per the Company’s debt financial covenants was $11.6 billion and
there was a maximum of $279 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.
A summary of the Company’s significant contractual obligations as of September 30, 2014 is as follows (in millions):
Total
2015
2016-2017
2018-2019
2020
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
Interest rate swaps*
$
6,497 $
140 $
1,688 $
700 $
4,045
975
2,418
347
3
269
294
1,891
76
—
2,670 $
440
389
412
41
2
2,972 $
380
187
94
45
1
1,407 $
3,969
2,956
105
21
185
—
7,236
Total contractual cash obligations
$
14,285 $
* See "Capitalization" for additional information related to the Company's long-term debt. The Company's outstanding interest rate swaps in an
asset position are not included in the table at September 30, 2014, 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
46
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.
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.
Refer to Note 6, "Goodwill and Other Intangible Assets," of the notes to consolidated financial statements for information regarding the
goodwill impairment testing performed in the fourth quarters of fiscal years 2014, 2013 and 2012.
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.
Refer to Note 17, "Impairment of Long-Lived Assets," of the notes to consolidated financial statements for information regarding the
impairment testing performed in fiscal years 2014, 2013 and 2012.
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
47
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 4.35% and 4.90% at September 30, 2014 and 2013 , respectively. The Company’s weighted average discount rate on non-U.S. plans was
3.00% and 3.60% at September 30, 2014 and 2013 , respectively.
In estimating the expected return on plan assets, the Company considers the historical returns on plan assets, adjusted for forward-looking
considerations, inflation assumptions and the impact of the active management of the plans’ invested assets. Reflecting the relatively long-term
nature of the plans’ obligations, approximately 47% of the plans’ assets are invested in fixed income securities and 33% in equity securities,
with the remainder primarily invested in alternative investments. For the years ending September 30, 2014 and 2013 , the Company’s expected
long-term return on U.S. pension plan assets used to determine net periodic benefit cost was 8.00%. The actual rate of return on U.S. pension
plans was above 8.00% in fiscal 2014 and 2013 . For the years ending September 30, 2014 and 2013 , the Company’s weighted average
expected long-term return on non-U.S. pension plan assets was 4.75% and 4.55%, respectively. The actual rate of return on non-U.S. pension
plans was above 4.75% in fiscal 2014 and above 4.55% in fiscal 2013 . For the years ending September 30, 2014 and 2013 , the Company’s
weighted average expected long-term return on postretirement plan assets was 5.80%. The actual rate of return on postretirement plan assets
approximated 5.80% in fiscal 2014 and 2013 .
Beginning in fiscal 2015 , the Company believes the long-term rate of return will approximate 7.50%, 4.40% and 5.75% 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 2014 , total employer and employee contributions to the defined benefit pension plans were $164 million, of which $84 million were
voluntary contributions made by the Company. The Company expects to contribute approximately $64 million in cash to its defined benefit
pension plans in fiscal 2015 . In fiscal 2014 , total employer and employee contributions to the postretirement plans were $8 million , of which
$6 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 2015 .
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, 2014 , the Company had recorded $319
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.
48
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, 2014, the Company had a valuation allowance of $1,285 million, of which $974 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 $311 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, 2014, the Company had unrecognized tax benefits of $1,655 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, 2014. 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 May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, "Revenue from Contracts with Customers (Topic 606)."
ASU No. 2014-09 clarifies the principles for recognizing revenue when an entity either enters into a contract with customers to transfer goods
or services or enters into a contract for the transfer of non-financial assets. ASU No. 2014-09 will be effective retrospectively for the Company
for the quarter ending December 31, 2017, with early adoption not permitted. The Company is currently assessing the impact adoption of this
guidance may have on its consolidated financial statements.
In April 2014, the FASB issued ASU No. 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment
(Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." ASU No. 2014-08 limits
discontinued operations reporting to situations where the disposal represents a strategic shift that has (or will have) a major effect on an entity's
operations and financial results, and requires expanded disclosures for discontinued operations. ASU No. 2014-08 will be effective
prospectively for the Company for disposals that occur during or after the quarter ending December 31, 2015, with early adoption permitted in
certain instances. The significance of this guidance for the Company is dependent on any future dispositions or disposals.
In July 2013, the FASB issued 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 adoption of this guidance may have on its consolidated statement of
financial position. The adoption of this guidance will have no impact on the Company's consolidated results of operations.
49
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 was early
adopted by the Company in the quarter ended September 30, 2014. The adoption of this guidance did not have a significant impact on the
Company's consolidated financial condition or results of operations.
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 was effective for the Company for the quarter ended December 31, 2013.
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 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 derivative instruments that are
offset or eligible for offset in the consolidated statement of financial position. ASU No. 2011-11 was effective for the Company for the quarter
ending December 31, 2013. The adoption of this guidance had no impact on the Company’s consolidated financial condition or results of
operations. Refer to Note 10, "Derivative Instruments and Hedging Activities," of the notes to consolidated financial statements for disclosure
of gross and net information regarding the Company's derivative instruments.
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. At
September 30, 2014, all outstanding interest rate swaps qualify for the long-haul method. The Company assesses retrospective and prospective
effectiveness and records any measured ineffectiveness in the consolidated statements of income on a monthly basis.
Equity swaps and any other derivative instruments not designated as hedging instruments under ASC 815 require no assessment of
effectiveness.
50
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.
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 contacts, which are designated as cash flow hedges in accordance with ASC 815.
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, 2014 and 2013 , the Company estimates that an unfavorable 10% change in the exchange rates would have decreased net
unrealized gains by approximately $210 million and $104 million, respectively.
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 thirteen interest rate swaps totaling $1.8 billion outstanding at September 30,
2014 and ten interest rates swaps totaling $1.4 billion outstanding at September 30, 2013 . 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 $7 million and $6
million for the year ended September 30, 2014 and 2013 , 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 with regulatory authorities through 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.
51
Environmental considerations are a part of all significant capital expenditure decisions; however, expenditures in fiscal 2014 related solely to
environmental compliance were not material. Reserves for environmental liabilities totaled $24 million and $25 million at September 30, 2014
and 2013 , respectively. A charge to income is recorded when it is probable that a liability has been incurred and the amount of the liability is
reasonably estimable. The Company’s environmental liabilities do not take into consideration any possible recoveries of future insurance
proceeds. Because of the uncertainties associated with environmental remediation activities at sites where the Company may be potentially
liable, future expenses to remediate identified sites could be considerably higher than the accrued liability. However, while neither the timing
nor the amount of ultimate costs associated with known environmental remediation matters can be determined at this time, the Company does
not expect that these matters will have a material adverse effect on its financial position, results of operations or cash flows. In addition, the
Company has identified asset retirement obligations for environmental matters that are expected to be addressed at the retirement, disposal,
removal or abandonment of existing owned facilities, primarily in the Power Solutions business. At September 30, 2014 and 2013 , the
Company recorded conditional asset retirement obligations of $52 million and $56 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 classification of the Automotive
Experience Electronics segment as a discontinued operation. Refer to Note 3, "Discontinued Operations," of the notes to consolidated financial
statements for additional details.
(in millions, except per share data)
(unaudited)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Full
Year
Net sales
Gross profit
Net income (1)
Net income attributable to Johnson
Controls, Inc.
Earnings per share (3)
Basic
Diluted
Net sales
Gross profit
Net income (2)
Net income attributable to Johnson
Controls, Inc.
Earnings per share
Basic
Diluted
2014
$
2013
$
10,574 $
1,576
502
10,463 $
1,546
291
10,812 $
1,663
196
10,979 $
1,842
346
42,828
6,627
1,335
469
0.70
0.69
261
0.39
0.39
176
0.26
0.26
309
1,215
0.46
0.46
1.82
1.80
10,109 $
1,436
388
10,102 $
1,440
193
10,499 $
1,564
572
10,700 $
2,025
139
41,410
6,465
1,292
359
0.53
0.52
164
0.24
0.24
550
0.80
0.80
105
1,178
0.15
0.15
1.72
1.71
(1)
The fiscal 2014 third quarter net income includes $162 million of significant restructuring and impairment costs, an $120 million loss
on business divestitures, divestiture-related
losses of $80 million within discontinued operations and $20 million for
transaction/integration costs. The fiscal 2014 fourth quarter net income includes $162 million of significant restructuring and
impairment costs, $274 million of net mark-to-market losses on pension and postretirement plans, a $16 million pension settlement loss
and $23 million for transaction/integration costs. The preceding amounts are stated on a pre-tax basis.
52
(2)
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 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 $730 million of significant restructuring
and impairment costs, a $476 million gain on divestiture of the HomeLink® product line net of transaction costs within discontinued
operations, $405 million of net mark-to-market gains on pension and postretirement plans, a $69 million pension settlement gain, $28
million of restructuring costs within discontinued operations 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.
(3) Due to the use of the weighted-average shares outstanding for each quarter for computing earnings per share, the sum of the quarterly
per share amounts may not equal the per share amount for the year.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Risk Management" included in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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, 2014, 2013 and 201 2
Consolidated Statements of Comprehensive Income (Loss) for the years ended September 30, 2014, 2013 and 2012
Consolidated Statements of Financial Position as of September 30, 2014 and 201 3
Consolidated Statements of Cash Flows for the years ended September 30, 2014, 2013 and 201 2
Consolidated Statements of Shareholders’ Equity Attributable to Johnson Controls, Inc. for the years ended
September 30, 2014, 2013 and 201 2
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts
53
Page
54
56
56
57
58
59
59
112
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, 2014 and 2013, and the results of their operations and their cash flows
for each of the three years in the period ended September 30, 2014 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, 2014, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to
express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial
reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
PricewaterhouseCoopers LLP, 100 East Wisconsin Avenue, Milwaukee, WI 53202
T: (414)212- 1600, F: (414) 212- 1880, www.pwc.com/us
54
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.
As described in Management's Report on Internal Control Over Financial Reporting, management has excluded Air Distribution Technologies,
Inc. (ADT) from its assessment of internal control over financial reporting as of September 30, 2014 because ADT was acquired by the
Company in June 2014. We have also excluded ADT from our audit of internal control over financial reporting. ADT is a wholly-owned
subsidiary whose total assets and total revenues excluded from management's assessment and our audit represent 1% and less than 1%,
respectively, of the related consolidated financial statement amounts as of and for the year ended September 30, 2014.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
November 19, 2014
55
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 (loss) on business divestitures - net
Restructuring and impairment costs
Net financing charges
Equity income
Income from continuing operations before income taxes
Income tax provision
Income from continuing operations
Income (loss) from discontinued operations, net of tax (Note 3)
Net income
Year Ended September 30,
2014
2013
2012
$
34,978 $
7,850
42,828
29,910
6,291
36,201
33,092 $
8,318
41,410
28,189
6,756
34,945
32,210
8,394
40,604
27,869
6,898
34,767
6,627
6,465
5,837
(4,308 )
(111 )
(324 )
(244 )
395
(3,780 )
7
(957 )
(247 )
399
2,035
1,887
482
696
1,553
1,191
(218 )
101
1,335
1,292
(4,311 )
40
(287 )
(231 )
338
1,386
161
1,225
85
1,310
126
Income from continuing operations attributable to noncontrolling interests
120
114
Net income attributable to Johnson Controls, Inc.
Amounts attributable to Johnson Controls, Inc. common shareholders:
Income from continuing operations
Income (loss) from discontinued operations
Net income
Basic earnings (loss) per share attributable to Johnson Controls, Inc.
Continuing operations
Discontinued operations
Net income **
Diluted earnings (loss) per share attributable to Johnson Controls, Inc.
Continuing operations
Discontinued operations
Net income
$
$
$
$
$
$
$
1,215 $
1,178 $
1,184
1,433 $
(218 )
1,215 $
1,077 $
101
1,178 $
2.15 $
(0.33 )
1.82 $
2.12 $
(0.32 )
1.80 $
1.58 $
0.15
1.72 $
1.56 $
0.15
1.71 $
1,099
85
1,184
1.61
0.12
1.74
1.60
0.12
1.72
*
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.
** Certain items do not sum due to rounding.
The accompanying notes are an integral part of the financial statements.
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
Realized and unrealized gains (losses) on marketable common stock
Pension and postretirement plans
Other comprehensive loss
Total comprehensive income
Year Ended September 30,
2013
2012
2014
$
1,335 $
1,292 $
1,310
(642 )
(3 )
(7 )
(5 )
(20 )
(5 )
2
(16 )
(222 )
39
(1 )
(8 )
(657 )
(39 )
(192 )
678
1,253
1,118
Comprehensive income attributable to noncontrolling interests
118
115
Comprehensive income attributable to Johnson Controls, Inc.
$
560 $
1,138 $
125
993
The accompanying notes are an integral part of the financial statements.
56
Johnson Controls, Inc.
Consolidated Statements of Financial Position
(in millions, except par value and share data)
Assets
Cash and cash equivalents
Accounts receivable, less allowance for doubtful
accounts of $72 and $68, 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
Noncurrent assets held for sale
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: 2014 - 706,761,661; 2013 - 700,178,785
Capital in excess of par value
Retained earnings
Treasury stock, at cost (2014 - 41,264,918; 2013 - 15,643,146 shares)
Accumulated other comprehensive income
Shareholders’ equity attributable to Johnson Controls, Inc.
Noncontrolling interests
Total equity
Total liabilities and equity
$
$
$
September 30,
2014
2013
$
409 $
5,871
2,477
2,157
2,193
13,107
6,314
7,127
1,639
1,018
630
2,969
32,804 $
183 $
140
5,270
1,124
1,801
3,176
11,694
6,357
865
2,132
9,354
1,055
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
194
157
707
2,669
9,956
(1,784 )
(237 )
11,311
251
11,562
32,804 $
700
2,399
9,328
(531 )
418
12,314
260
12,574
31,518
The accompanying notes are an integral part of the financial statements.
57
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
Loss (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,
2014
2013
2012
$
1,215 $
120
1,335
1,178 $
114
1,292
955
321
(161 )
(153 )
(329 )
181
111
(38 )
82
(2 )
(18 )
(311 )
(192 )
(31 )
448
197
2,395
(1,199 )
79
(1,733 )
225
19
16
(2,593 )
73
2,001
(833 )
(1,249 )
(568 )
186
(5 )
(17 )
(412 )
(20 )
(16 )
(646 )
1,055
$
409 $
952
(475 )
(97 )
(86 )
273
586
(483 )
(106 )
64
(21 )
(182 )
(97 )
(181 )
234
691
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 $
1,184
126
1,310
824
479
(414 )
(138 )
(234 )
53
(40 )
(12 )
56
(11 )
(114 )
109
(367 )
196
(63 )
(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
The accompanying notes are an integral part of the financial statements.
58
Johnson Controls, Inc.
Consolidated Statements of Shareholders’ Equity Attributable to Johnson Controls, Inc.
(in millions, except per share data)
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
Comprehensive income (loss)
Cash dividends
Common ($0.88 per share)
Repurchases of common stock
Other, including options exercised
At September 30, 2014
Common
Stock
Capital in
Excess of
Par Value
Retained
Earnings
Treasury
Stock,
at Cost
683 $
—
1,946 $
—
7,950 $
1,184
(74 ) $
—
Total
11,154 $
993
Accumulated
Other
Comprehensive
Income (Loss)
649
(191 )
(492 )
—
—
(492 )
—
(35 )
(102 )
107
11,625
1,138
—
—
5
688
—
—
—
101
2,047
—
(35 )
—
4
8,611
1,178
—
(102 )
(3 )
(179 )
—
(520 )
—
—
(520 )
—
59
(350 )
362
12,314
560
—
—
12
700
—
—
—
352
2,399
—
59
—
—
9,328
1,215
—
(350 )
(2 )
(531 )
—
(586 )
(1,249 )
272
11,311 $
$
—
—
7
707 $
—
—
270
2,669 $
(586 )
—
(1 )
9,956 $
—
(1,249 )
(4 )
(1,784 ) $
—
—
—
—
458
(40 )
—
—
—
—
418
(655 )
—
—
—
(237 )
The accompanying notes are an integral part of the financial statements.
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, 2014 and 2013 , 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, this VIE has been consolidated within the
Company’s consolidated statements of financial position. The impact of consolidation of the entity on the Company’s consolidated statements
of income for the years ended September 30, 2014 and 2013 was not material. The VIE is named as a co-obligor under a third party debt
agreement of $168 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 $57 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,
2014
2013
218 $
138
356 $
189 $
37
226 $
273
139
412
212
39
251
$
$
$
$
The Company did not have a significant variable interest in any other consolidated VIEs for the presented reporting periods.
Nonconsolidated VIEs
As of September 30, 2013, the Company had a 40% interest in an equity method investee whereby the investee was a VIE. The investee
produces and sells lead-acid batteries of which the Company both purchases and supplies certain batteries to complement each investment
partner’s portfolio. The Company had 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 did not exercise the call option prior to its expiration in May 2016, for a period of six months
thereafter the Company was 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 was fixed under both the call option and the repurchase option.
Based upon the criteria set forth in ASC 810, the Company determined that the investee was a VIE as the equity holders, through their equity
investments, may not participate fully in the entity’s residual economics. The Company was not the primary beneficiary as the Company did
not have the power to make key operating decisions considered to be most significant to the VIE. Therefore, the investee was accounted for
under the equity method of accounting as the Company’s interest exceeded 20% and the Company did not have a controlling interest. The
investment balance included within investments in partially-owned affiliates in the consolidated statements of financial position at
September 30, 2013 was $56 million , which represented the Company’s maximum exposure to loss. Current assets and liabilities related to the
VIE were immaterial and represented normal course of business trade receivables and payables for all presented periods. In the first quarter of
fiscal 2014, 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 of this transaction, the fixed price call option and repurchase option no longer exist, and the Company consolidates the
investee under the voting interest model. Refer to Note 2, "Acquisitions and Divestitures," of the notes to consolidated financial statements for
additional information regarding this transaction.
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 $59 million and $57 million at September 30, 2014 and 2013 , 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, noncurrent assets held for sale and liabilities held for sale in the consolidated
statement of financial position. Refer to Note 3, "Discontinued Operations," 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, 2014 and 2013 , the Company held restricted cash of approximately $4 million and $32 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 using the first-in, first-out (FIFO) method. Finished goods and work-in-process inventories
include material, labor and manufacturing overhead costs.
Pre-Production Costs Related to Long-Term Supply Arrangements
The Company’s policy for engineering, research and development, and other design and development costs related to products that will be sold
under long-term supply arrangements requires such costs to be expensed as incurred or capitalized if reimbursement from the customer is
contractually assured. Income related to recovery of these costs is recorded within selling, general and administrative expense in the
consolidated statements of income. At September 30, 2014 and 2013 , the Company recorded within the consolidated statements of financial
position approximately $265 million and $259 million , respectively, of engineering and research and development costs for which customer
reimbursement is contractually assured. The reimbursable costs are recorded
61
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, 2014 and 2013 , approximately $96 million and $99 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, 2014 and 2013 , the Company recorded within the consolidated statements of financial position in other current assets
approximately $151 million and $297 million , respectively, of costs for molds, dies and other tools for which customer reimbursement is
contractually assured.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the respective assets using the
straight-line method for financial reporting purposes and accelerated methods for income tax purposes. The estimated useful lives range from 3
to 40 years for buildings and improvements and from 3 to 15 years for machinery and equipment.
The Company capitalizes interest on borrowings during the active construction period of major capital projects. Capitalized interest is added to
the cost of the underlying assets and is amortized over the useful lives of the assets.
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.
Refer to Note 6, "Goodwill and Other Intangible Assets," of the notes to consolidated financial statements for information regarding the
goodwill impairment testing performed in the fourth quarters of fiscal years 2014, 2013 and 2012.
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.
Refer to Note 17, "Impairment of Long-Lived Assets," of the notes to consolidated financial statements for information regarding the
impairment testing performed in fiscal years 2014, 2013 and 2012.
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.
62
Refer to Note 17, "Impairment of Long-Lived Assets," of the notes to consolidated financial statements for information regarding the
impairment testing performed in fiscal years 2014, 2013 and 2012.
Percentage-of-Completion Contracts
The Building Efficiency business records certain long-term contracts under the percentage-of-completion (POC) 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 to these contracts were $507 million and $503
million at September 30, 2014 and 2013 , respectively. Billings in excess of costs and earnings related to these contracts were $363 million and
$250 million at September 30, 2014 and 2013 , 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 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, 2014 , 2013 and 2012 were $792 million , $791 million and $834 million , respectively. A portion of the costs associated with
these activities is reimbursed by customers and, for the fiscal years ended September 30, 2014 , 2013 and 2012 were $352 million , $347
million and $426 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.
63
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, 2014 , 2013 and 2012 were $(8) million , $(25) million and $12 million , respectively.
Derivative Financial Instruments
The Company has written policies and procedures that place all financial instruments under the direction of corporate treasury and restrict all
derivative transactions to those intended for hedging purposes. The use of financial instruments for speculative purposes is strictly prohibited.
The Company uses financial instruments to manage the market risk from changes in foreign exchange rates, commodity prices, stock-based
compensation liabilities and interest rates.
The fair values of all derivatives are recorded in the consolidated statements of financial position. The change in a derivative’s fair value is
recorded each period in current earnings or accumulated other comprehensive income, depending on whether the derivative is designated as
part of a hedge transaction and if so, the type of hedge transaction. See Note 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
Certain amounts as of September 30, 2014 , 2013 and 2012 , as described below, have been revised to conform to the current year’s
presentation.
Effective October 1, 2013, the Company reorganized the reportable segments within its Building Efficiency business to align with its new
management reporting structure and business activities. Prior to this reorganization, Building Efficiency was comprised of five reportable
segments for financial reporting purposes: North America Systems, North America Service, Global Workplace Solutions, Asia and Other. As a
result of this change, Building Efficiency is now comprised of four reportable segments for financial reporting purposes, with the only change
being the combination of North America Systems and North America Service into one reportable segment called North America Systems and
Service. Historical information has been revised to reflect the new Building Efficiency reportable segment structure.
At March 31, 2014, the Company determined that its Automotive Experience Electronics segment met the criteria to be classified as a
discontinued operation, which required retrospective application to financial information for all periods presented. Refer to Note 3,
"Discontinued Operations," of the notes to consolidated financial statements for further information regarding the Company's discontinued
operations.
New Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, "Revenue from Contracts with Customers (Topic 606)."
ASU No. 2014-09 clarifies the principles for recognizing revenue when an entity either enters into a contract with customers to transfer goods
or services or enters into a contract for the transfer of non-financial assets. ASU No. 2014-09 will be effective retrospectively for the Company
for the quarter ending December 31, 2017, with early adoption not permitted. The Company is currently assessing the impact adoption of this
guidance may have on its consolidated financial statements.
In April 2014, the FASB issued ASU No. 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment
(Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." ASU No. 2014-08 limits
discontinued operations reporting to situations where the disposal represents a strategic shift that has (or will have)
64
a major effect on an entity's operations and financial results, and requires expanded disclosures for discontinued operations. ASU No. 2014-08
will be effective prospectively for the Company for disposals that occur during or after the quarter ending December 31, 2015, with early
adoption permitted in certain instances. The significance of this guidance for the Company is dependent on any future dispositions or disposals.
In July 2013, the FASB issued 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 adoption of this guidance may have on its consolidated statement of
financial position. 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 was early
adopted by the Company in the quarter ended September 30, 2014. The adoption of this guidance did not have a significant impact on the
Company's consolidated financial condition or results of operations.
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 was effective for the Company for the quarter ended December 31, 2013.
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 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 derivative instruments that are
offset or eligible for offset in the consolidated statement of financial position. ASU No. 2011-11 was effective for the Company for the quarter
ending December 31, 2013. The adoption of this guidance had no impact on the Company’s consolidated financial condition or results of
operations. Refer to Note 10, "Derivative Instruments and Hedging Activities," of the notes to consolidated financial statements for disclosure
of gross and net information regarding the Company's derivative instruments.
2.
ACQUISITIONS AND DIVESTITURES
On June 16, 2014, the Company completed its purchase of Air Distribution Technologies, Inc. (ADT) for approximately $1.6 billion , net of
cash acquired, all of which was paid as of September 30, 2014. ADT is one of the largest independent providers of air distribution and
ventilation products in North America. On June 13, 2014, the Company completed a public offering of $1.7 billion aggregate principal amount
of fixed rate senior notes to finance the purchase of ADT. In connection with the ADT acquisition, the Company recorded goodwill of $837
million in the Building Efficiency Other segment. The Company also recorded approximately $477 million of intangible assets that are subject
to amortization, of which approximately $475 million was assigned to customer relationships with useful lives between 18 and 20 years. In
addition, the Company recorded approximately $230 million of trade names that are not subject to amortization. The purchase price allocations
may be subsequently adjusted to reflect final valuation studies.
Also during fiscal 2014, the Company completed four additional acquisitions for a combined purchase price, net of cash acquired, of $144
million , all of which was paid as of September 30, 2014. 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 $140 million . The purchase price allocations may
be subsequently adjusted to reflect final valuation studies. Three 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 $38 million in equity income to adjust the Company's
existing equity investments in the partially-owned affiliates to fair value. The $38 million gain includes $19 million for the Power Solutions
business and $19 million for the Building Efficiency Asia business.
65
On September 30, 2014, the Company announced its intention to divest its Global Workplace Solutions business. The Company has
determined that the business meets the criteria to be classified as held for sale in the consolidated statement of financial position as of
September 30, 2014. Refer to Note 3, "Discontinued Operations," of the notes to consolidated financial statements for further disclosure related
to the Company's assets held for sale.
In the third quarter of fiscal 2014, the Company completed the divestiture of the Automotive Experience Interiors headliner and sun visor
product lines. As part of this divestiture, the Company made a cash payment of $54 million to the buyer to fund future operational
improvement initiatives. The Company recorded a pre-tax loss on divestiture, including transaction costs, of $95 million . The tax impact of the
divestiture was income tax expense of $38 million due to the jurisdictional mix of gains and losses on the sale, which resulted in non-benefited
losses in certain countries and taxable gains in other countries. There was no change in goodwill as a result of this transaction.
In the third quarter of fiscal 2014, the Company recorded a $25 million loss in the Building Efficiency Global Workplace Solutions segment
related to the indemnification of certain costs associated with a divested business in 2004.
In the second quarter of fiscal 2014, the Company announced that it had reached an agreement to sell the remainder of its Automotive
Experience Electronics business to Visteon Corporation, subject to regulatory and other approvals. The sale closed on July 1, 2014. The cash
proceeds from the sale were $266 million , all of which was received as of September 30, 2014. At March 31, 2014, the Company determined
that the Automotive Experience Electronics segment met the criteria to be classified as a discontinued operation. Refer to Note 3,
"Discontinued Operations," of the notes to consolidated financial statements for further disclosure related to the Company's discontinued
operations.
In the first quarter of fiscal 2014, the Company completed one additional divestiture for a sales price of $13 million , all of which was received
as of September 30, 2014. The divestiture was not material to the Company’s consolidated financial statements. In connection with the
divestiture, the Company recorded a gain, net of transaction costs, of $9 million in the Automotive Experience Interiors segment. There was no
change in goodwill as a result of this transaction.
During fiscal 2014, the Company adjusted the purchase price allocation of certain fiscal 2013 acquisitions and recorded additional goodwill of
$2 million .
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 . 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 in the partially-owned affiliates
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 business.
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.
66
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.
3. DISCONTINUED OPERATIONS
In the fourth quarter of fiscal 2013, the Company completed its divestiture of its Automotive Experience Electronics' HomeLink® product line
to Gentex Corporation. In the second quarter of fiscal 2014, the Company announced that it had reached a definitive agreement to sell the
remainder of the Automotive Experience Electronics business to Visteon Corporation, subject to regulatory and other approvals. The sale
closed on July 1, 2014. At March 31, 2014, the Company determined that the Automotive Experience Electronics segment met the criteria to be
classified as a discontinued operation, which required retrospective application to financial information for all periods presented. The Company
did not allocate any general corporate overhead to discontinued operations. The assets and liabilities of the Automotive Experience Electronics
segment were reflected as held for sale in the consolidated statement of financial position at September 30, 2013.
The following table summarizes the results of the Automotive Experience Electronics business, which includes the HomeLink® product line in
fiscal 2013 and 2012 results, reclassified as discontinued operations for fiscal years ended September 30, 2014 , 2013 and 2012 (in millions):
Year Ended September 30,
2013
2012
2014
Net sales
$
1,027 $
1,320 $
1,351
Income (loss) from discontinued operations before income taxes
Provision for income taxes on discontinued operations
Income from discontinued operations attributable to noncontrolling
interests, net of tax
Income (loss) from discontinued operations, net of tax
$
(8 )
202
8
(218 ) $
578
472
5
101 $
134
48
1
85
For the year ended September 30, 2014 , the discontinued operations before income taxes included divestiture-related losses of $80 million
comprised of asset and investment impairment charges of $43 million , transaction costs of $27 million and severance obligations of $10
million . For the year ended September 30, 2013 , the discontinued operations before income taxes included a $476 million gain on divestiture
of the HomeLink® product line net of transaction costs and $28 million of restructuring costs.
The effective tax rate is different than the U.S. statutory rate for fiscal 2014 primarily due to second quarter discrete non-cash tax charge of
$180 million related to the repatriation of foreign cash associated with the divestiture of the Electronics business and unbenefited foreign
losses. The effective rate is different than the U.S. statutory rate for fiscal 2013 primarily due to the tax consequences of the sale of the
HomeLink® product line, the change in our assertion over reinvestment of foreign undistributed earnings and unbenefited foreign losses. The
effective rate is different than the U.S. statutory rate for fiscal 2012 primarily due to unbenefited foreign losses.
Assets and Liabilities Held for Sale
The Company has determined that certain of its businesses met the criteria to be classified as held for sale. The Automotive Experience
Electronics segment and the headliner and sun visor product lines were classified as held for sale beginning September 30, 2013. The headliner
and sun visor product lines and the Automotive Experience Electronics segment were sold during the third and fourth quarters of fiscal 2014,
respectively; refer to Note 2, "Acquisitions and Divestitures," of the notes to consolidated financial statements for additional information.
67
The following table summarizes the carrying value of the Electronics and headliner and sun visor assets and liabilities held for sale (in
millions):
Cash and cash equivalents
Accounts receivable - net
Inventories
Other current assets
Property, plant and equipment - net
Goodwill
Other intangible 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
Liabilities held for sale
September 30,
2013
$
$
$
$
4
197
124
91
167
74
57
26
64
804
5
253
46
85
13
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, in the fourth quarter of fiscal 2013, the Company recorded an impairment charge of $41 million to write down the headliner and
sun visor long-lived assets to zero . Additionally, the Company recorded asset and investment impairment charges of $43 million in the third
quarter of fiscal 2014 to write down the carrying value of the Electronics assets held for sale to fair value less any cost to sell. Refer to Note 17,
"Impairment of Long-Lived Assets" of the notes to consolidated financial statements for further information regarding impairment charges. The
headliner and sun visor 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.
In May 2014, the Company announced the signing of an agreement to form a global automotive interiors joint venture with Yanfeng
Automotive Trim Systems. As a result, a majority of the Automotive Experience Interiors business met the criteria to be classified as held for
sale. Additionally, in September 2014, the Company announced its intention to divest its Global Workplace Solutions business and has
determined that the business meets the criteria to be classified as held for sale.
68
The following table summarizes the carrying value of the Interiors and Global Workplace Solutions assets and liabilities held for sale (in
millions):
Cash and cash equivalents
Accounts receivable - net
Inventories
Other current assets
Property, plant and equipment - net
Goodwill
Other intangible 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
Liabilities held for sale
September 30, 2014
Global Workplace
Solutions
Total
Interiors
$
$
$
$
— $
596
209
174
496
12
4
83
35
1,609 $
— $
655
24
154
833 $
20 $
723
9
57
34
253
35
—
47
1,178 $
3 $
591
128
246
968 $
20
1,319
218
231
530
265
39
83
82
2,787
3
1,246
152
400
1,801
These divestitures could result in a gain or loss on sale to the extent the ultimate selling price differs from the carrying value of the net assets
recorded for each business. The Interiors business classified as held for sale does not meet the criteria to be classified as a discontinued
operation at September 30, 2014 primarily due to the Company's anticipated continuing involvement in these operations following a
divestiture. The Global Workplace Solutions business classified as held for sale does not meet the criteria to be classified as a discontinued
operation at September 30, 2014 primarily due to the uncertainty regarding the Company's potential continuing involvement in these operations
following a divestiture and the status of transaction negotiations.
4. INVENTORIES
Inventories consisted of the following (in millions):
Raw materials and supplies
Work-in-process
Finished goods
Inventories
September 30,
2014
2013
1,129 $
398
950
2,477 $
1,086
459
780
2,325
$
$
69
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,
2014
2013
$
$
3,254 $
7,944
1,151
370
12,719
(6,405 )
6,314 $
3,046
8,189
1,441
374
13,050
(6,465 )
6,585
Interest costs capitalized during the fiscal years ended September 30, 2014 , 2013 and 2012 were $28 million , $42 million and $55 million ,
respectively. Accumulated depreciation related to capital leases at September 30, 2014 and 2013 was $29 million and $44 million ,
respectively.
70
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, 2014
and 2013 were as follows (in millions):
September 30,
2012
Business
Acquisitions
Business
Divestitures
Impairments
Currency
Translation and
Other
September 30,
2013
Building Efficiency
North America Systems and
Service
$
Global Workplace Solutions
Asia
Other
Automotive Experience
Seating
Interiors
Electronics
Power Solutions
Total
$
1,229 $
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 $
1,228
257
388
1,003
2,659
—
—
1,054
6,589
September 30,
2013
Business
Acquisitions
Business
Divestitures
Impairments
Currency
Translation and
Other
September 30,
2014
Building Efficiency
North America Systems and
Service
$
Global Workplace Solutions
Asia
Other
Automotive Experience
Seating
Interiors
Power Solutions
Total
$
1,228 $
257
388
1,003
2,659
—
1,054
6,589 $
— $
—
34
837
2
—
106
979 $
— $
(253 )
—
—
—
(12 )
—
(265 ) $
— $
—
—
(47 )
—
—
—
(47 ) $
(1 ) $
(4 )
(8 )
(5 )
(105 )
12
(18 )
(129 ) $
1,227
—
414
1,788
2,556
—
1,142
7,127
The fiscal 2014 Building Efficiency Global Workplace Solutions business divestitures amount includes $253 million of goodwill transferred to
assets held for sale on the consolidated statement of financial position. The fiscal 2014 Automotive Experience Interiors business divestitures
amount includes $12 million of goodwill transferred to noncurrent assets held for sale on the consolidated statement of financial position. 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, "Discontinued Operations," of the notes to consolidated financial
statements for further information regarding the Company's assets and liabilities held for sale.
During fiscal 2014, as a result of recent operating results, restructuring actions and expected future profitability, the Company's forecasted cash
flow estimates used in the goodwill assessment were negatively impacted as of September 30, 2014 for the Building Efficiency Other - Latin
America reporting unit. As a result, the Company concluded that the carrying value of the Building Efficiency Other - Latin America reporting
unit exceeded its fair value as of September 30, 2014. The Company recorded a goodwill impairment charge of $47 million in the fourth
quarter of fiscal 2014, 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 Building Efficiency Other - Latin America reporting unit has no remaining goodwill at September 30,
2014.
71
The Company's impairment testing in the fourth quarter of fiscal 2014 indicated that the estimated fair value of the Building Efficiency Other -
Middle East reporting unit exceeded its corresponding carrying amount including goodwill by approximately 9% . Accordingly, the Company
has not recognized any impairment of goodwill associated with this reporting unit, which as of September 30, 2014 had a goodwill balance of
$85 million . The Company continuously monitors for events and circumstances that could negatively impact the key assumptions in
determining fair value, including long-term revenue growth projections, profitability, discount rates, recent market valuations from transactions
by comparable companies, volatility in the Company's market capitalization, and general industry, market and macro-economic conditions. It is
possible that future changes in such circumstances, or in the variables associated with the judgments, assumptions and estimates used in
assessing the fair value of the reporting unit, would require the Company to record a non-cash impairment charge. Except as described above,
no other reporting units were 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, 2014, 2013 and 2012.
During fiscal 2013, 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 tests require judgment, and changes to these inputs could impact the results of the calculations.
Other than management's internal projections of future cash flows, the primary assumptions used in the impairment tests 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 plans and estimates management is using to operate the underlying businesses, there are
significant judgments in determining the expected future cash flows attributable to a reporting unit. The impairment charges are non-cash
expenses recorded within restructuring and impairment costs on the consolidated statements 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/trade names
Total intangible assets
September 30, 2014
September 30, 2013
Gross
Carrying
Amount
Accumulated
Amortization
Net
Gross
Carrying
Amount
Accumulated
Amortization
Net
$
86 $
1,017
312
1,415
(56 ) $
(161 )
(106 )
(323 )
30 $
856
206
1,092
92 $
537
336
965
547
1,962 $
$
—
(323 ) $
547
1,639 $
316
1,281 $
(53 ) $
(138 )
(91 )
(282 )
—
(282 ) $
39
399
245
683
316
999
Amortization of other intangible assets for the fiscal years ended September 30, 2014 , 2013 and 2012 was $86 million , $75 million and $56
million , respectively. Excluding the impact of any future acquisitions, the Company anticipates amortization for fiscal 2015 , 2016 , 2017 ,
2018 and 2019 will be approximately $95 million , $90 million , $86 million , $83 million and $77 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
72
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, 2014 and 2013 were as follows (in millions):
Balance at beginning of period
Accruals for warranties issued during the period
Accruals from acquisitions and divestitures
Accruals related to pre-existing warranties (including changes in estimates)
Settlements made (in cash or in kind) during the period
Currency translation
Balance at end of period
8. LEASES
Year Ended
September 30,
2014
2013
$
$
256 $
279
3
2
(218 )
(3 )
319 $
278
272
(5 )
(14 )
(275 )
—
256
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 $55 million and $79 million at September 30, 2014 and 2013 , 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, 2014 , 2013 and 2012 was $459 million , $470 million and $454 million , respectively.
Future minimum capital and operating lease payments and the related present value of capital lease payments at September 30, 2014 were as
follows (in millions):
2015
2016
2017
2018
2019
After 2019
Total minimum lease payments
Interest
Present value of net minimum lease payments
Capital
Leases
Operating
Leases
294
233
156
113
74
105
975
11 $
8
7
15
5
21
67 $
(12 )
55
$
$
73
9. DEBT AND FINANCING ARRANGEMENTS
Short-term debt consisted of the following (in millions):
Bank borrowings and commercial paper
Weighted average interest rate on short-term debt outstanding
$
$
183
3.8 %
119
4.6 %
September 30,
2014
2013
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, 2014 and 2013. Average
outstanding commercial paper for the fiscal year ended September 30, 2014 was $1,252 million , and there was none outstanding at September
30, 2014. 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.
Long-term debt consisted of the following (in millions; due dates by fiscal year):
September 30,
2014
2013
Unsecured notes
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)
1.4% due in 2018 ($300 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)
3.625% due in 2024 ($500 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)
4.625% due in 2044 ($450 million par value)
6.95% due in 2046 ($125 million par value)
4.95% due in 2064 ($450 million par value)
Capital lease obligations
Foreign-denominated debt
Euro
Other
Gross long-term debt
Less: current portion
Net long-term debt
$
$
— $
—
125
802
156
400
46
298
499
498
448
500
395
299
250
447
125
449
55
663
42
6,497
140
6,357 $
350
452
125
802
159
400
46
—
498
497
448
—
395
299
250
—
125
—
65
426
42
5,379
819
4,560
At September 30, 2014 , the Company’s euro-denominated long-term debt was at fixed rates with a weighted-average interest rate of 2.0% . 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% .
74
The installments of long-term debt maturing in subsequent fiscal years are: 2015 - $140 million ; 2016 - $915 million ; 2017 - $773 million ;
2018 - $405 million ; 2019 - $295 million ; 2020 and thereafter - $3,969 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, 2014 , 2013 and 2012 was $314 million , $300
million and $299 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
At September 30, 2014, a 100 million euro revolving credit facility, two 50 million euro revolving credit facilities, and a 37 million euro
revolving credit facility expired. The Company entered into a new 100 million euro revolving credit facility scheduled to expire in August 2015
and two new 50 million euro credit facilities scheduled to expire in August and September 2015 , respectively. The Company also entered into
a new 37 million euro credit facility scheduled to expire in September 2015 . There were no draws on the facilities in fiscal 2014.
At September 30, 2014, a $50 million revolving credit facility expired. The Company entered into a new $50 million revolving credit facility
scheduled to expire in September 2015 . There were no draws on this facility during fiscal 2014.
In September 2014, the Company retired a $500 million , floating rate term loan plus accrued interest that matured in September 2014. The
Company also retired a $150 million , floating rate term loan plus accrued interest initially scheduled to mature in January 2015.
In June 2014, the Company issued $300 million aggregate principal amount of 1.4% senior unsecured fixed rate notes due in fiscal 2018 , $500
million aggregate principal amount of 3.625% senior unsecured fixed rate notes due in fiscal 2024 , $450 million aggregate principal amount of
4.625% senior unsecured fixed rate notes due in fiscal 2044 and $450 million aggregate principal amount of 4.95% senior unsecured fixed rate
notes due in fiscal 2064 . Aggregate net proceeds of $1.7 billion from the issuance were used to finance the acquisition of ADT and for other
general corporate purposes. Refer to Note 2, "Acquisitions and Divestitures," of the notes to consolidated financial statements for further
information regarding the ADT acquisition.
In March 2014, the Company entered into a nine -month, $150 million , floating rate term loan scheduled to mature in December 2014 .
Proceeds from the term loan were used for general corporate purposes. The loan was repaid during the quarter ended June 30, 2014.
In March 2014, the Company retired $450 million in principal amount, plus accrued interest, of its 1.75% fixed rate notes that matured March
2014.
In February 2014, the Company retired $350 million in principal amount, plus accrued interest, of its floating rate notes that matured February
2014.
In January 2014, the Company entered into a one -year, $150 million , floating rate term loan scheduled to mature in January 2015 . Proceeds
from the term loan were used for general corporate purposes. The loan was repaid during the quarter ended September 2014.
In November 2013 and December 2013, a $35 million and $100 million committed revolving credit facility expired, respectively. The
Company entered into a new $35 million committed revolving credit facility scheduled to expire in November 2014 and a new $100 million
committed revolving credit facility scheduled to expire in December 2014 . As of September 30, 2014, there were no draws on either facility.
In December 2013, the Company entered into a five -year, 220 million euro, floating rate credit facility scheduled to mature in fiscal 2019 . The
Company drew on the full credit facility during the quarter ended December 31, 2013. Proceeds from the facility were used for general
corporate purposes.
In September 2013, the Company retired $300 million in principal amount, plus accrued interest, of its 4.875% fixed rate notes that matured
September 2013.
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.
75
In November 2012, the Company entered into a five -year, 70 million euro, floating rate credit facility scheduled to mature in November 2017.
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 November 2012, the Company retired $100 million in principal amount, plus accrued interest, of its 5.8% fixed rate notes that matured
November 2012.
Net Financing Charges
The Company's net financing charges line item in the consolidated statements of income for the years ended September 30, 2014 , 2013 and
2012 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,
2013
2012
2014
$
$
254 $
18
(10 )
(18 )
244 $
255 $
21
(19 )
(10 )
247 $
237
21
(17 )
(10 )
231
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, 2014 , the Company had four cross-currency interest rate swaps outstanding totaling 20 billion yen. At September 30,
2013 , the Company had five cross-currency interest rate swaps outstanding totaling 25 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:
76
Commodity
Units
September 30, 2014
September 30, 2013
Volume Outstanding as of
Copper
Lead
Aluminum
Tin
Pounds
Metric Tons
Metric Tons
Metric Tons
9,536,000
5,200
—
2,070
14,705,000
23,900
2,709
2,052
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, 2014 and 2013 , the Company had hedged approximately 4.4
million shares of its common stock.
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 November 2012, two fixed to floating interest rate swaps totaling $300 million to hedge the coupon of its 4.875% notes which matured
September 2013 and five fixed to floating interest rate swaps totaling $450 million to hedge the coupon of its 1.75% notes matured
March 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 2015 and four fixed to floating interest rate swaps totaling $800 million to
hedge the coupon of its 5.50% notes maturing January 2016. In the third quarter of fiscal 2014, the Company entered into four fixed to floating
interest rate swaps totaling $400 million to hedge the coupon of its 2.6% notes maturing December 2016, three fixed to floating interest rate
swaps totaling $300 million to hedge the coupon of its 1.4% notes maturing November 2017 and one fixed to floating interest rate swap
totaling $150 million to hedge the coupon of its 7.125% notes maturing July 2017. There were thirteen interest rate swaps outstanding as of
September 30, 2014 and ten interest rate swaps outstanding as of September 30, 2013 .
In September 2005, the Company entered into three forward treasury lock agreements to reduce the market risk associated with changes in
interest rates associated with the Company’s anticipated fixed-rate note issuance to finance the acquisition of York International Corp. (cash
flow hedge). The three forward treasury lock agreements, which had a combined notional amount of $1.3 billion , fixed a portion of the future
interest cost for 5-year, 10-year and 30-year notes. The fair value of each treasury lock agreement, or the difference between the treasury lock
reference rate and the fixed rate at time of note issuance, is amortized to interest expense over the life of the respective note issuance. In
January 2006, in connection with the Company’s debt refinancing, the three forward treasury lock agreements were terminated.
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):
77
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
Other noncurrent liabilities
Interest rate swaps
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,
2014
September 30,
2013
September 30,
2014
September 30,
2013
$
$
$
$
21 $
—
—
15
2
—
38 $
22 $
3
125
1,649
19 $
8
2
7
3
—
39 $
21 $
3
452
927
3
1,802 $
—
1,403 $
13 $
—
—
—
—
192
205 $
11 $
—
—
—
—
11 $
14
—
—
—
—
183
197
11
—
—
—
—
11
The Company enters into International Swaps and Derivatives Associations (ISDA) master netting agreements with counterparties that permit
the net settlement of amounts owed under the derivative contracts. The master netting agreements generally provide for net settlement of all
outstanding contracts with a counterparty in the case of an event of default or a termination event. The Company has not elected to offset the
fair value positions of the derivative contracts recorded in the consolidated statements of financial position. Collateral is generally not required
of the Company or the counterparties under the master netting agreements. As of September 30, 2014 and September 30, 2013, no cash
collateral was received or pledged under the master netting agreements.
The gross and net amounts of derivative assets and liabilities were as follows (in millions):
Fair Value of Assets
Fair Value of Liabilities
September 30,
2014
September 30,
2013
September 30,
2014
September 30,
2013
Gross amount recognized
Gross amount eligible for offsetting
Net amount
$
$
243 $
(11 )
232 $
236 $
(9 )
227 $
1,813 $
(11 )
1,802 $
1,414
(9 )
1,405
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,
2014 and 2013 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,
2014
2013
$
$
(2 ) $
1
1
— $
1
2
2
5
78
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, 2014
September 30, 2013
— $
(2 )
6
4 $
(3 )
3
7
7
Derivatives in ASC 815 Fair Value
Hedging Relationships
Interest rate swap
Fixed rate debt swapped to floating
Total
Location of Gain (Loss)
Recognized in Income on
Derivative
Net financing charges
Net financing charges
Derivatives Not Designated as Hedging
Instruments under ASC 815
Foreign currency exchange derivatives
Foreign currency exchange derivatives
Foreign currency exchange derivatives
Equity swap
Total
Location of Gain (Loss)
Recognized in Income on
Derivative
Cost of sales
Net financing charges
Provision for income taxes
Selling, general and administrative
Amount of Gain (Loss) Recognized in Income on Derivative
Year Ended September 30,
2014
2013
2012
5 $
(5 )
— $
(2 ) $
2
— $
Amount of Gain (Loss) Recognized in Income on Derivative
Year Ended September 30,
2014
2013
2012
1 $
18
—
(1 )
18 $
(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 $9 million and $4 million at September 30, 2014 and 2013 , respectively. For the years ended September 30, 2014 and
2013 , 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.
79
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.
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, 2014
and 2013 (in millions):
Other current assets
Foreign currency exchange derivatives
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
Other noncurrent liabilities
Interest rate swaps
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, 2014
— $
—
—
4
192
196 $
— $
—
—
—
—
— $
34 $
15
2
—
—
51 $
33 $
3
125
1,649
3
1,813 $
—
—
—
—
—
—
—
—
—
—
—
—
34 $
15
2
4
192
247 $
33 $
3
125
1,649
3
1,813 $
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, 2013
33 $
8
2
7
3
30
183
266 $
32 $
3
452
927
1,414 $
— $
—
—
—
—
30
183
213 $
— $
—
—
—
— $
33 $
8
2
7
3
—
—
53 $
32 $
3
452
927
1,414 $
—
—
—
—
—
—
—
—
—
—
—
—
—
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
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, "Derivatives and Hedging," 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, 2014 and 2013 . 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, 2014 and 2013 .
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 November 2012, two fixed to floating interest rate swaps totaling $300 million to hedge the coupon
of its 4.875% notes which matured September 2013 and five fixed to floating interest rate swaps totaling $450 million to hedge the coupon of
its 1.75% notes matured March 2014. In the fourth quarter of fiscal 2013, the Company entered into a fixed to floating interest rate swap
totaling approximately $125 million
81
to hedge the coupon of its 7.70% notes maturing March 2015 and four fixed to floating interest rate swaps totaling $800 million to hedge the
coupon of its 5.50% notes maturing January 2016. In the third quarter of fiscal 2014, the Company entered into four fixed to floating interest
rate swaps totaling $400 million to hedge the coupon of its 2.6% notes maturing December 2016, three fixed to floating interest rate swaps,
totaling $300 million to hedge the coupon of its 1.4% notes maturing November 2017 and one fixed to floating interest rate swap totaling $150
million to hedge the coupon of its 7.125% coupon maturing July 2017. There were thirteen interest rate swaps outstanding as of September 30,
2014 and ten interest rate swaps outstanding as of September 30, 2013 .
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, 2014 , the Company had four
cross-currency interest rate swaps outstanding totaling 20 billion yen. At September 30, 2013 , the Company had five cross-currency interest
rate swaps outstanding totaling 25 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. There were no unrealized gains recorded in accumulated other comprehensive income on these
investments as of September 30, 2014. As of September 30, 2013 the Company recorded unrealized gains of $7 million in accumulated other
comprehensive income. The Company recorded no unrealized losses in accumulated other comprehensive income as of September 30, 2014
and 2013 . During fiscal 2014, the Company sold certain marketable common stock for approximately $25 million . As a result, the Company
recorded $8 million of realized gains within selling, general and administrative expenses in the Automotive Experience Seating segment.
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 $6.8 billion and $5.7 billion at September 30, 2014 and 2013 , 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 34 million shares remained available for issuance at September 30, 2014.
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 $81 million , $91 million and $55 million for the fiscal
years ended September 30, 2014 , 2013 and 2012 , respectively. The total income tax benefit recognized in the consolidated statements of
income for share-based compensation arrangements was approximately $32 million , $36 million and $22 million for the fiscal years ended
September 30, 2014 , 2013 and 2012 , 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.
82
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. 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
2014
6.7
1.92%
36.00%
2.17%
Year Ended September 30,
2013
5.0 - 6.7
0.62% - 1.33%
41.00%
2.03%
2012
4.8 - 6.4
0.54% - 1.61%
40.00%
1.81%
A summary of stock option activity at September 30, 2014 , and changes for the year then ended, is presented below:
Outstanding, September 30, 2013
Granted
Exercised
Forfeited or expired
Outstanding, September 30, 2014
Exercisable, September 30, 2014
Weighted
Average
Option Price
$
$
$
28.25
48.37
28.42
29.90
28.83
28.22
Shares
Subject to
Option
29,403,281
788,859
(6,629,088 )
(835,135 )
22,727,917
16,152,492
Weighted
Average
Remaining
Contractual
Life (years)
Aggregate
Intrinsic
Value
(in millions)
5.4
4.3
$
$
348
255
The weighted-average grant-date fair value of options granted during the fiscal years ended September 30, 2014 , 2013 and 2012 was $14.70 ,
$8.58 and $8.92 , respectively.
The total intrinsic value of options exercised during the fiscal years ended September 30, 2014 , 2013 and 2012 was approximately $135
million , $154 million and $19 million , respectively.
In conjunction with the exercise of stock options granted, the Company received cash payments for the fiscal years ended September 30, 2014 ,
2013 and 2012 of approximately $186 million , $254 million and $40 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 $34 million , $35 million and $3 million for the fiscal
years ended September 30, 2014 , 2013 and 2012 , respectively. The Company does not settle stock options granted under share-based payment
arrangements for cash.
At September 30, 2014 , the Company had approximately $15 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 1.3 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, 2014 were as follows:
Expected life of SAR (years)
Risk-free interest rate
Expected volatility of the Company’s stock
Expected dividend yield on the Company’s stock
0.05 - 4.41
0.01% - 1.57%
36.00%
2.17%
A summary of SAR activity at September 30, 2014 , and changes for the year then ended, is presented below:
Outstanding, September 30, 2013
Granted
Exercised
Forfeited or expired
Outstanding, September 30, 2014
Exercisable, September 30, 2014
Weighted
Average
SAR Price
$
$
$
27.94
48.37
26.67
29.35
27.78
28.49
Shares
Subject to
SAR
3,744,791
47,617
(942,421 )
(206,340 )
2,643,647
1,485,925
Weighted
Average
Remaining
Contractual
Life (years)
Aggregate
Intrinsic
Value
(in millions)
6.0
4.5
$
$
41
23
In conjunction with the exercise of SARs granted, the Company made payments of $21 million , $11 million and $2 million during the fiscal
years ended September 30, 2014 , 2013 and 2012 , respectively.
Restricted (Nonvested) Stock
The 2012 Plan provides for the award of restricted stock or restricted stock units to certain 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 after three 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, 2014 , and changes for the fiscal year then
ended, is presented below:
Nonvested, September 30, 2013
Granted
Vested
Forfeited
Nonvested, September 30, 2014
Weighted
Average
Price
Shares/Units
Subject to
Restriction
$
$
29.18
48.33
27.71
41.89
40.52
1,241,859
1,234,421
(363,402 )
(159,062 )
1,953,816
At September 30, 2014 , the Company had approximately $38 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 2.0 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, 2014 , and changes for the fiscal year then ended, is presented
below:
Nonvested, September 30, 2013
Granted
Forfeited
Nonvested, September 30, 2014
Weighted
Average
Price
Shares/Units
Subject to
PSU
$
$
30.73
48.34
37.71
37.32
541,700
326,822
(74,157 )
794,365
At September 30, 2014 , the Company had approximately $24 million of total unrecognized compensation cost related to nonvested PSUs
granted. That cost is expected to be recognized over a weighted-average period of 1.8 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 stock option 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
Income from continuing operations
Income (loss) from discontinued operations
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
Year Ended September 30,
2014
2013
2012
1,433 $
(218 )
1,215
—
1,215 $
666.9
7.9
—
674.8
1,077 $
101
1,178
—
1,178 $
683.7
5.5
—
689.2
1,099
85
1,184
1
1,185
681.5
5.2
1.9
688.6
0.1
0.8
1.4
$
$
85
During the three months ended September 30, 2014 and 2013 , the Company declared a dividend of $0.22 and $0.19 , respectively, per
common share. During the twelve months ended September 30, 2014 and 2013 , the Company declared four quarterly dividends totaling $0.88
and $0.76 , 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.
86
14. EQUITY AND NONCONTROLLING INTERESTS
Other comprehensive income includes activity relating to discontinued operations. The following schedules present changes in consolidated
equity attributable to Johnson Controls, Inc. and noncontrolling interests (in millions, net of tax):
At September 30, 2011
Total comprehensive income:
Net income
Foreign currency translation adjustments
Realized and unrealized gains on derivatives
Realized and 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
Realized and 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
Total comprehensive income:
Net income
Foreign currency translation adjustments
Realized and unrealized losses on derivatives
Realized and unrealized losses on marketable
common stock
Pension and postretirement plans
Other comprehensive loss
Comprehensive income
Other changes in equity:
Cash dividends - common stock ($0.88 per share)
Dividends attributable to noncontrolling interests
Repurchases of common stock
Change in noncontrolling interest share
Equity Attributable to Johnson
Controls, Inc.
Equity Attributable to
Noncontrolling Interests
Total Equity
$
11,154 $
138 $
11,292
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
1,215
(640 )
(3 )
(7 )
(5 )
(655 )
560
(586 )
—
(1,249 )
—
58
—
—
—
—
—
58
—
(48 )
—
—
—
148
71
—
—
—
—
—
71
—
(39 )
—
—
80
—
260
90
(2 )
—
—
—
(2 )
88
—
(59 )
—
(32 )
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
1,305
(642 )
(3 )
(7 )
(5 )
(657 )
648
(586 )
(59 )
(1,249 )
(32 )
Other, including options exercised
At September 30, 2014
272
11,311 $
(6 )
251 $
266
11,562
$
87
In November 2013, the Company's Board of Directors authorized a $3 billion increase in the Company's share repurchase program, which
brought the total authorized amount under the repurchase program to $3.65 billion . The share repurchase program does not have an expiration
date and may be amended or terminated by the Board of Directors at any time without prior notice. The Company has spent approximately
$1,249 million on repurchases under the stock repurchase program in fiscal 2014.
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, 2014
Year Ended September
30, 2013
Year Ended September
30, 2012
Beginning balance, September 30
Net income
Foreign currency translation adjustments
Change in noncontrolling interest share
Dividends
Redemption value adjustment
Other
Ending balance, September 30
$
$
157 $
38
—
—
(7 )
—
6
194 $
253 $
48
1
(63 )
(23 )
(59 )
—
157 $
260
69
(1 )
(95 )
(15 )
35
—
253
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,
2014
Year Ended
September 30,
2013
Year Ended
September 30,
2012
Foreign currency translation adjustments
Balance at beginning of period
Aggregate adjustment for the period (net of tax effect of $7, $19 and $(15)) *
Balance at end of period
$
392 $
(640 )
(248 )
413 $
(21 )
392
Realized and unrealized gains (losses) on derivatives
Balance at beginning of period
Current period changes in fair value (net of tax effect of $(1), $(2) and $9)
Reclassification to income (net of tax effect of $0, $(2) and $17)) **
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, $0 and $(3))
Reclassifications to income (net of tax effect of $(2), $0 and $0) ***
Balance at end of period
Pension and postretirement plans
Balance at beginning of period
Reclassification to income (net of tax effect of $(3), $(9) and $(7)) ****
Other changes (net of tax effect of $0)
Balance at end of period
7
(3 )
—
4
7
(1 )
(6 )
—
12
(4 )
(1 )
7
12
(2 )
(3 )
7
5
2
—
7
28
(18 )
2
12
Accumulated other comprehensive income (loss), end of period
$
(237 ) $
418 $
634
(221 )
413
(27 )
14
25
12
6
(15 )
14
5
36
(10 )
2
28
458
88
* During fiscal 2014, $203 million of cumulative foreign currency translation adjustments were recognized as part of the divestiture-related
losses recognized within discontinued operations as a result of the divestiture of the Automotive Experience Electronics business.
** 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.
**** 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 years ended September 30, 2014 and
2012, the amount reclassified from AOCI into income for pension and postretirement plans were primarily recorded in cost of sales on the
consolidated statement of income. For the year ended September 30, 2013, the income reclassified from AOCI to income for pension and
postretirement plans was split approximately evenly between cost of sales and selling, general and administrative expenses for the consolidated
statement of income.
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 $3,413 million , $3,363 million and $2,642 million , respectively, as of September 30, 2014 and $3,069
million , $2,981 million and $2,392 million , respectively, as of September 30, 2013 .
In fiscal 2014 , total employer and employee contributions to the defined benefit pension plans were $164 million , of which $84 million were
voluntary contributions made by the Company. The Company expects to contribute approximately $64 million in cash to its defined benefit
pension plans in fiscal 2015 . Projected benefit payments from the plans as of September 30, 2014 are estimated as follows (in millions):
2015
2016
2017
2018
2019
2020-2024
$
224
226
229
232
240
1,276
Postretirement Benefits
The Company provides certain health care and life insurance benefits for eligible retirees and their dependents primarily in the U.S. and
Canada. 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 health care cost trend assumption does not have a significant effect on the amounts reported.
89
In fiscal 2014 , total employer and employee contributions to the postretirement plans were $8 million , of which $6 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 2015 . Projected benefit payments from the plans as of September 30, 2014 are estimated as follows (in millions):
2015
2016
2017
2018
2019
2020-2024
$
20
20
20
20
20
86
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 $2 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 $132 million , $118 million and $105 million for the fiscal years ended 2014 , 2013 and 2012 , 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 2014 , 2013 and
2012 contributions. The Company recognizes expense for the contractually-required contribution for each period. The Company contributed
$44 million , $44 million and $47 million to multiemployer benefit plans in fiscal 2014 , 2013 and 2012 , 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
90
is not aware of any significant multiemployer benefits plans for which it is probable or reasonably possible that the Company will be obligated
to make up any shortfall in funds. Moreover, if the Company were to exit certain markets or otherwise cease making contributions to these
funds, the Company could trigger a withdrawal liability. Currently, the Company is not aware of any significant multiemployer benefit plans
for which it is probable or reasonably possible that the Company will withdraw from the plan. Any accrual for a shortfall or withdrawal liability
will be recorded when it is probable that a liability exists and it can be reasonably estimated.
Plan Assets
The Company’s investment policies employ an approach whereby a mix of equities, fixed income and alternative investments are used to
maximize the long-term return of plan assets for a prudent level of risk. The investment portfolio primarily contains a diversified blend of
equity and fixed income investments. Equity investments are diversified across domestic and non-domestic stocks, as well as growth, value and
small to large capitalizations. Fixed income investments include corporate and government issues, with short-, mid- and long-term maturities,
with a focus on investment grade when purchased and a target duration close to that of the plan liability. Investment and market risks are
measured and monitored on an ongoing basis through regular investment portfolio reviews, annual liability measurements and periodic
asset/liability studies. The majority of the real estate component of the portfolio is invested in a diversified portfolio of high-quality, operating
properties with cash yields greater than the targeted appreciation. Investments in other alternative asset classes, including hedge funds and
commodities, 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.
91
The Company’s plan assets at September 30, 2014 and 2013 , by asset category, are as follows (in millions):
Asset Category
U.S. Pension
Cash
Equity Securities
Large-Cap
Small-Cap
International - Developed
Fixed Income Securities
Government
Corporate/Other
Hedge Funds
Real Estate
Total
Non-U.S. Pension
Cash
Equity Securities
Large-Cap
International - Developed
International - Emerging
Fixed Income Securities
Government
Corporate/Other
Hedge Fund
Real Estate
Total
Postretirement
Cash
Equity Securities
Large-Cap
Small-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, 2014
$
25 $
25 $
— $
435
224
443
220
822
4
331
435
224
443
194
675
—
—
—
—
—
26
147
—
—
2,504 $
1,996 $
173 $
178 $
178 $
— $
68
112
16
300
346
155
26
68
112
16
300
346
—
6
—
—
—
—
—
155
—
1,201 $
1,026 $
155 $
7 $
7 $
— $
36
10
36
10
—
—
$
$
$
$
—
—
—
—
—
—
4
331
335
—
—
—
—
—
—
—
20
20
—
—
—
International - Developed
International - Emerging
Fixed Income Securities
Government
Corporate/Other
Commodities
Real Estate
Total
24
14
25
73
16
14
24
14
25
73
16
14
—
—
—
—
—
—
$
219 $
219 $
— $
92
—
—
—
—
—
—
—
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, 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 $
— $
36
36
—
$
$
$
$
—
—
—
—
—
—
17
285
302
—
—
—
—
—
—
—
89
9
98
—
—
Small-Cap
International - Developed
International - Emerging
Fixed Income Securities
Government
Corporate/Other
Commodities
Real Estate
Total
12
29
14
24
71
17
13
12
29
14
24
71
17
13
—
—
—
—
—
—
—
$
226 $
226 $
— $
93
—
—
—
—
—
—
—
—
The 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 the 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. During fiscal 2014, the underlying fund structure and pricing frequency of
certain non-U.S. hedge fund investments was modified, and, as a result, those investments are now classified as Level 2 investments compared
to the previous classification of Level 3.
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 using any one of, or a combination of, the following methods: independent third
party appraisals, discounted cash flow analysis of net cash flows projected to be generated by the investment and recent sales of comparable
investments. 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.
94
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, 2012
Additions net of redemptions
Realized gain
Unrealized gain (loss)
Asset value as of September 30, 2013
Additions net of redemptions
Realized gain
Unrealized gain
Asset value as of September 30, 2014
Non-U.S. Pension
Asset value as of September 30, 2012
Additions net of redemptions
Unrealized gain
Asset value as of September 30, 2013
Additions net of redemptions
Unrealized gain
Transfers out - to Level 2
Asset value as of September 30, 2014
$
$
$
$
$
$
95
334 $
94 $
(74 )
32
10
(80 )
13
(10 )
302 $
17 $
4
9
20
(13 )
—
—
335 $
4 $
64 $
56 $
31
3
31
2
98 $
89 $
10
1
(89 )
—
—
(89 )
20 $
— $
240
6
19
20
285
17
9
20
331
8
—
1
9
10
1
—
20
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,
2014
2013
2014
2013
2014
2013
Pension Benefits
U.S. Plans
Non-U.S. Plans
Postretirement
Benefits
Accumulated Benefit Obligation
$
2,855
$
2,839
$
1,477
$
1,905
$
—
$
—
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
2,902
70
138
—
37
—
241
1
(514 )
—
—
—
—
3,736
90
151
—
—
—
(452 )
(2 )
(621 )
—
—
—
—
1,997
38
71
5
1
(626 )
250
(1 )
(84 )
—
(2 )
(3 )
(74 )
2,025
38
64
5
2
(20 )
84
1
(176 )
—
(15 )
4
(15 )
245
5
12
6
7
—
(26 )
—
(26 )
2
—
—
(1 )
266
5
11
6
—
—
(21 )
—
(22 )
1
—
—
(1 )
Projected benefit obligation at end of year
$
2,875
$
2,902
$
1,572
$
1,997
$
224
$
245
Change in Plan Assets
Fair value of plan assets at beginning of year
$
Actual return on plan assets
Acquisitions
Divestitures (1)
Employer and employee contributions
Benefits paid
Settlement payments
Other
Currency translation adjustment
Fair value of plan assets at end of year
Funded status
$
$
$
2,656
307
43
—
12
(110 )
(404 )
—
—
$
2,985
282
—
—
10
(136 )
(485 )
—
—
$
1,656
155
—
(617 )
152
(53 )
(31 )
4
(65 )
$
1,657
110
1
—
85
(64 )
(112 )
3
(24 )
$
226
11
—
—
8
(26 )
—
—
—
223
12
—
—
13
(22 )
—
—
—
2,504
$
2,656
$
1,201
$
1,656
$
219
$
226
(371 ) $
(246 ) $
(371 ) $
(341 ) $
(5 ) $
(19 )
Amounts recognized in the statement of financial position consist of:
Prepaid benefit cost
Accrued benefit liability
$
$
47
(418 )
$
29
(275 )
$
36
(407 )
$
83
(424 )
$
57
(62 )
51
(70 )
Net amount recognized
$
(371 ) $
(246 ) $
(371 ) $
(341 ) $
(5 ) $
(19 )
Weighted Average Assumptions (2)
Discount rate (3)
Rate of compensation increase
4.35 %
3.25 %
4.90 %
3.30 %
3.25 %
3.00 %
3.60 %
2.60 %
4.35 %
NA
4.90 %
NA
96
(1)
Fiscal 2014 includes $617 million of plan assets and $626 million of projected benefit obligations transferred to assets and liabilities
held for sale on the consolidated statement of financial position for non-U.S. plans. The prepaid benefit cost and accrued benefit
liability transferred are $24 million and $33 million , respectively. The plan assets transferred are comprised of $553 million of Level
1 investments and $64 million of Level 2 investments. The Level 1 investments, by asset category, are cash, equity securities, fixed
income securities, real estate and commodities in the amounts of $11 million , $110 million , $356 million , $70 million and $6
million , respectively. The Level 2 investments are hedge fund investments. The weighted average discount rate and rate of
compensation increase assumptions at September 30, 2014 are 2.30% and 2.10% , respectively.
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, "Discontinued Operations," 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, 2014 and 2013 .
(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, 2014 are as follows (in millions):
Accumulated other comprehensive loss (income)
Net transition obligation
Net prior service credit
Total
Pension
Benefits
Postretirement
Benefits
$
$
1 $
(7 )
(6 ) $
—
(3 )
(3 )
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 cost credit
Total
Pension
Benefits
Postretirement
Benefits
— $
(1 )
(1 ) $
—
(1 )
(1 )
$
$
97
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
2014
Pension Benefits
U.S. Plans
2013
2012
2014
Non-U.S. Plans
2013
2012
Postretirement Benefits
2013
2012
2014
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
$
$
70
138
$
90
151
$
69
150
$
38
71
$
38
64
$
41
73
$
5
12
$
5
11
5
13
(207 )
126
(232 )
(433 )
(214 )
432
(75 )
172
1
—
15
1
—
(69 )
1
—
—
(1 )
(2 )
1
(71 )
48
(1 )
(26 )
(1 )
(75 )
30
(1 )
(2 )
—
(12 )
(24 )
(7 )
—
—
(13 )
(20 )
(17 )
—
—
(11 )
(15 )
(17 )
—
—
$
143
$
(492 ) $
438
$
204
$
51
$
66
$
(26 ) $
(34 ) $
(25 )
4.90 %
4.15 %
5.25 %
3.60 %
3.40 %
4.00 %
4.90 %
4.15 %
5.25 %
8.00 %
8.00 %
8.50 %
4.75 %
4.55 %
5.15 %
5.80 %
5.80 %
6.30 %
3.30 %
3.25 %
3.30 %
2.60 %
2.45 %
2.45 %
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 significant restructuring plans in fiscal 2014, 2013 and 2012 and recorded $324 million , $957
million and $287 million , respectively, of restructuring and impairment costs in the consolidated statements of income. 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 2015.
Additionally, the Company recorded $53 million , $28 million and $10 million of restructuring and impairment costs within discontinued
operations related to the Automotive Experience Electronics business in fiscal 2014, 2013 and 2012, respectively.
98
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
Balance at September 30, 2012
$
221 $
— $
— $
7 $
— $
228
Additional restructuring and impairment
costs
Utilized—cash
Utilized—noncash
Transfer to liabilities held for sale
Balance at September 30, 2013
Additional restructuring and impairment
costs
Utilized—cash
Utilized—noncash
Transfer from liabilities held for sale
Transfer to liabilities held for sale
Balance at September 30, 2014
$
$
392
(141 )
—
(31 )
441 $
191
(224 )
—
31
(24 )
415 $
156
—
(156 )
—
— $
134
—
(134 )
—
—
— $
430
—
(430 )
—
— $
47
—
(47 )
—
—
— $
7
(7 )
(4 )
—
3 $
5
(3 )
—
—
—
5 $
—
—
2
—
2 $
—
—
(16 )
—
—
(14 ) $
985
(148 )
(588 )
(31 )
446
377
(227 )
(197 )
31
(24 )
406
The $31 million of transfers from liabilities held for sale represent restructuring reserves that were included in liabilities held for sale in the
consolidated statement of financial position at September 30, 2013, but were excluded from liabilities held for sale at September 30, 2014
based on transaction negotiations. See Note 3, "Discontinued Operations," of the notes to consolidated financial statements for further
information regarding the Company's assets and liabilities held for sale.
The Company's restructuring plans included workforce reductions of approximately 20,600 employees ( 11,000 for the Automotive Experience
business, 8,500 for the Building Efficiency business and 1,100 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, 2014, approximately 13,300 of the employees have been separated
from the Company pursuant to the restructuring plans. In addition, the restructuring plans included twenty-seven plant closures ( nineteen for
Automotive Experience, six for Building Efficiency and two for Power Solutions). As of September 30, 2014, fifteen of the twenty-seven
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 charges recorded.
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
99
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 third and fourth quarters of fiscal 2014, the Company concluded it had triggering events requiring assessment of impairment for certain
of its long-lived assets in conjunction with its restructuring actions announced in fiscal 2014. In addition, in the fourth quarter of fiscal 2014,
the Company concluded that it had a triggering event requiring assessment of impairment of long-lived assets held by the Building Efficiency
Other - Latin America reporting unit due to the impairment of goodwill in the quarter. As a result, the Company reviewed the long-lived assets
for impairment and recorded a $91 million impairment charge within restructuring and impairment costs on the consolidated statement of
income, of which $45 million was recorded in the third quarter and $46 million in the fourth quarter of fiscal 2014. Of the total impairment
charge, $45 million related to the Automotive Experience Interiors segment, $34 million related to the Building Efficiency Other segment, $7
million related to the Automotive Experience Seating segment and $5 million related to corporate assets. In addition, the Company recorded
$43 million of asset and investment impairments within discontinued operations in the third quarter of fiscal 2014 related to the divestiture of
the Automotive Experience Electronics business. Refer to Note 3, "Discontinued Operations," and 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, 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 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.
At September 30, 2014 and 2013 , 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
100
Assets," of the notes to consolidated financial statements for further information regarding the goodwill impairment charges recorded in the
fourth quarter of fiscal 2014 and 2013.
18. INCOME TAXES
At March 31, 2014, the Company determined that its Automotive Experience Electronics segment met the criteria to be classified as a
discontinued operation, which required retrospective application to financial information for all periods presented. Refer to Note 3,
"Discontinued Operations," of the notes to consolidated financial statements for further information regarding the Company's discontinued
operations.
The more significant components of the Company’s income tax provision from continuing operations are as follows (in millions):
2014
Year Ended September 30,
2013
2012
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
Business divestitures
Restructuring and impairment costs
Change in assertion over permanently reinvested earnings
Other
Provision for income taxes
$
$
712 $
9
(203 )
(223 )
34
(9 )
80
75
35
(28 )
482 $
660 $
39
(309 )
(60 )
197
(28 )
8
229
4
(44 )
696 $
485
13
(387 )
(18 )
13
(13 )
—
78
—
(10 )
161
The effective rate is below the U.S. statutory rate for fiscal 2014 primarily due to 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 partially offset by the tax consequences of
business divestitures, significant restructuring and impairment costs, the change in assertion over reinvestment of foreign undistributed earnings
related to the Global Workplace Solutions business and valuation allowance adjustments. The effective rate is above the U.S. statutory rate for
fiscal 2013 primarily due to the tax consequences of significant restructuring and impairment costs, 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.
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 2014 , 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 Italy would not be realized. Therefore, the Company recorded $34 million of net valuation allowances
as income tax expense in the three month period ended September 30, 2014 .
In the first quarter of fiscal 2014, the Company determined that it was more likely than not that the deferred tax asset associated with a capital
loss in Mexico would not be utilized. Therefore, the Company recorded a $21 million valuation allowance as income tax expense.
In the fourth quarter of fiscal 2013, 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
101
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 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.
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, 2014 , the Company had gross tax effected unrecognized tax benefits of $1,655 million of which $1,505 million , if
recognized, would impact the effective tax rate. Total net accrued interest at September 30, 2014 was approximately $106 million (net of tax
benefit).
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) .
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
2014
Year Ended September 30,
2013
2012
1,345 $
329
31
(36 )
(9 )
(5 )
—
1,655 $
1,465 $
123
84
(43 )
(160 )
(45 )
(79 )
1,345 $
1,357
143
36
(58 )
—
(13 )
—
1,465
$
$
102
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
Korea
Mexico
Poland
United Kingdom
2012
2004 - 2008
2007 - 2012
2002 - 2013
2001 - 2012
2005 - 2009, 2011
2008 - 2012
2003 - 2004, 2007 - 2013
2012 - 2013
2011 - 2012
It is reasonably possible that certain tax examinations, appellate proceedings and / or tax litigation will conclude within the next
twelve months, the impact of which could be up to a $50 million benefit to tax expense.
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
During fiscal 2014, 2013 and 2012, the Company incurred significant charges for restructuring and impairment costs. Refer to Note 16,
"Significant Restructuring and Impairment Costs," of the notes to consolidated financial statements for additional information. 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 $75 million , $229 million and $78 million incremental tax expense in fiscal 2014, 2013 and 2012,
respectively.
During the fourth quarter of fiscal 2014, the Company recorded a discrete tax benefit of $51 million due to change in entity status.
In the fourth quarter of fiscal 2014, the Company provided income tax expense on the foreign undistributed earnings of the non-U.S.
subsidiaries related to the Global Workplace Solutions business, which resulted in $35 million of tax expense.
In the third quarter of fiscal 2014, the Company disposed of its Automotive Experience Interiors headliner and sun visor product lines. Refer to
Note 2, "Acquisitions and Divestitures," of the notes to consolidated financial statements for additional information. As a result, the Company
recorded a pre-tax loss on divestiture of $95 million and income tax expense of $38 million . The income tax expense is due to the
jurisdictional mix of gains and losses on the sale, which resulted in non-benefited losses in certain countries and taxable gains in other
countries.
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
The "look-through rule," under subpart F of the U.S. Internal Revenue Code, expired for the Company on September 30, 2014 . The "look-
through rule" had provided an exception to the U.S. taxation of certain income generated by foreign subsidiaries. It is generally thought that
this rule will be extended with the possibility of retroactive application. The "look-through rule" previously
103
expired for the Company on September 30, 2012 but was extended in January 2013 retroactive to the beginning of the Company's 2013 fiscal
year.
As a result of changes to Mexican tax law in the first quarter of fiscal 2014, the Company recorded a benefit to income tax expense of $25
million . Tax legislation was also adopted in various other jurisdictions during the fiscal year ended September 30, 2014. These law changes
did not have a material impact on the Company's consolidated financial statements.
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 .
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.
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
2014
Year Ended September 30,
2013
2012
$
120 $
18
611
749
(138 )
(6 )
(123 )
(267 )
58 $
30
352
440
215
14
27
256
Provision for income taxes
$
482 $
696 $
149
7
226
382
(88 )
21
(154 )
(221 )
161
Consolidated domestic income from continuing operations before income taxes and noncontrolling interests for the fiscal years ended
September 30, 2014 , 2013 and 2012 was income of $1,415 million , $2,169 million and $2,119 million , respectively. Consolidated foreign
income (loss) from continuing operations before income taxes and noncontrolling interests for the fiscal years ended September 30, 2014 , 2013
and 2012 was income (loss) of $620 million , $(282) million and $(733) million , respectively.
Income taxes paid for the fiscal years ended September 30, 2014 , 2013 and 2012 were $782 million , $531 million and $496 million ,
respectively.
The Company has not provided additional U.S. income taxes on approximately $8.1 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 2014, the Company
provided income tax expense on the foreign undistributed earnings of the non-U.S. subsidiaries related to the Global Workplace Solutions
business, which resulted in $35 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.
104
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,
2014
2013
$
$
558 $
1,834
(51 )
(427 )
1,914 $
567
1,349
(4 )
(58 )
1,854
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,
2014
2013
197 $
243
3,233
118
3,791
(1,285 )
2,506
128
275
189
592
439
173
2,752
146
3,510
(1,172 )
2,338
128
196
160
484
Net deferred tax asset
$
1,914 $
1,854
Note that the above tables exclude the amounts of deferred tax assets and liabilities for fiscal 2014 and 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, 2014 , the Company had available net operating loss carryforwards of approximately $5.5 billion , of which $2.5 billion will
expire at various dates between 2015 and 2034 , and the remainder has an indefinite carryforward period. The Company had available U.S.
foreign tax credit carryforwards at September 30, 2014 of $1,170 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, 2013, the Company reorganized the reportable segments within its Building Efficiency business to align with its new
management reporting structure and business activities. Prior to this reorganization, Building Efficiency was comprised of five reportable
segments for financial reporting purposes: North America Systems, North America Service, Global Workplace Solutions, Asia and Other. As a
result of this change, Building Efficiency is now comprised of four reportable segments for financial reporting purposes, with the only change
being the combination of North America Systems and North America Service into one reportable segment called North America Systems and
Service. Historical information has been revised to reflect the new Building Efficiency reportable segment structure.
At March 31, 2014, the Company determined that its previously reported Automotive Experience Electronics segment met the criteria to be
classified as a discontinued operation, which required retrospective application to financial information for all periods presented. Refer to Note
3, "Discontinued Operations," of the notes to consolidated financial statements for further information regarding the Company's discontinued
operations.
105
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 seven reportable segments for financial reporting purposes. The
Company’s seven 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 and Service provides HVAC and controls systems, energy efficient solutions and technical services, including
inspection, scheduled maintenance, and repair and replacement of mechanical and control systems to non-residential buildings and
industrials applications in the North American marketplace.
• 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 and door panels.
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. As mentioned above, the previously reported Automotive Experience Electronics segment
met the criteria to be classified as a discontinued operation, and general corporate overhead was not allocated to discontinued operations. The
Company reported discontinued operations through retrospective application to all periods presented, resulting in general corporate allocation
changes between the segments in the prior periods. Financial information relating to the Company’s reportable segments is as follows (in
millions):
106
Net Sales
Building Efficiency
North America Systems and Service
Global Workplace Solutions
Asia
Other
Automotive Experience
Seating
Interiors
Power Solutions
Total net sales
Segment Income (Loss)
Building Efficiency
North America Systems and Service (1)
Global Workplace Solutions (2)
Asia (3)
Other (4)
Automotive Experience
Seating (5)
Interiors (6)
Power Solutions (7)
Total segment income
Net financing charges
Restructuring and impairment costs
Net mark-to-market adjustments on pension and
postretirement plans
Income from continuing operations before income taxes
2014
Year Ended September 30,
2013
2012
4,336 $
4,079
2,069
3,680
14,164
17,531
4,501
22,032
6,632
4,492 $
4,265
2,022
3,812
14,591
16,285
4,176
20,461
6,358
42,828 $
41,410 $
2014
Year Ended September 30,
2013
2012
455 $
95
336
44
930
880
6
886
1,061
506 $
113
277
88
984
710
(12 )
698
1,004
4,534
4,294
1,987
3,900
14,715
15,854
4,129
19,983
5,906
40,604
449
51
266
140
906
683
(23 )
660
783
2,877 $
2,686 $
2,349
(244 )
(324 )
(274 )
(247 )
(957 )
405
2,035 $
1,887 $
(231 )
(287 )
(445 )
1,386
107
$
$
$
$
$
Assets
Building Efficiency
North America Systems and Service
Global Workplace Solutions (8)
Asia
Other
Automotive Experience
Seating
Interiors (8)
Electronics (8)
Power Solutions
Assets held for sale
Unallocated
Total
Depreciation/Amortization
Building Efficiency
North America Systems and Service
Global Workplace Solutions
Asia
Other
Automotive Experience
Seating
Interiors
Power Solutions
Discontinued Operations
$
$
$
2014
September 30,
2013
2012
2,758 $
—
1,341
5,459
9,558
8,969
321
—
9,290
6,888
2,787
4,281
2,699 $
1,286
1,352
3,769
9,106
9,763
1,872
—
11,635
7,459
804
2,514
32,804 $
31,518 $
2014
Year Ended September 30,
2013
2012
42 $
24
19
99
184
328
128
456
315
—
36 $
25
19
89
169
354
116
470
272
41
Total
$
955 $
952 $
108
2,849
1,234
1,316
3,947
9,346
9,334
2,577
842
12,753
7,312
—
1,543
30,954
37
24
19
66
146
320
109
429
214
35
824
Capital Expenditures
Building Efficiency
North America Systems and Service
Global Workplace Solutions
Asia
Other
$
Automotive Experience
Seating
Interiors
Electronics
Power Solutions
2014
Year Ended September 30,
2013
2012
37 $
16
26
160
239
420
181
31
632
328
12 $
7
73
106
198
467
235
52
754
425
31
7
38
103
179
549
171
57
777
875
Total
(1)
(2)
(3)
(4)
(5)
(6)
(7)
$
1,199 $
1,377 $
1,831
Building Efficiency - North America Systems and Service segment income for the years ended September 30, 2014 , 2013 and 2012
excludes $12 million , $38 million and $8 million , respectively, of restructuring and impairment costs. For the year ended September
30, 2012, North America Systems and Service segment income includes $1 million 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, 2014 , 2013 and 2012 excludes $4 million , $5 million
and $1 million , respectively, of restructuring and impairment costs. For the years ended September 30, 2014 , 2013 and 2012 , Asia
segment income includes $21 million , $2 million and $3 million , respectively, of equity income.
Building Efficiency - Other segment income for the years ended September 30, 2014 , 2013 and 2012 excludes $126 million , $95
million and $64 million , respectively, of restructuring and impairment costs. For the years ended September 30, 2014 , 2013 and
2012 , Other segment income includes $14 million , $26 million and $23 million , respectively, of equity income.
Automotive Experience - Seating segment income for the years ended September 30, 2014 , 2013 and 2012 excludes $29 million ,
$152 million and $101 million , respectively, of restructuring and impairment costs. For the years ended September 30, 2014 , 2013
and 2012 , Seating segment income includes $250 million , $287 million and $194 million , respectively, of equity income.
Automotive Experience - Interiors segment income for the years ended September 30, 2014 , 2013 and 2012 excludes $130 million ,
$560 million and $48 million , respectively, of restructuring and impairment costs. For the years ended September 30, 2014 , 2013 and
2012 , Interiors segment income includes $35 million , $16 million and $17 million , respectively, of equity income.
Power Solutions segment income for the years ended September 30, 2014 , 2013 and 2012 excludes $16 million , $36 million and $37
million , respectively, of restructuring and impairment costs. For the years ended September 30, 2014 , 2013 and 2012 , Power
Solutions segment income includes $75 million , $68 million and $100 million , respectively, of equity income.
(8)
Current year amounts exclude assets held for sale. Refer to Note 3, "Discontinued Operations," 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 2014 , 2013 and 2012 , no customer exceeded 10% of
consolidated net sales.
109
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
2014
Year Ended September 30,
2013
2012
$
$
$
$
17,505 $
4,064
2,016
10,642
8,601
16,520 $
4,606
2,042
9,403
8,839
42,828 $
41,410 $
2,762 $
910
567
1,064
1,011
6,314 $
2,551 $
1,057
560
1,439
978
6,585 $
15,372
4,631
1,905
10,062
8,634
40,604
2,521
879
588
1,557
895
6,440
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.
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, 2014 and 2013 . 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, 2014 , 2013
and 2012 .
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. An equity investment is considered a significant non-consolidated partially owned affiliate ("Significant Affiliate") and is shown
separately below.
Summarized balance sheet data is as follows (in millions):
Current assets
Noncurrent assets
Total assets
Current liabilities
Noncurrent liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
September 30, 2014
September 30, 2013
Significant
Affiliate
All Other
Significant
Affiliate
All Other
$
$
$
$
1,111 $
490
1,601 $
993 $
33
575
1,601 $
110
3,254 $
1,332
4,586 $
2,325 $
537
1,724
4,586 $
1,063 $
471
1,534 $
994 $
29
511
1,534 $
2,924
1,304
4,228
2,052
584
1,592
4,228
Summarized income statement data for the years ended September 30 is as follows (in millions):
2014
2013
2012
Net sales
Gross profit
Net income attributable to the
entity
Significant
Affiliate
All Other
Significant
Affiliate
All Other
Significant
Affiliate
$
2,857 $
396
7,963 $
1,242
2,453 $
353
7,520 $
1,130
All Other
7,261
1,122
2,000 $
301
294
493
238
401
224
440
21. COMMITMENTS AND CONTINGENCIES
The Company accrues for potential environmental liabilities when it is probable a liability has been incurred and the amount of the liability is
reasonably estimable. Reserves for environmental liabilities totaled $24 million and $25 million at September 30, 2014 and 2013 , respectively.
The Company reviews the status of its environmental sites on a quarterly basis and adjusts its reserves accordingly. Such potential liabilities
accrued by the Company do not take into consideration possible recoveries of future insurance proceeds. They do, however, take into account
the likely share other parties will bear at remediation sites. It is difficult to estimate the Company’s ultimate level of liability at many
remediation sites due to the large number of other parties that may be involved, the complexity of determining the relative liability among those
parties, the uncertainty as to the nature and scope of the investigations and remediation to be conducted, the uncertainty in the application of
law and risk assessment, the various choices and costs associated with diverse technologies that may be used in corrective actions at the sites,
and the often quite lengthy periods over which eventual remediation may occur. Nevertheless, the Company does not currently believe that any
claims, penalties or costs in connection with known environmental matters will have a material adverse effect on the Company’s financial
position, results of operations or cash flows. In addition, the Company has identified asset retirement obligations for environmental matters that
are expected to be addressed at the retirement, disposal, removal or abandonment of existing owned facilities, primarily in the Power Solutions
business. At September 30, 2014 and 2013 , the Company recorded conditional asset retirement obligations of $52 million and $56 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.
111
JOHNSON CONTROLS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In millions)
Year Ended September 30,
2014
2013
2012
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
Allowance provision (benefit) adjustments
Transfers to held for sale
Balance at end of period
$
$
$
$
68 $
50
(22 )
(19 )
1
—
(1 )
(5 )
72 $
1,172 $
121
(8 )
—
1,285 $
78 $
68
(50 )
(27 )
1
(1 )
—
(1 )
68 $
766 $
165
250
(9 )
1,172 $
89
47
(15 )
(42 )
—
—
(1 )
—
78
719
119
(72 )
—
766
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
ITEM 9
None.
ITEM 9A CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluations, the Company’s
Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and
procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act, and that information is accumulated and communicated to the
Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act Rule 13a-15(f). The Company’s management, with the participation of the Company’s Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of the Company’s internal control over financial reporting based on the framework in
Internal Control-Integrated Framework (2013) 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, 2014 , 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.
112
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, 2014 as stated in its report which is included in Item 8 of
this Form 10-K and is incorporated by reference herein.
Management has excluded Air Distribution Technologies, Inc. (ADT) from its assessment of internal control over financial reporting as of
September 30, 2014 given its acquisition date of ADT in June 2014. ADT is a wholly owned subsidiary of the Company whose combined total
assets and total revenues excluded from our assessment represent approximately 1% and less than 1%, respectively, of the related consolidated
financial statement amounts as of and for the year ended September 30, 2014.
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, 2014 , 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 a new global enterprise resource planning (ERP) system, which will occur over a period of
several years. As the phased roll-out of the new ERP system 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 system during the fiscal year ended September 30, 2014 .
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 2015 Annual Meeting of Shareholders (which we refer to as the fiscal 2014 Proxy
Statement), dated and to be filed with the SEC on or about December 8, 2014, as follows:
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Incorporated by reference to the sections entitled "Q: Where can I find Corporate Governance materials for Johnson Controls?," "Proposal One:
Election of Directors," "Corporate Governance," "Board and Committee Membership," "Audit Committee Report" and "Section 16(a)
Beneficial Ownership Reporting Compliance" of the fiscal 2014 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 2014 ," "Potential Payments and Benefits Upon
Termination or Change of Control," and "Johnson Controls Share Ownership" of the fiscal 2014 Proxy Statement.
113
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 2014 Proxy Statement.
The following table provides information about the Company's equity compensation plans as of September 30, 2014 :
(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
22,727,917 $
—
22,727,917 $
28.83
—
28.83
33,623,915
—
33,623,915
(c) Includes shares of Common Stock that remain available for grant as follows: 33,513,925 shares under the 2012 Omnibus Plan and 109,990
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 2014 Proxy Statement.
ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES
Incorporated by reference to the section entitled "Audit Committee Report" of the fiscal 2014 Proxy Statement.
114
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, 2014, 2013 and
2012
Consolidated Statements of Comprehensive Income (Loss) for the years ended
September 30, 2014, 2013 and 2012
Consolidated Statements of Financial Position at September 30, 2014 and 2013
Consolidated Statements of Cash Flows for the years ended September 30, 2014, 2013
and 2012
Consolidated Statements of Shareholders’ Equity Attributable to Johnson Controls, Inc.
for the years ended September 30, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
For the years ended September 30, 2014, 2013 and 2012:
Page in
Form 10-K
54
56
56
57
58
59
59
Schedule II - Valuation and Qualifying Accounts
112
(3) Exhibits
Reference is made to the separate exhibit index contained on pages 119 through 122 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.
115
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/ Brian J. Stief
Brian J. Stief
Executive Vice President and
Chief Financial Officer
Date: November 19, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of November 19, 2014 , by the
following persons on behalf of the registrant and in the capacities indicated:
/s/ Alex A. Molinaroli
Alex A. Molinaroli
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Brian J. Stief
Brian J. Stief
Executive Vice President and
Chief Financial Officer (Principal Financial Officer)
/s/ Suzanne M. Vincent
Suzanne M. Vincent
Vice President and Corporate Controller
(Principal Accounting Officer)
/s/ Dennis W. Archer
Dennis W. Archer
Director
/s/ Julie L. Bushman
Julie L. Bushman
Director
/s/ Raymond L. Conner
Raymond L. Conner
Director
/s/ Jeffrey A. Joerres
Jeffrey A. Joerres
Director
/s/ Mark P. Vergnano
Mark P. Vergnano
Director
/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/ Richard Goodman
Richard Goodman
Director
/s/ William H. Lacy
William H. Lacy
Director
116
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. 1-5097).
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. 1-5097).
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. 1-5097).
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. 1-5097).
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 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. 1-5097).
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-
5097).
117
Johnson Controls, Inc
Index to Exhibits
Title
Officers’ Certificate, dated June 13, 2014, establishing the 1.400% Senior Notes due 2017, 3.625% Senior Notes due
2024, 4.625% Senior Notes due 2044 and 4.950% Senior Notes due 2064 (incorporated by reference to Exhibit 4.1 to
Johnson Controls, Inc.’s Current Report on Form 8-K filed June 13, 2014) (Commission File No. 1-5097).
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). (Commission File No. 1-5097).
Global Assignment Letter between Dr. Beda Bolzenius and Johnson Controls, Inc. dated as of September 9, 2014, filed
herewith.**
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).**
Global Assignment Letter between Susan F. Davis and Johnson Controls, Inc. dated as of June 9, 2014 (incorporated by
reference to Exhibit 10.1 to Johnson Controls, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June
30, 2014) (Commission File No. 1-5097).**
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).**
Exhibit
4.M
4.N
10.A
10.B
10.C
10.D
10.E
10.F
10.G
10.H
10.I
10.J
118
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
(incorporated by reference to Exhibit 10.M to Johnson Controls, Inc.’s Annual Report on Form 10-K for the year ended
September 30, 2013) (Commission File No. 1-5097).**
Johnson Controls, Inc. 2003 Stock Plan for Outside Directors, as amended September 1, 2009 (incorporated by reference
to Exhibit 10.N to Johnson Controls, Inc.’s Annual Report on Form 10-K for the year ended September 30, 2009)
(Commission File No. 1-5097).**
Johnson Controls, Inc. Annual Incentive Performance Plan, as amended and restated effective January 1, 2008
(incorporated by reference to Exhibit 10.1 to Johnson Controls, Inc.’s Current Report Form 8-K filed February 1, 2011)
(Commission File No. 1-5097).**
Johnson Controls, Inc. Retirement Restoration Plan, as amended and restated effective November 17, 2009 (incorporated
by reference to Exhibit 10.P to Johnson Controls, Inc.’s Annual Report on Form 10-K for the year ended September 30,
2009) (Commission File No. 1-5097).**
Johnson Controls, Inc. Compensation Summary for Non-Employee Directors as amended and restated effective
October 1, 2014, 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).**
119
Exhibit
10.Y
10.Z
10.AA
10.BB
10.CC
10.DD
Johnson Controls, Inc.
Index to Exhibits
Title
Form of employment agreement, including form of change in control 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 for recipients who
have not announced an intention to retire (incorporated by reference to Exhibit 10.1(a) to Johnson Controls, Inc.'s
Current Report on Form 8-K filed November 21, 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(b) to Johnson Controls, Inc.'s Current Report on Form 8-K filed November 21,
2013) (Commission File No. 1-5097).**
Form of option/stock appreciation right 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 November 21, 2013)
(Commission File No. 1-5097).**
Form of performance share unit agreement for Johnson Controls, Inc. 2012 Omnibus Incentive Plan for recipients who
have announced an intention to retire (incorporated by reference to Exhibit 10.1(d) to Johnson Controls, Inc.'s Current
Report on Form 8-K filed November 21, 2013) (Commission File No. 1-5097).**
10.EE
Separation Agreement and Release of All Claims between Johnson Controls, Inc. and C. David Myers dated as of
September 30, 2014, and amendment thereto, dated October 29, 2014, filed herewith.**
12
Computation of ratio of earnings to fixed charges for the years ended September 30, 2014, 2013, 2012, 2011 and 2010,
filed herewith.
21
Subsidiaries of the Registrant, filed herewith.
23
Consent of Independent Registered Public Accounting Firm dated November 19, 2014, 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,
2014, 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.
120
EXHIBIT 10.A
Global Assignment Letter
Expatriate Name: Dr. Beda Bolzenius
Home Country: United States
Host Country: China
Host Location: Shanghai, China
International Assignment Services: Joyce D Sadler
This offer sets forth the specifics of the compensation and allowance package established for you in connection with
your assignment as a corporate officer & Vice Chairman - Asia Pacific & President, Automotive Experience of Johnson
Controls, Inc. (the "Company"), reporting to the CEO of the Company.
This Global Assignment Letter should be read in conjunction with the Employment Agreement between the employee
and Johnson Controls, if applicable. To the extent there is a conflict between the terms of this letter and the terms of
the Employment Agreement, the terms of this Global Assignment Letter will be controlling.
This Assignment Letter is subject to you being able to obtain the necessary work visa/residence permit(s) in China and
the necessary vaccinations/immunizations if applicable.
Your foreign assignment is expected to last three years , commencing on October 1, 2014, provided that all
immigration documents are in order. For the two year period following the completion of this assignment, you will be
provided with a Corporate Vice President position based at the Johnson Controls Headquarters located in Milwaukee,
Wisconsin. It is understood that at that time your title will no longer include Vice Chairman - Asia Pacific.
Base Salary :
Your base salary effective with the assignment will be $71,250.00 USD monthly ($855,000 USD annually). Salary
administration procedures are in accordance with your home country guidelines. While on foreign assignment, you will
be paid once a month.
Bonus :
Your annual performance bonus will be targeted at 90% of your base salary.
Goods and Services Allowance :
1
You will receive a Goods and Services allowance, where applicable, using information that we receive from our cost of
living data provider. If applicable, you will be paid this allowance every month to offset the difference in costs for goods
and services between your home country and your Host location. The current rate as of the date hereof will be $3,000
USD per month and subject to change effective January 1, 2015. This index is based upon the Cost Effective Home
Country Index. This will become effective the date you move into long term housing and cease to be reimbursed for
temporary living expenses. This allowance will cease the date you move out of permanent housing in the Host
country, or if you have to leave the Host country for an extended period. It is your responsibility to notify your
International Assignment Analyst about the dates you move in and/or out of temporary living.
Relocation Allowance :
You will receive a Relocation Allowance of $13,355.00 at the beginning of your assignment. This allowance is
delivered less applicable taxes paid by you, and will be delivered in your first monthly assignment paycheck.
Upon successful completion of your assignment, and return to your home country, you will receive a Relocation
Allowance of $13,355.00, less applicable taxes paid by you.
Hardship Allowance :
The Company will pay a 10% of your base salary hardship allowance to you. The hardship allowance begins with the
effective date of your assignment. Please refer to your compensation worksheet for the monthly allowance amount. It
will be paid each monthly pay period and will continue only during the time that the area is classified as an area that
warrants a hardship allowance. The hardship percentage will be reviewed annually and may increase or decrease
depending on the change in conditions. The hardship allowance will discontinue upon the completion of this
assignment.
Housing Allowance :
You will receive housing in your Host location that is commensurate with your peers in that location. If you continue to
maintain your residence in Mexico, 100% of the housing costs will be covered at your Host location. If you purchase
property in the Host location, the cost becomes 100% your responsibility.
Utilities, including heat, water, electricity, and the installation charges for cable and telephone, are included in the
company paid Host country housing payments. Service utilities, such as phone and cable, are not reimbursed, as they
are part of the goods and services allowance.
The housing allowance will commence the day you take residence in your Host country housing.
Home Sale:
The Company will provide assistance if you incur a loss on the sale of a primary residence in the United States, due to
unfavorable regional home sale market conditions, up to a maximum of $75,000 USD .
Home Leave :
For each year of this assignment, a total of twelve personal round trips via Business Class will be provided for use by
you or your spouse.
Also, it is the Company’s intent to establish an office for you in Mexico at either your residence or a close Company
plant to allow you to be productive during your time in Mexico.
2
Host Country Transportation :
The Company will provide a company car or an automobile allowance.
Vacations and Holidays :
You will continue to be eligible for vacation based upon your home country policy. You will observe the work hours and
holidays of the Host country.
Host Country Club Membership :
You are eligible for reimbursement of club membership and initiation fees up to a maximum of $10,000 annually.
Company Car
You will continue to have use of a Company car to assist you while you are in Mexico.
Tax Equalization :
You will receive Tax Equalization assistance minimize, within practical limits, any tax advantage, or disadvantage of
your foreign assignment (in accordance with the Johnson Controls Tax Equalization Policy). This comes in the form of
tax preparation work from our tax provider. It will remain your responsibility to file the necessary income tax returns,
including any estimated returns, in your home country and Host location. You are required to furnish any withholding
allowances and exemption certificates that are necessary, so that the company’s withholding tax payments can be
minimized within the requirements of the law. For US Expatriates, Social Security Contributions will continue to be
made by you.
Termination :
During your assignment and for the two year period thereafter, you will remain an at-will employee of the Company
subject to the terms of your Employment Agreement, which means that you or the Company may terminate your
employment at any time.
Benefits :
You will continue to participate in the benefit programs of your home country, unless prohibited by home or Host
country laws, regulations, or costs. In such cases, an applicable coverage in the form of an expatriate benefits
package will be provided to cover pension, medical, disability, and death benefits, if necessary.
Relocation :
You are eligible for destination services by the Host Country HR Representative or our Third Party Provider, Brookfield
Global Relocation Services.
You are eligible for settling in services by our Third Party Provider, Brookfield Global Relocation Services, or the Host
Country HR Representative.
You will be reimbursed for a shipment of essential items not available, or included, in the Host country, furnished
housing.
Storage of household goods will be provided for the sale of your Michigan home.
The Company will not pay the costs associated with the relocation of household pets.
3
Repatriation :
You will be reimbursed for travel expenses back to your home country.
You will be allowed a total of 30 days of temporary living. If for some reason this needs to change, please speak with
Susan Davis or Alex Molinaroli.
You will be allowed a return shipment of goods, which can be 10% greater than the original shipment weight.
Any items in storage will be delivered to your home country residence.
Disputes About This Letter:
The parties agree that all disputes regarding this assignment letter or interpretation of the letter shall be governed by
the laws of the State of Wisconsin and the parties further agree that the exclusive judicial forum for resolving all such
disputes shall be the courts of the State of Wisconsin. If any provision of this Assignment Letter is judicially or
otherwise declared to be invalid, unenforceable or void, the remaining provisions shall nevertheless be effective to the
same extent as if such invalid or unenforceable provision had never been included.
Accepted by:
/s/ Dr. Beda Bolzenius ___________ _ 9/9/14__
Dr. Beda Bolzenius Date
Approved by:
/s/ Susan F. Davis __________ _ 9/6/14__
Susan F. Davis Date
Executive Vice President Human Resources
/s/ Alex A. Molinaroli ___________ _ 9/4/14__
Alex A Molinaroli Date
Chairman and Chief Executive Officer
4
EXHIBIT 10.EE
SEPARATION AGREEMENT
AND
RELEASE OF ALL CLAIMS
This Separation Agreement and Release of All Claims ("Agreement") is entered into between Johnson
Controls, Inc. (the "Company") and C. David Myers ("Employee"). Employee enters into this Agreement on behalf of
himself, his spouse, heirs, successors, assigns, executors, and representatives of any kind, if any.
Employee has elected to resign his employment with the Company and to resign as an officer and
director of the Company and/or all affiliated companies, effective September 30, 2014. In order to resolve all issues
between them, the Company and Employee agree as follows:
1.
Neither the Company’s signing of this Agreement nor any actions taken by the Company toward
compliance with the terms of this Agreement constitute an admission by the Company that it has acted improperly or
unlawfully with regard to Employee or that it has violated any state or federal law.
2.
Employee hereby resigns his employment with the Company, effective September 30, 2014. He also
resigns as an officer and director of the Company and/or all affiliated companies, effective September 30, 2014. During
the period from September 15, 2014 to September 30, 2014, Employee will work in good faith to transition his job
duties and responsibilities to his successor pursuant to the specific written request of the Company’s CEO or General
Counsel.
3.
During the period from October 1, 2014, until March 31, 2015, (the "consulting period"), the
Company and Employee will maintain a consulting relationship, under which Employee will be available to serve as a
consultant for the Company concerning transitional issues related to the business. In that capacity, he will perform
services on behalf of the Company only upon the specific written request of the Company’s CEO or General Counsel.
Employee’s separation benefits under this Agreement are intended to serve as compensation for Employee’s consulting
services during the period from October 1,
2014, until March 31, 2015, and in addition, Employee will be paid an additional hourly fee of $100.00 per hour for
any consulting services performed pursuant to this Agreement.
4.
The Company will pay or provide Employee the following:
a.
Separation pay in the amount of Four Million Three Hundred Thousand Dollars
($4,300,000.00), less withholdings. This sum will be paid to Employee in a lump sum within thirty (30) days
after the Effective Date (as defined in paragraph 8 below).
b.
During the consulting period, continued vesting of (i) the October, 2011 stock option award
and the October, 2012 stock option award that were granted under the Johnson Controls, Inc. 2007 Stock Option
Plan and (ii) the November, 2010 restricted stock award and the October, 2012 award that were granted under
the Johnson Controls, Inc. 2001 Restricted Stock Plan, in each case as permitted by the terms of such plans.
c.
Payments pursuant to the terms of the following plans, in accordance with their respective
terms: i) the FY2014 bonus under the Annual Incentive Performance Plan ("AIPP"), in December 2014, ii) the
FY2012 award under the Long-Term Incentive Performance Plan ("LTIPP"), in December 2014, iii) deferred
compensation pursuant to the Employee’s election (AIPP - lump sum in July 2015 and LTIPP - three
installments in July 2015, January 2016 and January 2017), and iv) a retirement restoration lump sum in July
2015.
The Company shall not be obligated to make the payment under paragraph (a) to Employee unless and
until the Agreement becomes enforceable and effective under paragraph 8 below.
5.
In consideration for the promises contained in paragraph 3 and 4(a), Employee hereby releases and
forever discharges the Released Parties (defined below) from any and all claims, demands, rights, liabilities and causes
of action of any kind or nature, known or unknown, arising prior to or through the Effective Date, including, but not
limited to, any claims, demands, rights, liabilities and causes of action arising or having arisen out of or in connection
with Employee’s employment or termination of employment with the Company and the termination of Employee’s
officer and director assignments.
“Released Parties” includes the Company, its subsidiary, related and affiliated companies, and its and their past and
present employees, directors, officers, agents, shareholders, insurers, attorneys, executors, assigns and other
representatives of any kind. Employee also releases and waives any claim or right to further compensation, benefits,
bonuses, stock options, damages, penalties, attorneys’ fees, costs or expenses of any kind from the Company or any of
the other Released Parties, except as set forth in paragraph 4 and this paragraph 5. This release specifically includes,
but is not limited to, a release of any and all claims pursuant to U.S. law, state and local fair employment law(s); Title
VII of the Civil Rights Act of 1964; the Rehabilitation Act of 1973; the Reconstruction Era Civil Rights Acts, 42
U.S.C. §§ 1981-1988; the Civil Rights Act of 1991; the Age Discrimination in Employment Act ("ADEA"); the
Americans with Disabilities Act; state and federal family and/or medical leave acts; state and federal wage payment
laws, and any other federal, state or local laws or regulations of any kind, whether statutory or decisional, to the full
extent such claims can legally be waived. This release also includes, but is not limited to, a release of any claims for
wrongful termination, retaliation, tort, breach of contract, defamation, misrepresentation, violation of public policy or
invasion of privacy. This release specifically includes a release of any claims Employee may have under any severance
or bonus policy or program and under any contract, including but not limited to his Executive Employment Agreement
dated January 17, 2008, and his Change of Control Executive Employment Agreement dated September 25, 2012,
except for the continued vesting and payments described in paragraph 4. This release does not include a waiver of any
claim (i) that cannot legally be waived, (ii) for accrued but unpaid salary and paid-time off through September 30,
2014, (iii) for vested retirement benefits under the Johnson Controls, Inc. Pension Plan, Johnson Controls, Inc. Savings
and Investment (401K) Plan, the Johnson Controls, Inc. Retirement Restoration Plan and the Johnson Controls, Inc.
Executive Deferred Compensation Plan, and benefits under any health and welfare plan, all pursuant to the terms of
such plans, (iv) to enforce a right to indemnification, if any, under applicable corporate law, or the by-laws or articles
of incorporation of the Company, (v) to enforce any
rights, if any, as an insured under any director’s and officer’s liability insurance policy of the Company, and (vi) to
enforce this Agreement.
6.
Employee has not filed or joined in any complaints, lawsuits, or proceedings of any kind against the
Company or any of the other Released Parties, and Employee promises never to file, pursue or join in any lawsuits or
proceedings asserting any claims that are released in this Agreement, to the fullest legal extent Employee can legally
give up his right to do so. Nothing in this Agreement prevents Employee from (a) filing a claim for Unemployment
Compensation to which Employee may be entitled; (b) challenging the enforceability of this Agreement under the
ADEA; or (c) filing a charge with the EEOC or otherwise cooperating with or providing information to the EEOC;
however, this Agreement does prohibit Employee from obtaining any personal or monetary relief based upon such
cooperation, provision of information, or charge, whether filed by Employee or anyone else on behalf of Employee.
7.
Employee acknowledges his obligation to comply with all applicable laws relating to trade secrets,
confidential information, and unfair competition. The parties also hereby incorporate by reference and agree that
paragraphs 7 and 8 of Employee’s Executive Employment Agreement dated January 17, 2008, survive and continue in
effect after the termination date and the Effective Date, with the following modifications:
a.
7.(a) first sentence: change "for a period of one year after the termination of active
employment hereunder” to “through September 30, 2016,"
b.
7.(a) first sentence: change "in the year preceding termination of employment with the
Company," to "any time since September 30, 2013, or about which Executive learned confidential business
information at any time since September 30, 2013, provided such information remains unavailable to the
public,"
c.
7.(a) Delete the entire second sentence commencing with "This restriction shall also…"
d.
8 (a) second sentence: change "During employment and for two years after termination of the
Executive’s employment with the Company" to "Through April 1, 2016,"
8.
Employee hereby acknowledges that the separation pay described in paragraph 4(a) satisfies and
exceeds all obligations or liabilities the Company has to Employee under his Executive Employment Agreement dated
January 17, 2008, the Change of Control Executive Employment Agreement dated September 25, 2012, and under any
other law, regulation, contract, policy or program, or otherwise. Employee is and was encouraged and advised to
consult with an attorney before signing this Agreement. Employee has up to twenty-one (21) days to consider whether
to accept this Agreement and Employee enters into it voluntarily. Employee may revoke this Agreement, in writing,
within seven (7) days after signing it. This Agreement will become enforceable and effective upon the expiration of the
revocation period provided Employee has not revoked it (the "Effective Date").
9.
Employee will return all Company property to the Company prior to September 30, 2014. This
includes, without limitation, all Company vehicles, phones, hardware, software, electronic files, computers and
computer records, customer lists, and all other Company confidential information.
10.
Employee agrees that he will not defame the Company or any of the Released Parties. The Company
(for this purpose, its corporate officers and official spokespersons) agrees not to defame Employee.
11.
Employee is not entitled to reinstatement or reemployment with the Company and will not at any
time after the execution of this Agreement apply for a position with the Company or any of its subsidiary, related, or
affiliated companies.
12.
If any portion of this Agreement is found to be unenforceable, the parties desire that all other
portions that can be separated from it, or appropriately limited in scope, shall remain fully valid and enforceable.
Employee enters into this Agreement knowingly and voluntarily and without any coercion.
13.
This Agreement supersedes and replaces all other agreements between the parties, except as
specifically agreed herein, and except also that the parties further agree that if any disputes arise
hereunder, or unless otherwise specified in this Agreement, they are covered by Section 9 of Employee’s Executive
Employment Agreement, which is incorporated by reference and made a part of this Agreement.
Employee certifies as follows: I understand all the provisions of this Agreement and I agree to them. I
understand that this Agreement contains a general release of all known and unknown claims of any kind against
the Company and the other Released Parties, and i am voluntarily entering into it.
/s/ C. David Myers Date: September 30, 2014
C. David Myers
Johnson Controls, Inc.
By: /s/ Simon Davis Date: September 30, 2014
Simon Davis
Title: Assistant Chief Human Resources Officer
AMENDMENT TO
SEPARATION AGREEMENT
AND
RELEASE OF ALL CLAIMS
This Amendment, dated October 29, 2014, amends the Separation Agreement and Release of All Claims (the
"Agreement") between Johnson Controls, Inc. (the "Company") and C. David Myers ("Employee") executed September
30, 2015 and effective October 8, 2014. Capitalized terms used and not defined in this Amendment are used as defined
in the Agreement.
1.
follows:
The Company and Employee desire to amend the Paragraph 4(a) of the Agreement to read as
"(a) Separation pay in the amount of Four Million Three Hundred Thousand Dollars ($4,300,000.00), less
withholdings. This sum will be paid to Employee in a lump sum on December 17, 2014."
2.
To induce Employee to enter into this Amendment, the Company will pay Employee $250,000
on December 17, 2014.
3.
Except as amended hereby, the Agreement remains in full force and effect.
/s/ C. David Myers
C. David Myers
Johnson Controls, Inc.
By: /s/ Simon Davis
Title: Assistant Chief Human Resources Officer
EXHIBIT 10.Q
JOHNSON CONTROLS, INC.
COMPENSATION SUMMARY FOR NON-EMPLOYEE DIRECTORS
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, 2014, consists of the payment for the Company’s fiscal year of the following:
(a)
Retainer
A retainer at the annual rate of $265,000 to each non-employee director in the form of $120,000 in cash and
$145,000 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 $145,000.
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 $145,000.
(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 $145,000.
(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 $145,000.
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 ($30,000 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)
(ii)
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 appointment or election to the first
day of the next quarter divided by (y) 90, multiplied by $30,000.
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.
2
(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, 2014, 2013, 2012, 2011 and 2010.
(Dollars in millions)
2014
Year Ended September 30,
2012
2011
2013
Net income attributable to Johnson Controls, Inc.
Income tax provision
Income attributable to noncontrolling interests
Income from equity affiliates
Distributed income of equity affiliates
Amortization of previously capitalized interest
Fixed charges less capitalized interest
Earnings
Fixed charges:
Interest incurred and amortization of debt expense
Estimated portion of interest in rent expense
Fixed charges
Less: Interest capitalized during the period
Fixed charges less capitalized interest
$
$
$
$
$
1,433 $
482
120
(395 )
204
16
478
2,338 $
1,077 $
696
114
(399 )
210
18
448
2,164 $
1,099 $
161
126
(338 )
190
9
409
1,656 $
1,326 $
189
117
(285 )
194
10
331
1,882 $
353 $
153
506 $
(28 )
478 $
333 $
157
490 $
(42 )
448 $
313 $
151
464 $
(55 )
409 $
224 $
141
365 $
(34 )
331 $
2010
1,322
130
75
(252 )
212
11
302
1,800
193
130
323
(21 )
302
Ratio of earnings to fixed charges
4.6
4.4
3.6
5.2
5.6
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.
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, 2014.
JOHNSON CONTROLS, INC.
EXHIBIT 21
Name
York International Corporation
Johnson Controls Battery Group, Inc.
Jurisdiction Where Subsidiary is
Incorporated
Delaware
Wisconsin
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 19, 2014 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-3 (Registration No. 333-178148)
7. Registration Statement on Form S-8 (Registration No. 333-141578)
8. Registration Statement on Form S-8 (Registration No. 333-173326)
9. Registration Statement on Form S-3 (Registration No. 333-179613)
10. Registration Statement on Form S-8 (Registration No. 333-188430)
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
November 19, 2014
CERTIFICATIONS
EXHIBIT 31.1
I, Alex A. Molinaroli, Chairman, 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.;
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 19, 2014
/s/ Alex A. Molinaroli
Alex A. Molinarioli
Chairman, President and Chief Executive Officer
EXHIBIT 31.2
I, Brian J. Stief, Executive Vice President and Chief Financial Officer of Johnson Controls, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Johnson Controls, Inc.;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent
functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: November 19, 2014
/s/ Brian J. Stief
Brian J. Stief
Executive Vice President and
Chief Financial Officer
EXHIBIT 32
CERTIFICATION OF PERIODIC FINANCIAL REPORTS
We, Alex A. Molinaroli, Chairman, President and Chief Executive Officer, and Brian J. Stief, 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, 2014 (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 19, 2014
/s/ Alex A. Molinaroli
Alex A. Molinaroli
Chairman, President and Chief Executive Officer
/s/ Brian J. Stief
Brian J. Stief
Executive Vice President and Chief Financial Officer