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(Exact name of registrant as specified in its charter)
iIreland
i98-0390500
(Jurisdiction
of Incorporation)
(I.R.S. Employer Identification No.)
iOne Albert Quay, iCork, iIreland,
iT12 X8N6
(i353) i21-423-5000
(Address
of Principal Executive Offices and Postal Code)
(Registrant's Telephone Number)
Securities Registered Pursuant to Section 12(b) of the Exchange Act:
Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
iOrdinary
Shares, Par Value $0.01
iJCI
iNew York Stock Exchange
i1.000%
Senior Notes due 2023
iJCI23A
iNew York Stock Exchange
i3.625%
Senior Notes due 2024
iJCI24A
iNew York Stock Exchange
i1.375%
Notes due 2025
iJCI25A
iNew York Stock Exchange
i3.900%
Notes due 2026
iJCI26A
iNew York Stock Exchange
i0.375%
Senior Notes due 2027
iJCI27
iNew York Stock Exchange
i3.000%
Senior Notes due 2028
iJCI28
iNew York Stock Exchange
i1.750%
Senior Notes due 2030
iJCI30
iNew York Stock Exchange
i2.000%
Sustainability-Linked Senior Notes due 2031
iJCI31
iNew York Stock Exchange
i1.000%
Senior Notes due 2032
iJCI32
iNew York Stock Exchange
i4.900%
Senior Notes due 2032
iJCI32A
iNew York Stock Exchange
i6.000%
Notes due 2036
iJCI36A
iNew York Stock Exchange
i5.70%
Senior Notes due 2041
iJCI41B
iNew York Stock Exchange
i5.250%
Senior Notes due 2041
iJCI41C
iNew York Stock Exchange
i4.625%
Senior Notes due 2044
iJCI44A
iNew York Stock Exchange
i5.125%
Notes due 2045
iJCI45B
iNew York Stock Exchange
i6.950%
Debentures due December 1, 2045
iJCI45A
iNew York Stock Exchange
i4.500%
Senior Notes due 2047
iJCI47
iNew York Stock Exchange
i4.950%
Senior Notes due 2064
iJCI64A
iNew York Stock Exchange
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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. iYesþ No ¨
Indicate by check mark whether
the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYesþ No ¨
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer,""accelerated filer,""smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
þ
Accelerated filer
☐
Smaller reporting company
i☐
Non-accelerated filer
¨
Emerging growth company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No þ
Indicate
the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
The consolidated financial statements include the consolidated accounts of Johnson Controls International plc, a public limited company organized under the laws of Ireland, and its subsidiaries (Johnson Controls International plc and all its subsidiaries, hereinafter collectively referred to as the "Company," or "Johnson Controls"). In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (which include normal recurring adjustments) necessary to state fairly the financial position, results of operations and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC"). These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2022 filed with the SEC on November 15, 2022. The results of operations for the three month period ended December 31, 2022 are not necessarily indicative of results for the Company’s 2023 fiscal year
because of seasonal and other factors.
Nature of Operations
Johnson Controls International plc, headquartered in Cork, Ireland, is a global leader in smart, healthy and sustainable buildings, serving a wide range of customers in more than i150 countries. The Company’s products, services, systems and solutions advance the safety, comfort and
intelligence of spaces to serve people, places and the planet. The Company is committed to helping its customers win and creating greater value for all of its stakeholders through its strategic focus on buildings.
The Company is a global leader in engineering, manufacturing, commissioning and retrofitting building products and systems, including residential and commercial heating, ventilating, air-conditioning ("HVAC") equipment, industrial refrigeration systems, controls, security systems, fire-detection systems and fire-suppression solutions. The Company further serves customers by providing technical services, including maintenance,
management, repair, retrofit and replacement of equipment (in the HVAC, industrial refrigeration, controls, security and fire-protection space), energy-management consulting and data-driven “smart building” services and solutions powered by its OpenBlue software platform and capabilities. The Company partners with customers by leveraging its broad product portfolio and digital capabilities powered by OpenBlue, together with its direct channel service and solutions capabilities, to deliver outcome-based solutions across the lifecycle of a building that address customers’ needs to improve energy efficiency, enhance security, create healthy environments and reduce greenhouse gas emissions.
i
Principles
of Consolidation
The consolidated financial statements include the consolidated accounts of Johnson Controls International plc and its subsidiaries that are consolidated in conformity with U.S. GAAP. All significant intercompany transactions have been eliminated. The results of companies acquired or disposed of during the reporting period are included in the consolidated financial statements from the effective date of acquisition or up to the date of disposal. Investments in partially-owned affiliates are accounted for by the equity method when the Company exercises significant influence, which typically occurs when its ownership interest exceeds 20%, and the
Company does not have a controlling interest.
The Company consolidates variable interest entities ("VIE") when it has the power to direct the significant activities of the entity and the obligation to absorb losses or receive benefits from the entity that may be significant. The Company did not have any material consolidated or nonconsolidated VIE's for the presented reporting periods.
iRestricted
Cash
Restricted cash relates to amounts restricted for payment of asbestos liabilities and certain litigation and environmental matters. Restricted cash is recorded within other current assets in the consolidated statements of financial position and totaled $i67 million and $i35
million at December 31, 2022 and September 30, 2022, respectively.
In September 2022, the FASB issued ASU 2022-04, "Disclosure of Supplier Finance Program Obligations", which is intended to enhance the transparency surrounding the use of supplier finance programs. Supplier finance programs may also be referred to as reverse factoring, payables finance, or structured payables arrangements. The amendments require a buyer that uses
supplier finance programs to make annual disclosures about the program’s key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period, and associated rollforward information. Only the amount outstanding at the end of the period must be disclosed in interim periods. The Company expects to adopt the new disclosures, other than the rollforward disclosure, as required at the beginning of fiscal 2024. The rollforward disclosures will be adopted as required at the beginning of fiscal 2025.
Other recently issued accounting pronouncements are not expected to have a material impact on the Company's consolidated financial statements.
3.iAcquisitions
and Divestitures
During the first quarter of fiscal 2023, the Company completed certain acquisitions for a combined purchase price, net of cash acquired, of $i105 million, of which $i79 millionwas paid as of December 31, 2022. In connection with the acquisitions, the Company recorded goodwill of$i53 million within the Global Products segment and $i2 million
within the Building Solutions EMEA/LA segment.
The Company completed no divestitures during the first quarter of fiscal 2023.
During the first quarter of fiscal 2022, the Company completed certain acquisitions for a combined purchase price, net of cash acquired, of $i142 million,
of which $i108 million was paid as of December 31, 2021. In connection with the acquisitions, the Company recorded goodwill of $i45 million
within the Building Solutions Asia Pacific segment, $i20 million within the Building Solutions North America segment, $i19 million within the Building Solutions EMEA/LA segment and $i10 million
within the Global Products segment.
During the first quarter of fiscal 2022, the Company completed a divestiture within the Buildings Solutions EMEA/LA segment. The selling price, net of cash divested, was $i18 million, of which $i16 million
was received as of December 31, 2021. In connection with the divestiture, the Company reduced goodwill by $i5 million.
Acquisitions and divestitures were not material individually or in the aggregate in the first quarter of fiscal 2023 or 2022.
4.
iAssets and Liabilities Held for Sale
During fiscal 2022, the Company determined that its Global Retail business within its Building Solutions North America, Building Solutions Asia Pacific and Building Solutions EMEA/LA segments and a business within the Building Solutions Asia Pacific segment both met the criteria to be classified as held
for sale. The assets and liabilities of both businesses are presented as held for sale in the consolidated statements of financial position as of December 31, 2022 and September 30, 2022. Assets and liabilities held for sale are recorded at the lower of carrying value or fair value, less costs to sell in accordance with ASC 360-10-15, "Impairment or Disposal of Long-Lived Assets". The carrying amount of any assets, including goodwill, that are part of the disposal group, but not in the scope of ASC 360-10, are tested for impairment under the relevant guidance prior to measuring the disposal group at fair value, less cost to sell.
During the three months ended December 31, 2022, the
Company recorded impairment charges primarily due to reductions in the estimated fair values for the Global Retail business of $i228 million and for the business in the Building Solutions Asia Pacific of $i60 million.
All of the impairments were recorded within restructuring and impairment costs in the consolidated statements of income.
The divestiture of the businesses held for sale could result in a gain or loss on sale to the extent the ultimate selling prices differ from the current carrying value of the net assets recorded, which could be material. The businesses did not meet the criteria to be classified as discontinued operations as neither
divestiture represents a strategic shift that will have a major effect on the Company's operations and financial results. Both divestitures are expected to be finalized in fiscal 2023.
i
The following table summarizes the carrying value of the Global Retail assets and liabilities held for sale (in
millions):
Contract assets relate to the Company’s right to consideration for performance obligations satisfied but not billed and consist of unbilled receivables and costs in excess of billings. Contract liabilities relate to customer payments received in advance of satisfaction of performance obligations under the contract. Contract balances are classified as assets or liabilities on a contract-by-contract
basis at the end of each reporting period.
i
The following table presents the location and amount of contract balances in the Company's consolidated statements of financial position (in millions):
For
the three months ended December 31, 2022 and 2021, the Company recognized revenue of $i846 million and $i751
million, respectively, that was included in the beginning of period contract liability balance.
Performance Obligations
A performance obligation is a distinct good, service, or a bundle of goods and services promised in a contract. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. When contracts with customers require significant
and complex integration, contain goods or services which are highly interdependent or interrelated, or are goods or services which significantly modify or customize other promises in the contracts and, therefore, are not distinct, then the entire contract is accounted for as a single performance obligation. For any contracts with multiple performance obligations, the contract’s transaction price is allocated to each performance obligation based on the estimated relative standalone selling price of each distinct good or service in the contract.
For product sales, each product sold to a customer typically represents a distinct performance obligation.
Performance obligations are satisfied at a point in time or over time. The timing of satisfying the performance obligation is typically stipulated by the terms of the contract. As of December 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $i18.4
billion, of which approximately i65% is expected to be recognized as revenue over the next itwo
years. The remaining performance obligations expected to be recognized in revenue beyond two years primarily relate to large, multi-purpose contracts to construct hospitals, schools and other governmental buildings, which include services to be performed over the building's lifetime,with initial contract terms of i25 to i35
years. Future contract modifications could affect both the timing and the amount of the remaining performance obligations. The Company excludes the value of remaining performance obligations for contracts with an original expected duration of one year or less.
The Company recognizes the incremental costs incurred to obtain or fulfill a contract with a customer as an asset when these costs are recoverable. These costs consist primarily of sales commissions and design costs that relate to a contract or an anticipated contract that we expect to recover.
Costs to obtain or fulfill a contract are capitalized and amortized over the period of contract performance.
i
The following table presents the location and amount of costs to obtain or fulfill a contract recorded in the
Company's consolidated statements of financial position (in millions):
For
the three months ended December 31, 2022 and 2021, the Company recognized amortization expense of $i61 million, and $i50 million
related to costs to obtain or fulfill a contract. There were iino/
impairment losses recognized in the three months ended December 31, 2022 and 2021.
6. iAccounts Receivable
The
Company enters into various factoring agreements to sell certain accounts receivable to third-party financial institutions. For the majority of these agreements, for ease of administration, the Company collects customer payments related to the factored receivables on behalf of the financial institutions but otherwise maintains no continuing involvement with respect to the factored receivables. Sales of accounts receivable are reflected as a reduction of accounts receivable in the consolidated statements of financial position and the proceeds are included in cash flows from operating activities in the consolidated statements of cash flows. The Company sold $i409 million
and $i134 million of accounts receivable under these factoring agreements during the three months ended December 31, 2022 and 2021, respectively. The cost of factoring such receivables was not material. Previously sold receivables still outstanding were $i384 million
and $i476 million as of December 31, 2022 and September 30, 2022, respectively.
7. iInventories
i
Inventories
consisted of the following (in millions):
The
Company tests goodwill for impairment annually as of July 31 or more frequently if events or changes in circumstances indicate the asset might be impaired.There were no triggering events requiring an impairment assessment be conducted in the three months ended December 31, 2022. However, it is possible that future changes in circumstances would require the Company to record additional non-cash impairment charges.
i
The
Company’s other intangible assets, primarily from business acquisitions, consisted of (in millions):
Amortization
of other intangible assets included within continuing operations for the three-month periods ended December 31, 2022 and 2021 was $i104 million and $i118 million,
respectively.
The Company tests indefinite-lived intangible assets for impairment annually as of July 31 or more frequently if events or changes in circumstances indicate the asset might be impaired. There were no triggering events requiring that an impairment assessment be conducted in the three months ended December 31, 2022. However, it is possible that future changes in circumstances would require the Company to record additional non-cash impairment charges.
13
9. iLeases
i
The
following table presents supplemental consolidated statement of financial position information (in millions):
Right-of-use
assets obtained in exchange for operating lease liabilities
$
i110
$
i55
/
10. iDebt
and Financing Arrangements
As of December 31, 2022, the Company had a syndicated $i2.5 billion committed revolving credit facility, which is scheduled to expire in December 2024, and a syndicated $i500 million
committed revolving credit facility, which is scheduled to expire in November 2023. As of December 31, 2022, there were ino draws on the facilities.
In October 2022, the Company repaid a €i200 million
($i196 million as of September 30, 2022) term loan with an interest rate of EURIBOR plus i0.5% and entered into a
€i150 million ($i161 million as of December 31, 2022) term loan with an interest rate of EURIBOR plus i0.7%
which is due in April 2024.
Interest expense, net of capitalized interest costs
$
i69
$
i55
Other
financing charges
i10
i5
Interest
income
(i4)
(i2)
Net
foreign exchange results for financing activities
(i8)
(i5)
Net
financing charges
$
i67
$
i53
/
14
11. iDerivative Instruments and Hedging Activities
The Company selectively uses derivative instruments to reduce market risk associated with changes in foreign currency, commodities 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 12, "Fair Value Measurements," of the notes to the consolidated financial statements for information related to the fair value measurements and valuation methods utilized by the Company for each derivative type.
Cash Flow Hedges
The Company has global operations and participates in foreign exchange markets to minimize its risk of loss from fluctuations in foreign currency
exchange rates. The Company selectively hedges anticipated transactions that are subject to foreign exchange rate risk primarily using foreign currency exchange forward contracts. The Company hedges i70% to i90%
of the notional amount of each of its known foreign exchange transactional exposures.
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 copper and aluminum 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. The maturities of the commodity
hedge contracts coincide with the expected purchase of the commodities.
iAs cash flow hedges under ASC 815, "Derivatives and Hedging," hedge gains or losses due to changes in fair value are initially recorded as a component of accumulated other comprehensive income (loss) ("AOCI") and are subsequently reclassified into earnings when the hedged transactions occur and affect earnings. These contracts
were highly effective in hedging the variability in future cash flows attributable to changes in currency exchange rates during the three months ended December 31, 2022 and 2021.
i
The Company had the following outstanding contracts to hedge forecasted commodity purchases
(in metric tons):
The Company enters into foreign currency denominated debt obligations to selectively hedge portions of its net investment in non-U.S. subsidiaries. The currency effects of the debt obligations are reflected in AOCI attributable to Johnson Controls ordinary shareholders where they offset currency gains and losses recorded on the Company's net investments globally.
i
The
following table summarizes net investment hedges (in billions):
Euro-denominated bonds designated
as net investment hedges in Europe
€
i2.9
€
i2.9
Yen-denominated
debt designated as a net investment hedge in Japan
¥
i30
¥
i30
/
15
Derivatives
Not Designated as Hedging Instruments
The Company holds certain foreign currency forward contracts not designated as hedging instruments under ASC 815 to hedge foreign currency exposure resulting from monetary assets and liabilities denominated in nonfunctional currencies. The changes in fair value of these foreign currency forward exchange derivatives are recorded in the consolidated statements of income where they offset foreign currency transactional gains and losses on the nonfunctional currency denominated assets and liabilities being hedged.
Fair Value of Derivative Instruments
i
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):
Derivatives and Hedging Activities Designated as Hedging Instruments under ASC 815
Derivatives and Hedging Activities Not Designated
as Hedging Instruments under ASC 815
The use of derivative financial instruments exposes the Company to counterparty credit risk. The Company has established policies and procedures to limit the potential for counterparty credit risk, including establishing limits for credit exposure and continually assessing the creditworthiness of counterparties. As a matter of practice, the Company deals with major banks worldwide having strong investment grade long-term credit ratings. To further reduce the risk of loss, the Company generally enters into International Swaps and Derivatives
Association ("ISDA") master netting agreements with substantially all of its counterparties. The Company enters into 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.
The Company's derivative contracts do not contain any credit risk related contingent features and do not require collateral or other security to be furnished by the Company or the counterparties. The Company's exposure to credit risk associated with its derivative instruments is measured on an individual counterparty basis, as well as by groups of counterparties that share similar attributes. The Company does not anticipate any
non-performance by any of its counterparties, and the concentration of risk with financial institutions does not present significant credit risk to the Company.
16
i
The gross and net amounts of derivative assets and liabilities were as follows (in millions):
The
following table presents the location and amount of the pre-tax gains (losses) on cash flow hedges reclassified from AOCI into the Company’s consolidated statements of income (in millions):
Derivatives in ASC 815 Cash Flow Hedging Relationships
Location
of Gain (Loss) Reclassified from AOCI into Income
The
following table presents the location and amount of pre-tax gains on derivatives not designated as hedging instruments recognized in the Company’s consolidated statements of income (in millions):
Derivatives
Not Designated as Hedging Instruments under ASC 815
Location of Gain Recognized in Income on Derivative
Pre-tax
gains (losses) on net investment hedges recorded as foreign currency translation adjustments ("CTA") within other comprehensive income (loss) were $(i269) and $i73 million
for the three months ended December 31, 2022 and 2021, respectively. iiNo/
gains or losses were reclassified from CTA into income during the three months ended December 31, 2022 and 2021.
17
12. iFair Value Measurements
i
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 for identical assets or liabilities;
Level 2: Quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or 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
i
The
following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value (in millions):
1
Classified as restricted investments for payment of asbestos liabilities. See Note 21, "Commitments and Contingencies," of the notes to the consolidated financial statements for further details.
i
The following table summarizes the changes in contingent earn-out liabilities, which are valued using significant unobservable inputs (Level 3) (in millions):
Foreign currency exchange derivatives: The foreign currency exchange derivatives are valued under a market approach using publicized spot and forward prices.
Commodity derivatives: The commodity derivatives are valued under a market approach using publicized prices, where available, or dealer quotes.
Deferred compensation plan assets: Assets held in the deferred compensation plans will be used to pay benefits under certain of the Company's non-qualified deferred compensation plans. The investments primarily consist of mutual funds which are publicly traded
on stock exchanges and are valued using a market approach based on the quoted market prices. Unrealized gains (losses) on the deferred compensation plan assets are recognized in the consolidated statements of income where they offset unrealized gains and losses on the related deferred compensation plan liability.
19
Investments in exchange traded funds: Investments in exchange traded funds are valued using a market approach based on quoted market prices, where available, or broker/dealer quotes of identical or comparable instruments. Refer to Note 21, "Commitments and Contingencies," of the notes to the consolidated financial statements for further information.
Contingent
earn-out liabilities: The contingent earn-out liabilities were established using a Monte Carlo simulation based on the forecasted operating results and the earn-out formula specified in the purchase agreements.
i
The following table presents the portion of unrealized gains recognized in the consolidated statements of income that relate to equity securities still held at December 31, 2022 and 2021 (in
millions):
All
of the gains on investments in exchange traded funds related to restricted investments.
The fair values of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying values. At December 31, 2022, the fair value of long-term debt was $i7.9 billion, including public debt of $i7.5 billion
and other long-term debt of $i0.4 billion. At September 30, 2022, the fair value of long-term debt was $i7.3 billion, including public debt of
$i7.1 billion and other long-term debt of $i0.2 billion. The fair value of public debt was determined primarily using market quotes which are classified as Level 1 inputs within the ASC 820 fair
value hierarchy. The fair value of other long-term debt was determined using quoted market prices for similar instruments and are classified as Level 2 inputs within the ASC 820 fair value hierarchy.
13. iStock-Based Compensation
On
March 10, 2021, the shareholders of the Company approved the Johnson Controls International plc 2021 Equity and Incentive Plan (the "Plan"). The Plan authorizes stock options, stock appreciation rights, restricted (non-vested) stock/units, performance share units and other stock-based awards. The Compensation and Talent Development Committee of the Company's Board of Directors determines the types of awards to be granted to individual participants and the terms and conditions of the awards. Awards are typically granted annually in the Company’s fiscal first quarter.
i
A
summary of the stock-based awards granted is presented below:
Basic and diluted income available to shareholders
$
i118
$
i381
Weighted
Average Shares Outstanding
Basic weighted average shares outstanding
i687.0
i704.3
Effect
of dilutive securities:
Stock options, unvested restricted stock and unvested performance share awards
i3.3
i5.2
Diluted
weighted average shares outstanding
i690.3
i709.5
Antidilutive
Securities
Stock options and unvested restricted stock
i0.3
i—
/
21
15. iEquity
Share repurchase program
For the three months ended December 31, 2022 and 2021, the Company repurchased and immediately retired $i154 million and $i526 million
of its ordinary shares, respectively. As of December 31, 2022, approximately $i3.5 billion remains available under the Company's share repurchase program, which was approved by the Company's Board of Directors in March 2021. 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.
Accumulated Other Comprehensive Income (Loss)
i
The following schedules present changes in AOCI attributable to Johnson Controls (in millions, net of tax):
Aggregate
adjustment for the period (net of tax effect of $i0 and $i0)
i59
i84
Balance
at end of period
(i842)
(i337)
Realized
and unrealized gains (losses) on derivatives
Balance at beginning of period
(i11)
(i17)
Current
period changes in fair value (net of tax effect of $(i2) and $i3)
(i9)
i4
Reclassification
to income (net of tax effect of $(i1) and $i0) *
(i2)
i—
Balance
at end of period
(i22)
(i13)
Pension
and postretirement plans
Balance at beginning of period
i1
i4
Reclassification
to income (net of tax effect of $i0 and $i0)
(i1)
(i1)
Balance
at end of period
i—
i3
Accumulated
other comprehensive loss, end of period
$
(i864)
$
(i347)
*
Refer to Note 11, "Derivative Instruments and Hedging Activities," of the notes to the consolidated financial statements for disclosure of the line items in the consolidated statements of income affected by reclassifications from AOCI into income related to derivatives.
/
22
16. iPension
and Postretirement Plans
i
The components of the Company’s net periodic benefit costs from continuing operations associated with its defined benefit pension and postretirement plans, which are primarily recorded in selling, general and administrative expenses in the consolidated statements of income, are shown in the tables below in accordance with ASC 715, "Compensation – Retirement Benefits" (in millions):
During
the three months ended December 31, 2022, the amount of cumulative fiscal 2023 lump sum payouts triggered a remeasurement event for certain U.S. pension plans resulting in the recognition of net actuarial losses of $i8 million, primarily due to decreases in discount rates, partially offset by favorable plan asset performance.
During
the three months ended December 31, 2021, the amount of cumulative fiscal 2022 lump sum payouts triggered a remeasurement event for certain U.S. pension plans resulting in the recognition of net actuarial gains of $i42 million, primarily due to favorable plan asset performance.
23
17. iSignificant
Restructuring and Impairment Costs
To better align its resources with its growth strategies and reduce the cost structure of its global operations in certain underlying markets, the Company commits to various restructuring activities as necessary. Restructuring activities generally result in charges for workforce reductions, plant closures, asset impairments and other related costs which are reported as restructuring and impairment costs in the Company’s consolidated statements of income. The other related costs consist primarily of consulting costs incurred as a direct result of the restructuring activities. The Company expects
the restructuring activities to reduce cost of sales and SG&A due to reduced employee-related costs, depreciation and amortization expense.
During the three months ended December 31, 2022, the Company recorded $i57 million of restructuring and impairment costs in the consolidated statements of income. These charges
relate to restructuring plans within the segments and at Corporate to reduce and optimize our cost structure. Refer to Note 4, "Assets and Liabilities Held for Sale" of the notes to the consolidated financial statements for disclosure of other impairment costs.
In fiscal 2021, the Company committed to a significant multi-year restructuring plan ("2021 Plan"). The restructuring actions were substantially completed in fiscal 2022 and final payments, which are not material, will be made in fiscal 2023.
i
The
following table summarizes restructuring and impairment costs (in millions):
The
following table summarizes changes in the restructuring reserve, which is included within other current liabilities in the consolidated statements of financial position, for new restructuring actions taken in the three months ended December 31, 2022 (in millions):
In calculating the provision for income taxes, 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 changed facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter.
The statutory tax rate in Ireland is being used as a comparison since the Company is domiciled in Ireland. For the three months ended December 31, 2022, the
Company's effective tax rate for continuing operations was i8.2% and was lower than the statutory tax rate of i12.5%
primarily due to impairment and restructuring charges and the benefits of continuing global tax planning initiatives, partially offset by tax rate differentials. For the three months ended December 31, 2021, the Company's effective tax rate for continuing operations was i14.5% and was higher than the statutory tax rate of i12.5%
primarily due to the income tax effects of mark-to-market adjustments and tax rate differentials, partially offset by the benefits of continuing global tax planning initiatives.
Valuation Allowance
The Company reviews the realizability of its deferred tax assets on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or consolidated group recording the net deferred tax asset are considered, along with any other positive or negative evidence. Since future financial results may differ from previous estimates, periodic adjustments to the
Company’s valuation allowances may be necessary.
Uncertain Tax Positions
At September 30, 2022, the Company had gross tax-effected unrecognized tax benefits of $i2,537 million, of which $i1,973
million, if recognized, would impact the effective tax rate. Accrued interest, net at September 30, 2022 was approximately $i284 million (net of tax benefit). Interest accrued during the three months ended December 31, 2022 and 2021 was approximately $i26
million (net of tax benefit) and approximately $i17 million (net of tax benefit), respectively. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.
i
In
the U.S., fiscal years 2017 through 2018 are currently under exam by the Internal Revenue Service (“IRS”) for certain legal entities. Additionally, the Company is currently under exam in the following major non-U.S. jurisdictions for continuing operations:
Tax Jurisdiction
Tax Years Covered
Belgium
2015
- 2021
Germany
2007 - 2018
Luxembourg
2017 - 2018
Mexico
2015 - 2017
United Kingdom
2014 - 2015, 2017 - 2018; 2020
It
is reasonably possible that tax examinations and/or tax litigation will conclude within the next twelve months, which could have a material impact on tax expense. Based upon the circumstances surrounding these examinations, the impact is not currently quantifiable.
25
Other Tax Matters
The Company recorded restructuring and impairment costs of $i345 million,
which generated a $i52 million tax benefit, during the three months ended December 31, 2022 and $i49 million,
which generated a $i7 million tax benefit, during the three months ended December 31, 2021,
Tax expenses and benefits for the above transactions reflect the Company’s current tax positions in the impacted jurisdictions. Refer to Note 17, “Significant Restructuring and Impairment Costs,” of the notes to the consolidated financial
statements for additional information.
Impacts of Tax Legislation
During the three months ended December 31, 2022 and 2021, tax legislation was adopted in various jurisdictions. These law changes did not have a material impact on the Company's consolidated financial statements.
19. iSegment
Information
ASC 280, "Segment Reporting," establishes the standards for reporting information about segments in financial statements. In applying the criteria set forth in ASC 280, the Company has determined that it has ifour reportable segments for financial reporting purposes.
•Building
Solutions North America: Building Solutions North America designs, sells, installs, and services HVAC, controls, building management, refrigeration, integrated electronic security, and integrated fire detection and suppression systems for commercial, industrial, retail, small business, institutional and governmental customers in the United States and Canada. Building Solutions North America also provides energy efficiency solutions and technical services, including inspection, scheduled maintenance, and repair and replacement of mechanical and control systems, as well as data-driven "smart building" solutions, to non-residential building and industrial applications in the United States and Canadian marketplace.
•Building Solutions EMEA/LA: Building Solutions EMEA/LA designs, sells, installs and services HVAC,
controls, building management, refrigeration, integrated electronic security, integrated fire detection and suppression systems, and provides technical services, including data-driven "smart building" solutions, to markets in Europe, the Middle East, Africa and Latin America.
•Building Solutions Asia Pacific: Building Solutions Asia Pacific designs, sells, installs and services HVAC, controls, building management, refrigeration, integrated electronic security, integrated fire-detection and suppression systems, and provides technical services, including data-driven "smart building" solutions, in the Asia Pacific marketplace.
•Global Products: Global Products designs, manufactures and sells HVAC
equipment, controls software and software services for residential and commercial applications to commercial, industrial, retail, residential, small business, institutional and governmental customers worldwide. In addition, Global Products designs, manufactures and sells refrigeration equipment and controls globally. The Global Products business also designs, manufactures and sells fire protection, fire suppression and security products, including intrusion security, anti-theft devices, access control, and video surveillance and management systems, for commercial, industrial, retail, residential, small business, institutional and governmental customers worldwide. Global Products also includes the Johnson Controls-Hitachi joint venture.
Management evaluates the performance of its business segments primarily on segment earnings before interest, taxes and amortization ("EBITA"),
which represents income from continuing operations before income taxes and noncontrolling interests, excluding general corporate expenses, intangible asset amortization, net financing charges, restructuring and impairment costs, and the net mark-to-market adjustments related to pension and postretirement plans and restricted asbestos investments.
26
i
Financial
information relating to the Company’s reportable segments is as follows (in millions):
Income
from continuing operations before income taxes
$
i170
$
i490
/
20. iGuarantees
Certain
of the Company's subsidiaries at the business segment level have guaranteed the performance of third parties and provided financial guarantees for uncompleted work and financial commitments. The terms of these guarantees vary with end dates ranging from the current fiscal year through the completion of such transactions and would typically be triggered in the event of nonperformance. Performance under the guarantees, if required, would not have a material effect on the Company's financial position, results of operations or cash flows.
The Company
offers warranties to its customers depending upon the specific product and terms of the customer purchase agreement. A typical warranty program requires that the Company replace defective products within a specified time period from the date of sale. The Company records an estimate for future warranty-related costs based on actual historical return rates and other known factors. Based on analysis of return rates and other factors, the Company’s warranty provisions are adjusted as necessary. The Company monitors its warranty activity and adjusts its reserve estimates when it is probable that future warranty costs will be different than
those estimates.
The Company’s product warranty liability is recorded in the consolidated statements of financial position in other current liabilities if the warranty is less than one year and in other non-current liabilities if the warranty extends longer than one year.
27
i
The
changes in the carrying amount of the Company’s total product warranty liability were as follows (in millions):
Settlements
made (in cash or in kind) during the period
(i29)
(i29)
Currency
translation
i3
(i1)
Balance
at end of period
$
i181
$
i184
/
21. iCommitments and Contingencies
Environmental Matters
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. iThe
following table presents the location and amount of reserves for environmental liabilities in the Company's consolidated statements of financial position (in millions):
The
Company periodically examines whether the contingent liabilities related to the environmental matters described below are probable and reasonably estimable based on experience and ongoing developments in those matters, including continued study and analysis of ongoing remediation obligations. During the three months ended September 30, 2022, with the assistance of independent environmental consultants and taking into consideration investigation and remediation actions previously completed, new information available to the Company during the fourth quarter of fiscal 2022 and ongoing discussions with the Wisconsin Department of Natural Resources ("WDNR"), the Company completed a comprehensive long-term analysis and cost assessment related to
the Company’s ongoing environmental remediation obligations. As a result of this analysis, the Company increased its accrual for environmental liabilities by $i228 million, which are recorded on an undiscounted basis. The Company expects
that it will pay the amounts recorded over an estimated period of up to i20 years. The Company is not able to estimate a possible loss or range of loss, if any, in excess of the established accruals for environmental liabilities at this time.
A substantial portion of the increase to the Company's environmental reserves relates to ongoing long-term remediation
efforts to address contamination relating to fire-fighting foams containing perfluorooctane sulfonate ("PFOS"), perfluorooctanoic acid ("PFOA"), and/or other per- and poly-fluoroalkyl substances ("PFAS") at or near the Tyco Fire Products L.P. (“Tyco Fire Products”) Fire Technology Center ("FTC") located in Marinette, Wisconsin and surrounding areas in the City of Marinette and Town of Peshtigo, Wisconsin, as well as the continued remediation of PFAS, arsenic and other contaminants at the Tyco Fire Products Stanton Street manufacturing facility also located in Marinette, Wisconsin (the “Stanton Street Facility”). The increase in reserves was recorded as a result of several events that occurred in the three months ended September 30, 2022, including the completion and testing of the Groundwater Extraction and Treatment System (“GETS”) at the FTC (as further discussed below),
the completion of resident surveys in Peshtigo regarding long-term drinking water solutions, correspondence with regulators on planned remediation activities, finalization of cost estimates for system upgrades and related long-term run rate costs in response to new permit requirements at the Stanton Street Facility, and the development of additional information through ongoing investigation and analysis. These events allowed the Company to develop estimates of costs associated with the long-term remediation actions expected to be
28
performed over an estimated period of up to i20
years, including the continued operation of the GETS, the implementation of long-term drinking water solutions, continued monitoring and testing of the wells, the operation and wind-down of other legacy remediation and treatment systems and the completion of ongoing investigation obligations.
The use of fire-fighting foams at the FTC was primarily for training and testing purposes to ensure that such products sold by the Company’s affiliates, Chemguard, Inc. ("Chemguard") and Tyco Fire Products, were effective at suppressing high intensity fires that may occur at military installations, airports, or elsewhere. In May 2021, as part of Tyco Fire Products’ ongoing investigation and remediation program, the WDNR approved Tyco Fire Products’ proposed GETS, a permanent groundwater remediation system
that will extract groundwater that contains PFAS, treat it using advanced filtration systems, and return the treated water to the environment. Tyco Fire Products has completed construction of the GETS, which is now in operation. Tyco Fire Products is also in the process of completing the removal and disposal of PFAS-affected soil from the FTC. In December 2022, Tyco Fire Products also began implementation of a long-term drinking water solution for some Peshtigo residents with the installation of the first deep aquifer private drinking wells.
Tyco Fire Products has been engaged in remediation activities at the Stanton Street Facility since 1990. Its corporate predecessor, Ansul Incorporated (“Ansul”), manufactured arsenic-based agricultural herbicides at the Stanton Street Facility, which resulted in significant arsenic contamination of soil and groundwater on the site and in parts
of the adjoining Menominee River. In 2009, Ansul entered into an Administrative Consent Order (the "Consent Order") with the U.S. Environmental Protection Agency (“EPA”) to address the presence of arsenic at the site. Under this agreement, Tyco Fire Products’ principal obligations are to contain the arsenic contamination on the site, pump and treat on-site groundwater, dredge, treat and properly dispose of contaminated sediments in the adjoining river areas, and monitor contamination levels on an ongoing basis. Activities completed under the Consent Order since 2009 include the installation of a subsurface barrier wall around the facility to contain contaminated groundwater, the installation of a groundwater extraction and treatment system and the dredging and offsite disposal of treated river sediment. In addition to ongoing remediation activities, the Company is also
working with the WDNR to investigate and remediate the presence of PFAS at or near the Stanton Street Facility as part of the evaluation and remediation of PFAS in the Marinette region.
PFOA, PFOS, and other PFAS compounds are being studied by EPA and other environmental and health agencies and researchers. EPA has not issued binding regulatory limits, but had initially stated that it would propose regulatory standards for PFOS and PFOA in drinking water by the end of 2019, in accordance with its PFAS Action Plan released in February 2019, and issued interim recommendations for addressing PFOA and PFOS in groundwater in December 2019. In March 2021, EPA published its final determination to regulate PFOS and PFOA in drinking water. While those studies continue, EPA issued in June 2022 an updated set of interim health advisory levels for PFOA and PFOS in drinking water, as well as final
health advisory levels for two other types of PFAS (PFBS and GenX chemicals). In November 2022, EPA added a class definition of PFAS to the final version of EPA's fifth Contaminant Candidate List (CCL 5), which is a list of substances not currently subject to national drinking water regulation, but which EPA believes may require future regulation.
In October 2021, EPA released its "PFAS Strategic Roadmap: EPA's Commitments to Action 2021-2024." The 2021-2024 Roadmap sets timelines by which EPA plans to take specific actions, including, among other items, publishing a national PFAS testing strategy, proposing to designate PFOA and PFOS as Comprehensive Environmental Response, Compensation and Liability Act hazardous substances, restricting PFAS discharges from industrial sources through Effluent Limitations Guidelines, publishing the final toxicity assessment for five additional
PFAS, requiring water systems to test for 29 PFAS under the Safe Drinking Water Act, and publishing improved analytical methods in eight different environmental matrices to monitor 40 PFAS present in wastewater and stormwater discharges. Both PFOA and PFOS are types of synthetic chemical compounds that have been present in firefighting foam. However, both are also present in many existing consumer products. According to EPA, PFOA and PFOS have been used to make carpets, clothing, fabrics for furniture, paper packaging for food and other materials (e.g., cookware) that are resistant to water, grease or stains. In August 2022, EPA published a proposed rule that would designate PFOA and PFOS as “hazardous substances” under CERCLA.
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 financial viability of other potentially responsible parties and third-party indemnitors, the uncertainty as to the nature and scope of
29
the investigations and remediation to be conducted, changes in environmental regulations, changes in permissible levels of specific compounds in drinking water sources, or changes in enforcement theories and policies, including efforts to recover natural resource damages, 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. It is possible that technological, regulatory or enforcement developments, the results of additional environmental studies or other factors could change the Company's expectations with respect to future charges and cash outlays, and such changes could be material to the Company's future results of operations, financial condition or cash flows. Nevertheless, the Company does not currently believe that any claims, penalties or costs in addition to the amounts accrued 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. Conditional asset retirement obligations were $ii17/ million
at both December 31, 2022 and September 30, 2022.
FTC-Related Remediation and Litigation
On June 21, 2019, the WDNR announced that it had received from the Wisconsin Department of Health Services (“WDHS”) a recommendation for groundwater quality standards as to, among other compounds, PFOA and PFOS. The WDHS recommended a groundwater enforcement standard for PFOA and PFOS of 20 parts per trillion. Although Wisconsin recently approved final regulatory standards for PFOA and PFOS in drinking water and surface water, the Wisconsin Natural Resources Board did not approve WDNR's proposed standards for PFOA and PFOS in groundwater. In September 2022,
the Governor of Wisconsin signed a scope statement setting out parameters for the WDNR to draft a final rule regarding groundwater quality standards for PFOA and PFOS, among other compounds. The WDNR is now in the process of drafting the rule.
In July 2019, the Company received a letter from the WDNR directing the expansion of the evaluation of PFAS in the Marinette region to include (1) biosolids sludge produced by the City of Marinette Waste Water Treatment Plant and spread on certain fields in the area and (2) the Menominee and Peshtigo Rivers. Tyco Fire Products responded to the WDNR’s letter by requesting additional necessary information. On October 16, 2019, the WDNR issued a “Notice of Noncompliance” to Tyco Fire
Products and Johnson Controls, Inc. regarding the WDNR’s July 3, 2019 letter. The WDNR issued a further letter regarding the issue on November 4, 2019. In February 2020, the WDNR sent a letter to Tyco Fire Products and Johnson Controls, Inc. further directing the expansion of the evaluation of PFAS in the Marinette region to include investigation activities south and west of the previously defined FTC study area. In September 2021, the WDNR sent an additional “Notice of Noncompliance” to Tyco Fire Products and Johnson Controls, Inc. concerning land-applied biosolids, which reviewed and responded to the Company’s biosolids investigation conducted to date. Tyco Fire Products responded to the WDNR’s September 2021 notice by the December
27, 2021 deadline set by WDNR and submitted a Land Applied Biosolids Interim Site Status Update Report to WDNR on October 25, 2022. Tyco Fire Products and Johnson Controls, Inc. believe that they have complied with all applicable environmental laws and regulations. The Company cannot predict what regulatory or enforcement actions, if any, might result from the WDNR’s actions, or the consequences of any such actions.
In March 2022, the Wisconsin Department of Justice (“WDOJ”) filed a civil enforcement action against Johnson Controls Inc. and Tyco Fire Products in Wisconsin state court relating to environmental matters at the FTC (State of Wisconsin v. Tyco Fire Products, LP and Johnson Controls, Inc.,
Case No. 22-CX-1 (filed March 14, 2022 in Circuit Court in Marinette County, Wisconsin)). The WDOJ alleges that the Company failed to timely report the presence of PFAS chemicals at the FTC, and that the Company has not sufficiently investigated or remediated PFAS at or near the FTC. The WDOJ seeks monetary penalties and an injunction ordering these itwosubsidiaries to complete a site investigation and cleanup of PFAS contamination in accordance with the WDNR’s requests. The lawsuit is presently at the beginning stages of litigation: Tyco Fire Products and Johnson Controls, Inc. each filed Answers to the Complaint on April 4, 2022 and the parties are proceeding with initial fact discovery. The Company is vigorously defending this civil enforcement action and believes that it has meritorious defenses, but the Company is presently unable to predict the duration, scope, or outcome of this action.
30
In
October 2022, the Town of Peshtigo filed a tort action in Wisconsin state court against Tyco Fire Products, Johnson Controls Inc., Chemguard, Inc., and ChemDesign, Inc. relating to environmental matters at the FTC (Town of Peshtigo v. Tyco Fire Products L.P. et al., Case No. 2022CV000234 (filed October 18, 2022 in Circuit Court in Marinette County, Wisconsin)). The Town alleges that use of AFFF products at the FTC caused contamination of water supplies in Peshtigo. The Town seeks monetary penalties and an injunction ordering abatement of PFAS contamination in Peshtigo. The case has been removed to federal court and transferred to a multi-district litigation ("MDL") before the United States District Court for the District of South Carolina. The Company plans to vigorously defend against
this case and believes that it has meritorious defenses, but the Company is presently unable to predict the duration, scope, or outcome of this action.
In November 2022, individuals filed isix actions in Dane County, Wisconsin alleging personal injury and/or property damage against Tyco Fire Products, Johnson Controls Inc., Chemguard, Inc., and other unaffiliated defendants related to environmental matters at
the FTC. Plaintiffs allege that use of AFFF products at the FTC and activities by third parties unrelated to the Company contaminated nearby drinking water sources, surface waters, and other natural resources and properties, including their personal properties. The individuals seek monetary damages for their personal injury and/or property damage. These lawsuits were removed to federal court on December 21, 2022, and were tagged to the MDL on December 22, 2022. The Plaintiffs have opposed removal and transfer to the MDL. These lawsuits are presently at the beginning stages of litigation. The Company is vigorously defending these cases and believes that it has meritorious defenses, but the
Company is presently unable to predict the duration, scope, or outcome of this action.
Aqueous Film-Forming Foam ("AFFF") Litigation
iTwo of the Company's subsidiaries, Chemguard and Tyco Fire
Products, have been named, along with other defendant manufacturers, suppliers and distributors, and, in some cases, certain subsidiaries of the Company affiliated with Chemguard and Tyco Fire Products, in a number of class action and other lawsuits relating to the use of fire-fighting foam products by the U.S. Department of Defense (the "DOD") and others for fire suppression purposes and related training exercises. Plaintiffs generally allege that the firefighting foam products contain or break down into the chemicals PFOS and PFOA and/or other PFAS compounds and that the use of these products by others at various airbases, airports and other sites resulted in the release of these chemicals into the environment and ultimately into communities’ drinking water supplies neighboring those airports,
airbases and other sites. Plaintiffs generally seek compensatory damages, including damages for alleged personal injuries, medical monitoring, diminution in property values, investigation and remediation costs, and natural resources damages, and also seek punitive damages and injunctive relief to address remediation of the alleged contamination.
In September 2018, Tyco Fire Products and Chemguard filed a Petition for Multidistrict Litigation with the United States Judicial Panel on Multidistrict Litigation (“JPML”) seeking to consolidate all existing and future federal cases into one jurisdiction. On December 7, 2018, the JPML issued an order transferring various AFFF cases to the MDL. Additional cases have been identified for transfer to or are being directly filed in the MDL.
AFFF
Putative Class Actions
Chemguard and Tyco Fire Products are named in i34 pending putative class actions in federal courts originating from i15
states and territories. All but one of these cases have been direct-filed in or transferred to the MDL and it is anticipated that the remaining case will be transferred to the MDL.
AFFF Individual or Mass Actions
There are more than i3,100 individual or “mass” actions pending that were filed in state or federal courts originating from i51
states and territories against Chemguard and Tyco Fire Products and other defendants in which the plaintiffs generally seek compensatory damages, including damages for alleged personal injuries, medical monitoring, and alleged diminution in property values. The cases involve plaintiffs from various states including approximately i7,000 plaintiffs in Colorado and more than i3,100
other plaintiffs. The vast majority of these matters have been tagged for transfer to, transferred to, or directly-filed in the MDL, and it is anticipated that several newly filed state court actions will be similarly tagged and transferred. There are several matters that are proceeding in state courts, including actions in Arizona and Illinois.
31
Tyco and Chemguard are also periodically notified by other individuals that they may assert claims regarding PFOS and/or PFOA contamination allegedly resulting from the use of AFFF.
AFFF Municipal and Water Provider Cases
Chemguard
and Tyco Fire Products have been named as defendants in more than i290 cases involving municipal or water provider plaintiffs that were filed in state or federal courts originating from i27
states. The vast majority of these cases have been transferred to or were directly filed in the MDL, and it is anticipated that the remaining cases will be transferred to the MDL. These municipal and water provider plaintiffs generally allege that the use of the defendants’ fire-fighting foam products at fire training academies, municipal airports, Air National Guard bases, or Navy or Air Force bases released PFOS and PFOA into public water supply wells and/or other public property, allegedly requiring remediation. The MDL Court has set the first case for trial on June 4, 2023, (City of Stuart (Florida) v. 3M Co. et al.) and has ordered the parties to conduct mediation of the water provider cases pending in the MDL.
Tyco and Chemguard are also periodically notified by other municipal entities
that those entities may assert claims regarding PFOS and/or PFOA contamination allegedly resulting from the use of AFFF.
State or U.S. Territory Attorneys General Litigation related to AFFF
In June 2018, the State of New York filed a lawsuit in New York state court (State of New York v. The 3M Company et al No. 904029-18 (N.Y. Sup. Ct., Albany County)) against a number of manufacturers, including affiliates of the Company, with respect to alleged PFOS and PFOA contamination purportedly resulting from firefighting foams used at locations across New York, including Stewart Air National Guard Base in Newburgh and Gabreski Air National Guard Base in Southampton, Plattsburgh
Air Force Base in Plattsburgh, Griffiss Air Force Base in Rome, and unspecified “other” sites throughout the State. The lawsuit seeks to recover costs and natural resource damages associated with contamination at these sites. This suit has been removed to the United States District Court for the Northern District of New York and transferred to the MDL.
In February 2019, the State of New York filed a second lawsuit in New York state court (State of New York v. The 3M Company et al (N.Y. Sup. Ct., Albany County)), against a number of manufacturers, including affiliates of the Company, with respect to alleged PFOS and PFOA contamination purportedly resulting from firefighting foams used at additional locations across New York. This suit has been removed
to the United States District Court for the Northern District of New York and transferred to the MDL. In July 2019, the State of New York filed a third lawsuit in New York state court (State of New York v. The 3M Company et al (N.Y. Sup. Ct., Albany County)), against a number of manufacturers, including affiliates of the Company, with respect to alleged PFOS and PFOA contamination purportedly resulting from firefighting foams used at further additional locations across New York. This suit has been removed to the United States District Court for the Northern District of New York and transferred to the MDL. In November 2019, the State of New York filed a fourth lawsuit in New York state court (State of New York v. The 3M Company et al (N.Y. Sup. Ct., Albany County)), against a number of manufacturers,
including affiliates of the Company, with respect to alleged PFOS and PFOA contamination purportedly resulting from firefighting foams used at further additional locations across New York. This suit has been removed to federal court and transferred to the MDL.
In January 2019, the State of Ohio filed a lawsuit in Ohio state court (State of Ohio v. The 3M Company et al., No. G-4801-CI-021804752-000 (Court of Common Pleas of Lucas County, Ohio)) against a number of manufacturers, including affiliates of the Company, with respect to PFOS and PFOA contamination allegedly resulting from the use of firefighting foams at various specified and unspecified locations across Ohio.
The lawsuit seeks to recover costs and natural resource damages associated with the contamination. This lawsuit has been removed to the United States District Court for the Northern District of Ohio and transferred to the MDL.
In addition, in May and June 2019, three other states filed lawsuits in their respective state courts against a number of manufacturers, including affiliates of the Company, with respect to PFOS and PFOA contamination allegedly resulting from the use of firefighting foams at various specified and unspecified locations across their jurisdictions (State of New Hampshire v. The 3M Company et al.; State of Vermont v. The 3M Company et al.; State of New Jersey v.
The 3M Company et al.). All three of these suits have been removed to federal court and transferred to the MDL.
32
In September 2019, the government of Guam filed a lawsuit in the superior court of Guam against a number of manufacturers, including affiliates of the Company, with respect to PFOS and PFOA contamination allegedly resulting from the use of firefighting foams at various locations within its jurisdiction. This complaint has been removed to federal court and transferred to the MDL.
In November 2019, the government of the Commonwealth
of the Northern Mariana Islands filed a lawsuit in the superior court of the Northern Mariana Islands against a number of manufacturers, including affiliates of the Company, with respect to PFOS and PFOA contamination allegedly resulting from the use of firefighting foams at various locations within its jurisdiction. This complaint has been removed to federal court and transferred to the MDL.
In August 2020, Attorney General of the State of Michigan filed itwo
substantially similar lawsuits—one in federal court and one in state court—against a number of manufacturers, including affiliates of the Company, with respect to PFOS and PFOA contamination allegedly resulting from the use of firefighting foams at various locations within the State.The federal action has been transferred to the MDL, and the state court action has been removed to federal court and transferred to the MDL.
In December 2020, the State of Mississippi filed a lawsuit against a number of manufacturers and other defendants, including affiliates of the Company, with respect to PFOS and PFOA damage of the State’s land and natural resources
allegedly resulting from the use of firefighting foams at various locations throughout the State.This complaint was direct-filed in the MDL in South Carolina.
In April 2021, the State of Alaska filed a lawsuit in the superior court of the State of Alaska against a number of manufacturers and other defendants, including affiliates of the Company, with respect to PFOS and PFOA damage of the State’s land and natural resources allegedly resulting from the use of firefighting foams at various locations throughout the State. The State’s case has been removed to federal court and transferred to the MDL. The State of Alaska has also named a number of manufacturers and other defendants, including affiliates of the
Company, as third-party defendants in itwo cases brought by individuals against the State. These itwo
cases have also been transferred to the MDL.
In early November 2021, the Attorney General of the State of North Carolina filed ifour individual lawsuits in the superior courts of the State of North Carolina against a number of manufacturers and other defendants, including affiliates of the Company, with respect to PFOS and PFOA damage of the State’s land, natural resources, and property allegedly resulting from
the use of firefighting foams at four separate locations throughout the State. These ifour cases have been removed to federal court and transferred to the MDL. In October 2022, the Attorney General filed itwo
similar lawsuits in the superior courts of the State of North Carolina regarding alleged PFAS damages at two additional locations. It is anticipated that these itwo cases will be removed to federal court and transferred to the MDL.
In February 2022, the Attorney General of the State of Colorado filed a lawsuit in Colorado state court against a number of manufacturers and other defendants, including affiliates
of the Company, with respect to PFOS and PFOA damage of the State’s land and natural resources, public health, and State property allegedly resulting from the use of firefighting foams at various locations throughout the State. This complaint has been removed to federal court and transferred to the MDL.
In April 2022, the Attorney General of the State of Florida filed a lawsuit in Florida state court against a number of manufacturers and other defendants, including affiliates of the Company, with respect to PFOS and PFOA damage to the State’s natural resources and public health allegedly resulting from the use of firefighting foams at various locations throughout the State. It is anticipated that this complaint will
be removed to federal court and transferred to the MDL.
In May 2022, the Attorney General of the Commonwealth of Massachusetts filed a lawsuit against a number of manufacturers and other defendants, including affiliates of the Company, with respect to PFOS and PFOA damage of the State’s natural resources, property, residents, and consumers allegedly resulting from the use of firefighting foams at various locations throughout the State. This complaint was direct-filed in the MDL in South Carolina.
33
In July 2022, the Attorney General of the State of Wisconsin filed
a lawsuit in Wisconsin state court against a number of manufacturers and other defendants, including affiliates of the Company, with respect to PFAS damage to the State’s natural resources and public health allegedly resulting, in part, from the use of firefighting foams at various locations throughout the State. This complaint has been removed to federal court and transferred to the MDL.
In November 2022, the Attorney General of the State of California filed a lawsuit in California state court against a number of manufacturers and other defendants, including affiliates of the Company, with respect to PFOS and PFOA damage of the State’s land and natural resources allegedly resulting from the manufacture, use, marketing,
or sale of PFAS-containing products, including firefighting foams, at various locations throughout the State. On December 20, 2022, the case was removed to federal court and tagged to the MDL. The Attorney General has opposed removal and transfer.
Other AFFF Related Matters
In March 2020, the Kalispel Tribe of Indians (a federally recognized Tribe) and two tribal corporations filed a lawsuit in the United States District Court for the Eastern District of Washington against a number of manufacturers, including affiliates of the Company, and the United States with respect to PFAS contamination allegedly resulting from the use and disposal of AFFF by the United States Air
Force at and around Fairchild Air Force Base in eastern Washington. This case has been transferred to the MDL.
In October 2022, the Red Cliff Band of Lake Superior Chippewa Indians (a federally recognized tribe) filed a lawsuit in the United States District Court for the Western District of Wisconsin against a number of manufacturers, including affiliates of the Company, with respect to PFAS contamination allegedly resulting from the use and disposal of AFFF at Duluth Air National Guard Base in Duluth, Minnesota. This complaint has been transferred to the MDL.
The Company is vigorously defending the above matters and believes that it
has meritorious defenses to class certification and the claims asserted, including statutes of limitations, the government contractor defense, various medical and scientific defenses, and other factual and legal defenses. The government contractor defense is a form of immunity available to government contractors that produced products for the United States government pursuant to the government’s specifications. In September 2022, the AFFF MDL Court declined to grant summary judgment on the government contractor defense, ruling that various factual issues relevant to the defense must be decided by a jury rather than the Court. Tyco and Chemguard have insurance that has been in place for many years and the Company is pursuing this coverage for these matters. However, there are numerous factual and legal issues to be resolved in connection with these claims, and it is extremely difficult
to predict the outcome or ultimate financial exposure, if any, represented by these matters, and there can be no assurance that any such exposure will not be material.
Asbestos Matters
The Company and certain of its subsidiaries, along with numerous other third parties, are named as defendants in personal injury lawsuits based on alleged exposure to asbestos containing materials. These cases have typically involved product liability claims based primarily on allegations of manufacture, sale or distribution of industrial products that either contained asbestos or were used with asbestos containing components.
The
Company estimates the asbestos-related liability for pending and future claims and related defense costs on a discounted basis. In connection with the recognition of liabilities for asbestos-related matters, the Company records asbestos-related insurance recoveries that are probable.
34
The following table presents the location and amount of asbestos-related assets and liabilities in the Company's consolidated statements of financial position (in millions):
Insurance
receivables for asbestos-related liabilities
i54
i55
Total
asbestos-related assets
$
i306
$
i300
The
Company's estimate of the liability and corresponding insurance recovery for pending and future claims and defense costs is based on the Company's historical claim experience, and estimates of the number and resolution cost of potential future claims that may be filed and is discounted to present value from 2068 (which is the Company's reasonable best estimate of the actuarially determined time period through which asbestos-related claims will be paid by Company affiliates). Estimated asbestos-related defense costs are included in the asbestos liability. The Company's legal strategy for resolving claims also impacts these estimates. The
Company considers various trends and developments in evaluating the period of time (the look-back period) over which historical claim and settlement experience is used to estimate and value claims reasonably projected to be paid through 2068. Annually, the Company assesses the sufficiency of its estimated liability for pending and future claims and defense costs by evaluating actual experience regarding claims filed, settled and dismissed, and amounts paid in settlements. In addition to claims and settlement experience, the Company considers additional quantitative and qualitative factors such as changes in legislation, the legal environment, and the Company's defense strategy. The
Company also evaluates the recoverability of its insurance receivable on an annual basis. The Company evaluates all of these factors and determines whether a change in the estimate of its liability for pending and future claims and defense costs or insurance receivable is warranted.
The amounts recorded by the Company for asbestos-related liabilities and insurance-related assets are based on the Company's strategies for resolving its asbestos claims, currently available information, and a number of estimates and assumptions. Key variables and assumptions include the number and type of new claims that are filed each year, the average
cost of resolution of claims, the identity of defendants, the resolution of coverage issues with insurance carriers, amount of insurance, and the solvency risk with respect to the Company's insurance carriers. Many of these factors are closely linked, such that a change in one variable or assumption may impact one or more of the others, and no single variable or assumption predominately influences the determination of the Company's asbestos-related liabilities and insurance-related assets. Furthermore, predictions with respect to these variables are subject to greater uncertainty in the later portion of the projection period. Other factors that may affect the Company's liability and cash payments for asbestos-related
matters include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms of state or federal tort legislation and the applicability of insurance policies among subsidiaries. As a result, actual liabilities or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in the Company's calculations vary significantly from actual results.
35
Self-Insured Liabilities
The
Company records liabilities for its workers' compensation, product, general, and auto liabilities. The determination of these liabilities and related expenses is dependent on claims experience. For most of these liabilities, claims incurred but not yet reported are estimated by utilizing actuarial valuations based upon historical claims experience. The Company maintains captive insurance companies to manage its self-insured liabilities.
The following table presents the location and amount of self-insured liabilities in the Company's consolidated statements of financial position (in millions):
The
following table presents the location and amount of insurance receivables in the Company's consolidated statements of financial position (in millions):
The Company is involved in various lawsuits, claims and proceedings incident to the operation of its businesses, including those pertaining to product liability, environmental, safety and health, intellectual property, employment, commercial and contractual matters, and various other casualty matters. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to us, 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.
36
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statements for Forward-Looking Information
Unless otherwise indicated, references to "Johnson Controls," the "Company,""we,""our" and "us" in this Quarterly Report on Form 10-Q refer to Johnson Controls International plc 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, or could be, "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In this document, statements regarding the Company’s future financial position, sales, costs, earnings, cash flows, other measures of results of operations, synergies and integration opportunities, capital expenditures, debt levels and market outlook are forward-looking statements. Words such as "may,""will,""expect,""intend,""estimate,""anticipate,""believe,""should,""forecast,""project" or "plan" and terms of similar meaning are also generally intended to identify forward-looking statements. However, the absence of these words does not mean that
a statement is not forward-looking. The Company cautions that these statements are subject to numerous important risks, uncertainties, assumptions and other factors, some of which are beyond the Company’s control, that could cause the Company’s actual results to differ materially from those expressed or implied by such forward-looking statements, including, among others, risks related to: The Company’s ability to manage general economic, business and capital market conditions, including the impact of recessions and economic downturns; the ability to manage macroeconomic and geopolitical volatility, including global price inflation, shortages
impacting the availability of raw materials and component products and the conflict between Russia and Ukraine; the ability to develop or acquire new products and technologies that achieve market acceptance and meet applicable regulatory requirements; the strength of the U.S. or other economies; fluctuations in currency exchange rates; changes or uncertainty in laws, regulations, rates, policies or interpretations that impact the Company’s business operations or tax status; changes to laws or policies governing foreign trade, including economic sanctions, tariffs or trade restrictions; maintaining and improving the capacity, reliability and security of the Company’s enterprise information technology infrastructure; the
ability to manage the lifecycle cybersecurity risk in the development, deployment and operation of the Company’s digital platforms and services;the outcome of litigation and governmental proceedings; the risk of infringement or expiration of intellectual property rights; the Company’s ability to manage the impacts of natural disasters, climate change, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as the COVID-19 pandemic; the ability of the Company to drive organizational improvement; any delay or inability of the Company to realize the
expected benefits and synergies of recent portfolio transactions; the ability to hire and retain senior management and other key personnel; the tax treatment of recent portfolio transactions; significant transaction costs and/or unknown liabilities associated with such transactions; labor shortages, work stoppages, union negotiations, labor disputes and other matters associated with the labor force; and the cancellation of or changes to commercial arrangements. A detailed discussion of risks related to Johnson Controls' business is included in the section entitled "Risk Factors" in Johnson Controls' Annual Report on Form 10-K for the year ended September 30, 2022 filed with the United States Securities and Exchange Commission ("SEC") on November 15, 2022, which is available at www.sec.gov and www.johnsoncontrols.com
under the "Investors" tab. The forward-looking statements included in this document are made only as of the date of this document, unless otherwise specified, and, except as required by law, Johnson Controls assumes no obligation, and disclaims any obligation, to update such statements to reflect events or circumstances occurring after the date of this document.
Overview
Johnson Controls International plc, headquartered in Cork, Ireland, is a global leader in smart, healthy and sustainable buildings, serving a wide range of customers in more than 150 countries. The Company’s products, services, systems and solutions advance the
safety, comfort and intelligence of spaces to serve people, places and the planet. The Company is committed to helping its customers win and creating greater value for all of its stakeholders through its strategic focus on buildings.
The Company is a global leader in engineering, manufacturing, commissioning and retrofitting building products and systems, including residential and commercial heating, ventilating, air-conditioning ("HVAC") equipment, industrial refrigeration systems, controls, security systems, fire-detection systems and fire-suppression solutions. The Company further serves customers by providing technical services, including maintenance, management, repair, retrofit and replacement of
equipment (in the HVAC, industrial refrigeration, controls, security and fire-protection space), energy-management consulting and data-driven “smart building” services and solutions powered by its OpenBlue software platform and capabilities. The Company partners with customers by leveraging its broad product portfolio and digital capabilities powered by OpenBlue, together with
37
its direct channel service and solutions capabilities, to deliver outcome-based solutions across the lifecycle of a building that address customers’ needs to improve energy efficiency, enhance security, create healthy environments and reduce greenhouse gas emissions.
The
following information should be read in conjunction with the September 30, 2022 consolidated financial statements and notes thereto, along with management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended September 30, 2022 filed with the SEC on November 15, 2022. References in the following discussion and analysis to "Three Months" (or similar language) refer to the three months ended December 31, 2022 compared to the three months ended December 31, 2021.
Macroeconomic Trends
Much
of the demand for installation of the Company’s products and solutions is driven by commercial and residential construction and industrial facility expansion and maintenance projects. Commercial and residential construction projects are heavily dependent on general economic conditions, localized demand for commercial and residential real estate and availability of credit.Positive or negative fluctuations in commercial and residential construction, industrial facility expansion and maintenance projects and other capital investments in buildings could have a corresponding impact on the Company’s financial condition, results of operations and cash flows.
As a result of the
Company’s global presence, a significant portion of its revenues and expenses is denominated in currencies other than the U.S. dollar. The Company is therefore subject to non-U.S. currency risks and non-U.S. exchange exposure. While the Company employs financial instruments to hedge some of its transactional foreign exchange exposure, these activities do not insulate it completely from those exposures. In addition, the currency exposure from the translation of non-U.S. dollar functional currency subsidiaries are not able to be hedged. Exchange rates can be volatile and a substantial weakening or strengthening of foreign currencies against the U.S. dollar could increase or reduce the
Company’s profit margin, respectively, and impact the comparability of results from period to period. During the three months ended December 31, 2022, revenue and profits were adversely impacted due to the strengthening of the U.S. dollar against foreign currencies. The continued strength of the U.S. dollar could continue to adversely impact the Company's results.
The Company continues to observe trends demonstrating increased interest and demand for its products and services that enable smart, safe, efficient and sustainable buildings. This demand is driven in part by government tax incentives, building performance
standards and other regulations designed to limit emissions and combat climate change. In particular, legislative and regulatory initiatives such as the U.S. Climate Smart Buildings Initiative, U.S. Inflation Reduction Act and EU Energy Performance of Buildings Directive include provisions designed to fund and encourage investment in decarbonization and digital technologies for buildings. This demand is supplemented by an increase in commitments in both the public and private sectors to reduce emissions and/or achieve net zero emissions. The Company seeks to capitalize on these trends to drive growth by developing and delivering technologies and solutions to create smart, sustainable and healthy buildings. The Company is investing in new digital and product capabilities, including its OpenBlue platform,
to enable it to deliver sustainable, high-efficiency products and tailored services to enable customers to achieve their sustainability goals. The Company is leveraging its install base, together with data-driven products and services to offer outcome-based solutions to customers with a focus on generating accelerated growth in services and recurring revenue.
The Company has experienced, and expects to continue to experience, increased material cost inflation and component shortages, as well as disruptions and delays in its supply chain, as a result of global macroeconomic trends, including increased global demand, the conflict between Russia and Ukraine, government-mandated actions in response to COVID-19, particularly
in China, and labor shortages. Actions taken by the Company to mitigate supply chain disruptions and inflation, including expanding and redistributing its supplier network, supplier financing, price increases and productivity improvements, have generally been successful in offsetting some, but not all, of the impact of these trends. The collective impact of these trends has been favorable to revenue due to increased demand and price increases to offset inflation, while negatively impacting margins due to supply chain disruptions and cost pressures. However, the Company is beginning to observe improved margins as supply chain disruptions ease and higher priced backlog is converted to sales. Although the Company has experienced
recent improvement in its supply chain, the Company could experience further disruptions, shortages and cost increases in the future, the effect of which will depend on the Company’s ability to successfully mitigate and offset the impact of these events.
During the second quarter of fiscal 2022, the Company suspended its operations in Russia in response to the conflict between Russia and Ukraine, with existing contractual obligations being fulfilled in a manner that fully complies with all sanctions and
38
trade
controls. The Company has subsequently reduced its business presence and operations in Russia. Although these actions have not had and are not expected to have a material impact on the Company’s operating results, the broader consequences of this conflict, including heightened supply chain disruption, inflation, economic instability and other factors have and could continue to adversely impact the Company’s results of operations.
Impact of COVID-19 Pandemic
The COVID-19 pandemic continues to impact aspects of the
Company's operations and results. Recently, the Company’s facilities have generally operated at normal levels. As a result of the pandemic, the Company has seen an increase in demand for its products and solutions that promote building health and optimize customers’ infrastructure.
However, the Company continues to be influenced by COVID-19-related trends impacting site access and the labor force, which have and may continue to negatively impact the Company’s revenues and margins. Challenges in reaching sufficient vaccination levels and the introduction
of new variants of COVID-19 have caused some governments to extend or reinstitute lockdowns and similar restrictive measures, which, in some cases, have limited the Company’s ability to access customer sites to install and maintain its products and deliver services. In addition, the Company has experienced and continues to experience labor shortages at certain facilities as the Company expands its production capacity to meet increased customer demand. Although the Company is mitigating these shortages through focused recruitment efforts and competitive compensation packages, the
Company could continue to experience such shortages in the future.
The extent to which the COVID-19 pandemic continues to impact the Company’s results of operations and financial condition will depend on future developments that are highly uncertain and cannot be predicted. See the section entitled "Risk Factors" in Johnson Controls' Annual Report on Form 10-K for the year ended September 30, 2022 filed with the United States Securities and Exchange Commission ("SEC") on November 15, 2022 for additional discussion of risks related to COVID-19.
Net
Sales
Three Months Ended December 31,
(in millions)
2022
2021
Change
Net
sales
$
6,068
$
5,862
4
%
The increase in consolidated net sales for the three months ended December 31, 2022 was due to higher organic sales ($497 million) and incremental sales from acquisitions ($27 million), partially offset by the unfavorable impact of foreign currency translation ($300 million)
and lower sales due to business divestitures ($18 million). Excluding the impact of foreign currency translation and business acquisitions and divestitures, consolidated net sales increased 9% as compared to the prior year, attributable to increased pricing in response to inflation pressures. Refer to the "Segment Analysis" below within this Item 2 for a discussion of net sales by segment.
Cost of Sales / Gross Profit
Three
Months Ended December 31,
(in millions)
2022
2021
Change
Cost
of sales
$
3,977
$
3,971
—
%
Gross profit
2,091
1,891
11
%
%
of sales
34.5
%
32.3
%
Cost of sales and gross profit increased for the three-month period ended December 31, 2022, and gross profit as a percentage of sales increased by 220 basis points. Gross profit increased due to sales growth and favorable price/cost, partially offset by unfavorable foreign currency translation ($94 million) and the unfavorable year-over-year impact
of net mark-to-market adjustments. Gross profit as a percentage of sales increased primarily due to favorable price/cost. Refer to the "Segment Analysis" below within this Item 2 for a discussion of segment earnings before interest, taxes and amortization ("EBITA").
39
Selling, General and Administrative Expenses
Three
Months Ended December 31,
(in millions)
2022
2021
Change
Selling,
general and administrative expenses
$
1,571
$
1,369
15
%
% of sales
25.9
%
23.4
%
Selling,
general and administrative expenses ("SG&A") for the three-month period ended December 31, 2022 increased $202 million, and SG&A as a percentage of sales increased by 250 basis points. The increase in SG&A was primarily due to the unfavorable year-over-year impact of net mark-to-market adjustments, a loss associated with a fire at a leased warehouse facility, certain investments to support growth and one-time transaction and separation costs, partially offset by favorable foreign currency translation ($65 million). Refer to the "Segment Analysis" below within this Item 2 for a discussion of segment EBITA.
Restructuring and Impairment Costs
Three
Months Ended December 31,
(in millions)
2022
2021
Change
Restructuring
and impairment costs
$
345
$
49
*
* Measure not meaningful
Restructuring and impairment costs for the three-month period ended December 31, 2022 included $288 million of impairment costs related to businesses classified as held-for-sale, $30 million in severance and $27 million in other long-lived asset impairments
and restructuring costs.
Restructuring and impairment costs for the three-month period ended December 31, 2021 included primarily severance and other cash related items.
Refer to Note 4, "Assets and Liabilities Held for Sale" and Note 17, "Significant Restructuring and Impairment Costs," of the notes to the consolidated financial statements for further disclosure related to the Company's restructuring plans and impairment costs.
Net Financing Charges
Three
Months Ended December 31,
(in millions)
2022
2021
Change
Net
financing charges
$
67
$
53
26
%
Refer to Note 10, "Debt and Financing Arrangements," of the notes to the consolidated financial statements for further disclosure related to the Company's net financing charges.
40
Equity
Income
Three Months Ended December 31,
(in millions)
2022
2021
Change
Equity
income
$
62
$
70
(11)
%
The decrease in equity income for the three months ended December 31, 2022 was primarily due to lower income at certain partially-owned affiliates of Johnson Controls within the Building Solutions EMEA/LA segment. Refer to the "Segment Analysis" below within this Item 2
for a discussion of segment EBITA.
Income Tax Provision
Three Months Ended December 31,
(in
millions)
2022
2021
Change
Income tax provision
$
14
$
71
(80)
%
Effective
tax rate
8.2
%
14.5
%
In calculating the provision for income taxes, 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 changed facts and circumstances, if any, as compared to
those forecasted at the beginning of the fiscal year and each interim period thereafter.
The statutory tax rate in Ireland is being used as a comparison since the Company is domiciled in Ireland. For the three months ended December 31, 2022, the Company's effective tax rate for continuing operations was 8.2% and was lower than the statutory tax rate of 12.5% primarily due to impairment and restructuring charges and the benefits of continuing global tax planning initiatives, partially offset by tax rate differentials. For the three months ended December 31, 2021, the
Company's effective tax rate for continuing operations was 14.5% and was higher than the statutory tax rate of 12.5% primarily due to the income tax effects of mark-to-market adjustments and tax rate differentials, partially offset by the benefits of continuing global tax planning initiatives. The effective tax rate for the three months ended December 31, 2022 decreased as compared to the three months ended December 31, 2021 primarily due to the discrete tax items. Refer to Note 18, "Income Taxes," of the notes to the consolidated financial statements for further detail.
Income Attributable to Noncontrolling Interests
Three
Months Ended December 31,
(in millions)
2022
2021
Change
Income
from continuing operations attributable to noncontrolling interests
$
38
$
38
—
%
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Net
Income Attributable to Johnson Controls
Three Months Ended December 31,
(in millions)
2022
2021
Change
Net
income attributable to Johnson Controls
$
118
$
381
(69)
%
The decrease in net income attributable to Johnson Controls for the three months ended December 31, 2022 was primarily due to higher restructuring and impairment costs and higher SG&A, partially offset by higher gross profit, all of which
are discussed above.
Diluted earnings per share attributable to Johnson Controls for the three months ended December 31, 2022 was $0.17 compared to $0.54 for the three months ended December 31, 2021.
Comprehensive Income Attributable to Johnson Controls
Three
Months Ended December 31,
(in millions)
2022
2021
Change
Comprehensive
income attributable to Johnson Controls
$
165
$
468
(65)
%
The decrease in comprehensive income attributable to Johnson Controls for the three months ended December 31, 2022 was due to lower net income attributable to Johnson Controls ($263 million) and a decrease in other comprehensive income attributable
to Johnson Controls ($40 million) resulting from currency translation adjustments and realized and unrealized losses on derivatives.
Segment Analysis
Management evaluates the performance of its business units based primarily on segment EBITA, which represents income from continuing operations before income taxes and noncontrolling interests, excluding general corporate expenses, intangible asset amortization, net financing charges, restructuring and impairment costs, and net mark-to-market adjustments related to pension and postretirement plans and restricted asbestos investments.
Net
Sales
Three Months Ended December 31,
(in millions)
2022
2021
Change
Building
Solutions North America
$
2,367
$
2,152
10
%
Building Solutions EMEA/LA
975
959
2
%
Building
Solutions Asia Pacific
646
675
(4)
%
Global Products
2,080
2,076
—
%
$
6,068
$
5,862
4
%
•The
increase in Building Solutions North America was due to higher prices and volumes ($223 million) and incremental sales related to business acquisitions ($7 million), partially offset by the unfavorable impact of foreign currency translation ($15 million). Sales growth was led by continued growth in the project-based business, including low double-digit growth in new construction.
42
•The increase in Building Solutions EMEA/LA was due to higher prices ($103 million) and incremental sales related to business acquisitions ($20 million), partially offset by the unfavorable impact of foreign currency translation ($89 million) and business divestitures ($18 million). Excluding the impacts of foreign currency translation
and business acquisitions and divestitures, sales growth was led by mid-teens growth in the service-based business and low double-digit growth in Fire & Security. By region, there was strong organic growth in Europe, Latin America and the Middle East.
•The decrease in Building Solutions Asia Pacific was due to the unfavorable impact of foreign currency translation ($71 million), partially offset by the net impact of higher prices and lower volumes ($42 million). Excluding the impacts of foreign currency translation, sales growth was led by strong demand for HVAC & Controls. By region, sales in China grew 1% in the quarter, as strong service execution offset a decline in the project-based business.
•The increase in Global Products was due to the
net impact of higher prices and lower volumes ($129 million), partially offset by the unfavorable impact of foreign currency translation ($125 million). Excluding the impacts of foreign currency translation, sales growth was driven by strong price realization and continued growth in Applied and Fire Detection products.
Segment EBITA
Three
Months Ended December 31,
(in millions)
2022
2021
Change
Building
Solutions North America
$
267
$
250
7
%
Building Solutions EMEA/LA
75
104
(28)
%
Building
Solutions Asia Pacific
68
68
0
%
Global Products
382
301
27
%
$
792
$
723
10
%
•The
increase in Building Solutions North America was primarily due to favorable price/cost and productivity savings, partially offset by unfavorable project mix.
•The decrease in Building Solutions EMEA/LA was primarily due to unfavorable project mix and the unfavorable impact of foreign currency translation ($9 million), partially offset by favorable volume leverage and productivity savings.
•Building Solutions Asia Pacific remained flat as favorable price/cost and productivity savings were offset by the unfavorable impact of foreign currency translation ($10 million) and lower volumes.
•The
increase in Global Products was primarily due to favorable price/cost and productivity savings, partially offset by an uninsured loss associated with a fire at a leased warehouse facility in ($40 million)and the unfavorable impact of foreign currency translation ($15 million).
Backlog
The Company’s backlog is applicable to its sales of systems and services. At December 31, 2022, the backlog was $12.7 billion, of which $11.3 billion was attributable to the field business. The backlog amount outstanding at any given time is not
necessarily indicative of the amount of revenue to be earned in the upcoming fiscal year.
At December 31, 2022, remaining performance obligations were $18.4 billion, which is $5.7 billion higher than the Company's backlog of $12.7 billion. Differences between the Company’s remaining performance obligations and backlog are primarily due to:
•Remaining performance obligations include large, multi-purpose contracts to construct hospitals, schools and other governmental buildings,
which are services to be performed over the building's lifetime with average initial contract
43
terms of 25 to 35 years for the entire term of the contract versus backlog which includes only the lifecycle period of these contracts which approximates five years;
•Remaining performance obligations exclude certain customer contracts with a term of
one year or less or contracts that are cancellable without substantial penalty versus backlog which includes short-term and cancellable contracts; and
•Remaining performance obligations include the full remaining term of service contracts with substantial termination penalties versus backlog which includes only one year for all outstanding service contracts.
The Company reports
backlog as it believes it is a useful measure of evaluating the Company's operational performance and relationship to total orders.
Liquidity and Capital Resources
Working Capital
December
31,
September 30,
(in millions)
2022
2022
Change
Current assets
$
11,837
$
11,685
Current
liabilities
(11,563)
(11,239)
274
446
(39)
%
Less: Cash and cash equivalents
(1,509)
(2,031)
Add:
Short-term debt
1,026
669
Add: Current portion of long-term debt
937
865
Less: Current assets held for sale
(418)
(387)
Add:
Current liabilities held for sale
310
236
Working capital (as defined)
$
620
$
(202)
*
Accounts receivable
- net
$
5,722
$
5,528
4
%
Inventories
2,895
2,510
15
%
Accounts payable
4,138
4,241
(2)
%
*
Measure not meaningful
•Working capital is a non-GAAP financial measure. The Company defines working capital as current assets less current liabilities, excluding cash, short-term debt, the current portion of long-term debt, and current assets and liabilities held for sale. Management believes that this measure of working capital, which excludes financing-related items and businesses to be divested, provides a more useful measurement of the Company’s operating performance.
•The increase in working capital at December 31, 2022 as compared to September 30,
2022, was primarily due to an increase in inventory due to supply chain disruptions, an increase in accounts receivable and a decrease in accounts payable.
•The Company’s days sales in accounts receivable at December 31, 2022 and September 30, 2022 were 60 days and 51 days, respectively. There has been no significant adverse changes in the level of overdue receivables or significant changes in revenue recognition methods.
•Days in accounts payable at December 31, 2022 were 93 days, higher than 85 days at the comparable period ended September 30, 2022, primarily due to timing of payments.
44
Cash Flows From Continuing Operations
Three
Months Ended December 31,
(in millions)
2022
2021
Cash provided (used) by operating activities
$
(296)
$
392
Cash used by investing activities
(189)
(218)
Cash
provided (used) by financing activities
9
(357)
•The increase in cash used by operating activities was primarily due to the timing of accounts payable and accrued liabilities payments.
•The decrease in cash used by investing activities was primarily due to lower cash payments made for acquisitions and increased sales of property, plant and equipment, partially offset by prior year divestitures.
•The increase in cash provided by financing
activities was primarily due to lower stock repurchases.
Capitalization
December 31,
September 30,
(in millions)
2022
2022
Change
Short-term
debt
$
1,026
$
669
Current portion of long-term debt
937
865
Long-term debt
7,784
7,426
Total
debt
9,747
8,960
9
%
Less: Cash and cash equivalents
1,509
2,031
Total net debt
8,238
6,929
19
%
Shareholders’
equity attributable to Johnson Controls
ordinary shareholders
16,046
16,268
(1)
%
Total capitalization
$
24,284
$
23,197
5
%
Total
net debt as a % of total capitalization
33.9
%
29.9
%
•Net debt and net debt as a percentage of total capitalization are non-GAAP financial measures. The Company believes the percentage of total net debt to total capitalization is useful to understanding the Company’s financial condition as it provides a view of the extent to which the
Company relies on external debt financing for its funding and is a measure of risk to its shareholders.
•The Company's material cash requirements primarily consist of working capital requirements, repayments of long-term debt and related interest, operating leases, dividends, capital expenditures, potential acquisitions and share repurchases.
•As of December 31, 2022, approximately $3.5 billion remains available under the Company's share repurchase authorization, which 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 expects to repurchase outstanding shares from time to time depending on market conditions, alternate uses of capital, liquidity, and the economic environment.
•The Company declared a dividend of $0.35 per common share in the quarter ended December 31, 2022 and intends to continue paying dividends throughout fiscal 2023.
•The Company believes its capital resources and liquidity position,
including cash and cash equivalents of $1.5 billion at December 31, 2022, are adequate to fund operations and meet its obligations for the foreseeable future. The Company expects requirements for working capital, capital expenditures, dividends, minimum pension contributions, debt maturities
45
and any potential acquisitions or stock repurchases in the remainder of fiscal 2023 will be funded from operations, supplemented by short- and long-term borrowings, if required.
–The
Company manages its short-term debt position in the U.S. and euro commercial paper and bank loan markets. The Company had $715 million and $172 million of commercial paper outstanding as of December 31, 2022 and September 30, 2022, respectively.
–The Company expects to file a new shelf registration statement with the SEC under which it may issue additional debt securities, ordinary shares, preferred shares, depository shares, warrants purchase contracts and units that may be offered in one or more offerings
on terms to be determined at the time of the offering. The Company anticipates that the proceeds of any offering would be used for general corporate purposes, including repayment of indebtedness, acquisitions, additions to working capital, repurchases of ordinary shares, dividends, capital expenditures and investments in the Company's subsidiaries.
–The Company also has the ability to draw on its $2.5 billion revolving credit facility which expires in December 2024 or its $0.5 billion 364-day revolving credit facility which
expires in November 2023. There were no draws on the revolving credit facilities as of December 31, 2022 and September 30, 2022.
•The Company's ability to access the global capital markets and the related cost of financing is dependent upon, among other factors, the Company's credit ratings. As of December 31, 2022, the Company's credit ratings and outlook were as follows:
Rating
Agency
Short-Term Rating
Long-Term Rating
Outlook
S&P
A-2
BBB+
Stable
Moody's
P-2
Baa2
Positive
The
security ratings set forth above are issued by unaffiliated third party rating agencies and are not a recommendation to buy, sell or hold securities. The ratings may be subject to revision or withdrawal by the assigning rating organization at any time.
•Financial covenants in the Company's revolving credit facilities requires a minimum consolidated shareholders’ equity attributable to Johnson Controls of at least $3.5 billion at all times. The revolving credit facility also limits the amount of debt secured by liens that may be incurred to a maximum aggregated amount of 10% of consolidated shareholders’ equity attributable to Johnson Controls for liens and pledges. For purposes of calculating these covenants, consolidated shareholders’ equity attributable to Johnson Controls is
calculated without giving effect to (i) the application of Accounting Standards Codification ("ASC") 715-60, "Defined Benefit Plans - Other Postretirement," or (ii) the cumulative foreign currency translation adjustment. As of December 31, 2022, the Company was in compliance with all covenants and other requirements set forth in its credit agreements and the indentures governing its notes, and expects to remain in compliance 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.
•The key financial assumptions used in calculating the Company’s pension liability are determined annually, or whenever plan assets and liabilities are re-measured as required under accounting principles generally accepted in the U.S., including the expected rate of return on its plan assets. In fiscal 2023, the Company believes the long-term rate of return will approximate 8.25%, 3.70% and 6.65% for U.S. pension, non-U.S. pension and postretirement plans, respectively. During the first three months of fiscal 2023, the Company made approximately $9 million in total pension and postretirement
contributions. In total, the Company expects to contribute approximately $38 million in cash to its defined benefit pension plans in fiscal 2023. The Company expects to contribute $3 million in cash to its postretirement plans in fiscal 2023.
•The Company earns a significant amount of its income outside of the parent company. Outside basis differences in these subsidiaries are deemed to be permanently reinvested except in limited circumstances. However, in fiscal 2022, the
Company recorded income tax expense related to a change in the Company's assertion over the outside basis differences of the Company’s investment in certain subsidiaries as a result of the planned divestitures. The Company currently does not intend nor foresee a need to repatriate undistributed earnings included in the outside basis differences other than in tax efficient manners. The Company's intent is to reduce basis differences only when it would be tax efficient. The
Company expects existing U.S. cash and liquidity to continue to be sufficient to fund the Company’s U.S. operating activities and
46
cash commitments for investing and financing activities for at least the next twelve months and thereafter for the foreseeable future. In the U.S., should the Company require more capital than is generated by its operations, the Company could elect to raise capital in the U.S. through debt or equity issuances. The
Company has borrowed funds in the U.S. and continues to have the ability to borrow funds in the U.S. at reasonable interest rates. In addition, the Company expects existing non-U.S. cash, cash equivalents, short-term investments and cash flows from operations to continue to be sufficient to fund the Company’s non-U.S. 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 at its Luxembourg and Ireland holding and financing entities, other than amounts that can be provided in tax efficient methods, the
Company could also elect to raise capital through debt or equity issuances. These alternatives could result in increased interest expense or other dilution of the Company’s earnings.
•The Company may from time to time purchase its outstanding debt through open market purchases, privately negotiated transactions or otherwise. Purchases or retirement of debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
•Refer to Note 10, "Debt and Financing Arrangements," of the notes
to the consolidated financial statements for additional information on items impacting capitalization.
Co-Issued Securities: Summarized Financial Information
The following information is provided in compliance with Rule 13-01 of Regulation S-X under the Securities Exchange Act of 1934 with respect to the (i) $625 million aggregate principal amount of 1.750% Senior Notes due 2030 (the “2030 Notes”), (ii) €500 million aggregate principal amount of 0.375% Senior Notes due 2027 (the “2027 Notes”), (iii) €500 million aggregate principal amount of 1.000% Senior Notes due 2032 (the “2032 Notes”), (iv) $500 million aggregate principal amount of 2.000% Sustainability-Linked Senior
Notes due 2031 (the “2031 Notes”), (v) €600 million aggregate principal amount of 3.000% Senior Notes due 2028 (the “2028 Notes”) and (vi) $400 million aggregate principal amount of 4.900% Senior Notes due 2032 (the “2032 Notes 2” and together with the 2032 Notes, the 2030 Notes, the 2028 Notes and the 2027 Notes, the “Notes”), each issued by Johnson Controls International plc ("Parent Company") and Tyco Fire & Security Finance S.C.A. (“TFSCA”), a corporate partnership limited by shares (société en commandite par actions) incorporated and organized under the laws of the Grand Duchy of Luxembourg (“Luxembourg”).
TFSCA is a wholly-owned consolidated subsidiary of the Company that is 99.924% owned directly
by the Parent Company and 0.076% owned by TFSCA’s sole general partner and manager, Tyco Fire & Security S.à r.l., which is itself wholly-owned by the Company. The Notes are the Parent Company’s and TFSCA’s unsecured, unsubordinated obligations. The Parent Company is incorporated and organized under the laws of Ireland and TFSCA is incorporated and organized under the laws of Luxembourg. The bankruptcy, insolvency, administrative, debtor relief and other laws of Luxembourg or Ireland, as applicable, may be materially different from, or in conflict with, those of the United States, including in the areas of rights of creditors, priority of governmental and other creditors, ability to obtain post-petition interest and duration of the proceeding. The application of these laws, or any conflict among them, could adversely affect noteholders’ ability to enforce their rights under the Notes
in those jurisdictions or limit any amounts that they may receive.
The following tables set forth summarized financial information of the Parent Company and TFSCA (collectively, the “Obligor Group”) on a combined basis after intercompany transactions have been eliminated, including adjustments to remove the receivable and payable balances, investment in, and equity in earnings from, those subsidiaries of the Parent Company other than TFSCA (collectively, the "Non-Obligor Subsidiaries").
47
The
following table presents summarized income statement information (in millions):
The same accounting policies as described in Note 1, "Summary of Significant Accounting Policies," of the Company's Annual Report on 10-K for the year ended September
30, 2022 are used by the Parent Company and each of its subsidiaries in connection with the summarized financial information presented above.
48
New Accounting Standards
Refer to Note 2, "New Accounting Standards," of the notes to the consolidated financial statements.
Critical
Accounting Estimates
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 Company’s critical accounting estimates requiring significant judgement that could materially impact the Company's results of operations, financial position and cash flows are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included
in the Company’s Annual Report on Form 10-K for the year ended September 30, 2022. Since the date of the Company’s most recent Annual Report, there have been no material changes in the Company’s critical accounting estimates or assumptions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 2022, the
Company had not experienced any adverse changes in market risk exposures that materially affected the quantitative and qualitative disclosures presented in the Company's Annual Report on Form 10-K for the year ended September 30, 2022.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls
and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act"). Based upon their evaluation of these disclosure controls and procedures, the principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective as of December 31, 2022 to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms, and to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated
and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding disclosure.
Changes in Internal Control Over Financial Reporting
There have been no significant changes in the Company’s internal control over financial reporting during the three months ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART
II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Gumm v. Molinaroli, et al.
On August 16, 2016, a putative class action lawsuit, Gumm v. Molinaroli, et al., Case No. 16-cv-1093, was filed in the United States District Court for the Eastern District of Wisconsin, naming Johnson Controls, Inc., the individual members of its board of directors at the time of the merger with the Company’s merger subsidiary and certain of its officers, the
Company and the Company’s merger subsidiary as defendants. The complaint asserted various causes of action under the federal securities laws, state law and the Taxpayer Bill of Rights, including that the individual defendants allegedly breached their fiduciary duties and unjustly enriched themselves by structuring the merger among the Company, Tyco and the merger subsidiary in a manner that would result in a United States federal income tax realization event for the putative class of certain Johnson Controls, Inc. shareholders and allegedly result in certain benefits to the defendants, as well as related claims regarding alleged misstatements in the proxy statement/prospectus distributed to the Johnson Controls, Inc. shareholders, conversion and breach of contract. The
complaint also asserted that Johnson Controls, Inc., the Company and the Company’s merger subsidiary aided and abetted the
49
individual defendants in their breach of fiduciary duties and unjust enrichment. The complaint seeks, among other things, disgorgement of profits and damages. Plaintiffs filed an amended complaint on February 15, 2017. On November 3, 2021, the court granted the Company’s motion to dismiss the amended
complaint. Plaintiffs have appealed to the United States Court of Appeals for the Seventh Circuit. Briefing on the appeal is completed. Oral argument has yet to be scheduled by the court.
Refer to Note 21, "Commitments and Contingencies," of the notes to the consolidated financial statements for discussion of environmental, asbestos, self-insured liabilities and other litigation matters, which is incorporated by reference herein and is considered an integral part of Part II, Item 1, "Legal Proceedings."
ITEM 1A. RISK FACTORS
There have been no material changes
to the disclosure regarding risk factors presented in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the year ended September 30, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In March 2021, the Company's Board of Directors approved a $4.0 billion increase to the Company's share repurchase authorization, adding to the $2.0 billion remaining as of December
31, 2020 under the prior share repurchase authorization approved in 2019. The share repurchase authorization does not have an expiration date and may be amended or terminated by the Board of Directors at any time without prior notice. During the three months ended December 31, 2022, the Company repurchased approximately $0.2 billion of its ordinary shares on an open market. As of December 31, 2022, approximately $3.5 billion remains available under the share repurchase authorization.
The following table presents information regarding the repurchase of the Company’s ordinary shares by the
Company as part of its publicly announced program during the three months ended December 31, 2022.
Period
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
10/1/22 - 10/31/22
Purchases by Company
2,242,486
$
52.68
2,242,486
$
3,496,266,553
11/1/22
- 11/30/22
Purchases by Company
601,650
59.32
601,650
3,460,577,478
12/1/22 - 12/31/22
Purchases
by Company
—
—
—
—
During the three months ended December 31, 2022, acquisitions of shares by the Company from certain employees in order to satisfy employee tax withholding requirements in connection with the vesting of restricted shares were not material.
The following materials from Johnson Controls International plc's Quarterly Report on Form 10-Q for the quarter ended December 31, 2022, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Position, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Shareholders' Equity and (vi) Notes to Consolidated Financial Statements.
104
Cover
Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101)
Pursuant
to the requirements 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.
