Annual Report by an Employee Stock Purchase, Savings or Similar Plan — Form 11-K Filing Table of Contents
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‘11-K’ — Annual Report by an Employee Stock Purchase, Savings or Similar Plan
*Note:
Other schedules required by Section 2520.103-10 of the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income and Security Act of 1974 have been omitted because they are not applicable.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants and Administrator of the
Johnson Controls Retirement Savings and Investment Plan:
Opinion on the Financial Statements
We
have audited the accompanying statements of net assets available for benefits of Johnson Controls Retirement Savings and Investment Plan (the “Plan”) as of December 31, 2019 and 2018, and the related statement of changes in net assets available for benefits for the year ended December 31, 2019, and the related notes and schedule (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2019 and 2018, and the changes in net assets available for benefits for the year ended December 31, 2019, in conformity with accounting
principles generally accepted in the United States.
Basis for Opinion
These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on the Plan’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Plan in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Plan's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Supplemental Information
The Schedule H, Line 4i – Schedule of Assets (Held at End of Year) as of December 31, 2019 has been subjected to audit procedures performed in conjunction with the audit of the Plan’s financial statements. The supplemental information is the responsibility of the Plan’s management. Our audit procedures included determining whether the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated whether the supplemental information, including its
form and content, is presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental information is fairly stated, in all material respects, in relation to the financial statements as a whole.
The following description of the Johnson Controls Retirement Savings and Investment Plan (the "Plan") provides only general information. Participants should refer to the Summary Plan Description provided to all participants for a more complete description of the Plan's provisions.
GENERAL
The Plan is a defined contribution plan adopted effective January 1, 2018 for participation by eligible employees of Johnson Controls, Inc. ("JCI Inc.") and selected subsidiaries, as designated by the Board of Directors. The Plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended (ERISA).
On April 30, 2019, the Company sold its Power Solutions business to a third party and Power Solutions participants of the Plan became enrolled in a new plan, Power Solutions Retirement Savings and Investment Plan. Participants had the election to transfer their Plan balances to the new plan in May 2019. These transfers approximated $131 million.
The Plan is administered by the Employee Benefits Policy Committee appointed by the Company.
CONTRIBUTIONS
Participants
can designate an amount up to thirty-five percent (35%) of their gross annual eligible compensation as contributions. The Plan has provided multiple company contribution schedules based on specific eligibility rules. A full listing of the schedules can be found in the Plan document.
Participant contributions are deposited in the investment funds of their choice. Participants may reallocate their account balances among the available investment funds at any time in increments of one percent (1%). However, participants were able to reallocate deposits out of the Fixed Income Fund no more than once each calendar quarter in order to maximize the rate of return for that fund.
For certain participant groups, if the participant does not make an election to participate in the Plan within 60 days of becoming eligible,
the participant will be automatically enrolled to make pre-tax contributions depending on their employment classification. If automatically enrolled, the participant's contributions will be invested in a target date fund based on their birth date and the fund's target retirement date.
Participants are immediately vested in their contributions plus actual earnings (losses) thereon. A participant's interest in employer contributions plus actual earnings (losses) thereon, vests based on eligibility rules specific to certain groups of employees.
If employment terminates other than by reason of retirement, death or total and permanent disability and the participant is not reemployed by the Company or its affiliates within 72 months
of that date, the participant's interest in the non-vested portion of the employer contributions is forfeited. The Company may apply any forfeited amounts to reduce future employer contributions to the Plan and to pay plan expenses.
PAYMENT OF BENEFITS
On termination of service due to death, disability or retirement, a participant may elect to receive a lump-sum amount equal to the value of the participant's interest in his or her account. For termination of service for other reasons, a participant may receive the value of the vested interest in his or her account as a lump-sum distribution. Benefit payments are recorded when paid.
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JOHNSON
CONTROLS RETIREMENT SAVINGS AND INVESTMENT PLAN
Participant recordkeeping is performed by Fidelity Investments Institutional Retirement Services Company ("Fidelity"). As of December
31, 2019 and 2018, Plan assets of $1,780,219,511 and $1,363,897,432 have been allocated to the accounts of persons who are no longer active participants of the Plan, but who have not yet received distributions as of that date. Requested but unpaid distributions at December 31, 2019 were deemed to be immaterial.
NOTES RECEIVABLE FROM PARTICIPANTS
Participants may borrow from their fund accounts a minimum of $1,000 and up to a maximum of $50,000 or fifty percent (50%) of their account balance, whichever is less. Loans are subject to certain limitations based on the Plan document. Only two loans per participant may be outstanding at any time. Each loan may be for a term up to five years. Regular payroll deductions are
required to repay a loan. Each loan's interest rate is fixed at the prime rate at the beginning of the calendar quarter in which it is issued. Interest rates range between 3.25% and 9.00% as of December 31, 2019. At termination, participants may continue to make monthly loan payments until the balances of any loans are paid off.
The notes receivable from participants are measured at their unpaid principal balances plus accrued but unpaid interest. At the time of borrowing, the assets of the participant are sold proportionally to finance the loan. The loan is collateralized by the participant's assets in the Plan.
Should a participant fail to make a loan payment when due (including retirement or termination), the participant is given a grace period to cure the
delinquency through the end of the calendar quarter following the calendar quarter in which the default arose. If the participant fails to cure the delinquency, a deemed distribution occurs in accordance with the provisions of the Plan document. The Plan has not made a provision for uncollectible loans as there are none.
ADMINISTRATIVE EXPENSES
Administrative expenses are paid by the Plan, as allowed by Plan provisions, with all remaining expenses paid by the Company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The
financial statements of the Plan are prepared on the accrual basis of accounting.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
FAIR VALUE MEASUREMENTS
ASC 820, "Fair Value Measurement," defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. ASC 820 also establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:
Level 1:
Observable inputs such as quoted prices in active markets;
Level 2:
Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3:
Unobservable inputs where there is little or no market data, which requires the reporting
entity to develop its own assumptions.
5
JOHNSON CONTROLS RETIREMENT SAVINGS AND INVESTMENT PLAN
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.
SAVINGS AND INVESTMENT MASTER TRUST
All investments of the Plan are included under a master trust arrangement, the Master Trust, which is trusteed by Fidelity. All investments of the Master Trust, except the Fixed Income Fund, are stated at fair market value. The Fixed Income Fund, a stable value fund, contained wrap contracts which were stated at contract
value. Contract value, as reported to the Plan by Fidelity, represented contributions made under the contract, plus interest at the contract rate, less participant withdrawals and administrative expenses. As of December 31, 2019, the Fixed Income Fund has a balance of $0.
Investment income or loss of the Master Trust is allocated among the participating plans daily based on the plans' relative equity interests in each of the Master Trust's investment programs as of the beginning of the applicable day. Interest income and share price appreciation or depreciation are recorded
daily by each of the applicable investment programs. Dividend income is recorded either quarterly or semi-annually, depending on the investment program.
The net assets held in the Master Trust as of December 31, 2019 and 2018 and the changes in net assets held in the Master Trust for the year ended December 31, 2019 for the Master Trust are presented in Note 7.
At December 31, 2019 and 2018, unallocated participant forfeitures of non-vested employer contributions of $4,190,279 and $4,381,602 related to the Plan, were in the Master Trust.
NEW
ACCOUNTING PRONOUNCEMENTS
Recently Issued Accounting Pronouncements
In February 2017, the FASB issued Accounting Standards Update (ASU) No. 2017-06, "Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting." ASU No. 2017-06 clarifies the presentation requirements by a plan's interest in a master trust and requires disclosure of the dollar amount of the plan's interest in each investment type held by a master trust, as well as disclosure of the master trust's other assets and liabilities, and the dollar amount of the plan's interest in each of those balances. ASU No. 2017-06 is effective for fiscal years beginning after December 15, 2018
with early adoption permitted, and will be applied retrospectively to all periods presented. The Company has adopted this guidance on the Plan’s financial statements effective for the year ended December 31, 2019.
DATE OF MANAGEMENT'S REVIEW
Management has evaluated subsequent events through June 25, 2020, the date which the financial statements were available to be issued. Subsequent to December 31, 2019, the 2019 novel coronavirus (“COVID-19”) has, and may continue to adversely affect, the macro-economic environment and global economy. Due to the disruption of COVID-19
on the global economy, the values of investment securities have declined significantly and may continue to be adversely affected.
NOTE 3 - TAX STATUS
The Internal Revenue Service (IRS) has determined and informed the Company by a letter dated December 13, 2019, that the Plan is designed in accordance with applicable sections of the IRC.
U.S. GAAP requires Plan management to evaluate tax positions taken by the Plan and recognize a liability if the organization has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS or Department of Labor. The
Plan administrator has analyzed the tax positions taken by the Plan, and has concluded as of December 31, 2019, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.
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JOHNSON CONTROLS RETIREMENT SAVINGS AND INVESTMENT PLAN
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts.
NOTE 5 - RELATED PARTY AND PARTY-IN-INTEREST TRANSACTIONS
On October 31, 2016, Johnson Controls International plc completed the spin-off of its Automotive Experience business by way of transfer to Adient plc and the issuance of ordinary shares of Adient directly to holders of Johnson Controls ordinary shares on a pro rata basis.
Each participant received one unit of the new Adient Stock Fund for every ten units of JCI plc Stock fund that they held in the Plan immediately preceding the spin-off. A new Adient Stock Fund was established in the Plan in order to hold distributed shares. The Adient Stock Fund is a closed investment in the Plan, which means balances can be taken out of the Adient Stock Fund but no new contributions or exchanges can be made into this Fund.
For 2019, the Plan sold units in the Adient Stock Fund of approximately $2.2 million and had an investment gain of approximately $3.4 million. The total value of the Plan’s investment in the Adient Stock Fund was approximately $10.1 and $8.8 million at December 31, 2019 and 2018, respectively.
For 2019, the Plan purchased units in the JCI plc Stock
Fund of approximately $15.8 million. Also, for 2019, the Plan sold units of approximately $63.1 million and had an investment gain of approximately $75.6 million. The total value of the Plan’s investment in the JCI plc Stock Fund was approximately $218.6 and $190.3 million at December 31, 2019 and 2018, respectively.
The unit values of the JCI plc Stock Fund and Adient Stock Fund are recorded and maintained by Fidelity and the Plan. Plan participants may direct up to 25% of their employee and employer contributions to the JCI plc Stock Fund. In addition, participants may exchange a portion of their account balance into the JCI plc Stock Fund, provided the transaction does not cause the portion of their account balance invested in the JCI plc Stock Fund to exceed 25%.
Certain of the assets
of the Master Trust are invested in registered investment companies managed by Fidelity Investments, for which Fidelity Management & Research Company (“FMR Co.”) provides investment advisory services. FMR Co. is an affiliate of both Fidelity, and Fidelity Workplace Services, LLC, record keeper of the Plan. Expenses paid to FMR Co. and/or its affiliates by the Plan during the year ended December 31, 2019 was $1,678,688. These transactions and investments, as well as participant loans, qualify as exempt “party-in-interest” transactions, as “party-in-interest” is defined under Department of Labor regulations as any fiduciary of the Plan, any party rendering services to the Plan, the Company and certain others.
NOTE 6 - RISKS AND UNCERTAINTIES
The
Plan's investments are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investments and the level of uncertainty related to changes in the values of investments, it is at least reasonably possible that changes in risks in the near term would materially affect participants' account balances and the amounts reported in the statements of net assets available for benefits and the statement of changes in net assets available for benefits.
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JOHNSON CONTROLS RETIREMENT SAVINGS AND INVESTMENT PLAN
NOTE 7 - JOHNSON CONTROLS, INC. SAVINGS AND INVESTMENT MASTER TRUST
The following table presents net assets held in the Master Trust and the Plan's interest in the Master Trust, including fair value of investments held in the Master Trust, as of December 31, 2019 and 2018:
The following table sets forth by level, within the fair value hierarchy, the Master Trust investment assets at fair value as of December 31, 2019 and 2018:
Following
is a description of the valuation methodologies used for assets measured at fair value:
Common Stock Funds: The fair value for the Johnson Controls International plc Stock Fund ("JCI plc Stock Fund"), formerly known as the Johnson Controls Common Stock Fund ("JCI Stock Fund"), and the Adient Stock Fund is determined by indirect quoted market prices. The value of the funds are not published, but the investment manager reports daily the underlying holdings. The underlying holdings are direct quoted market prices on liquid and regulated financial exchanges. The fair value of the investments in the JCI plc Stock Fund and Adient Stock Fund reflect a unit value computed daily based on the share price and the value of the fund's short-term investments. At December 31, 2019 and 2018,
the Plan held 25,305,857 and 30,107,805 units of the Johnson Controls plc Stock Fund at a unit value of $8.63 and $6.31, respectively. At December 31, 2019 and 2018, the Plan held 2,065,331 and 2,530,577 units of the Adient Stock Fund at a unit value of $4.87 and $3.48, respectively.
Other Separate Accounts: The fair value for Other Separate Accounts is determined by indirect quoted market prices. These investments are generally held in a commingled trust. The value of the trust is not published, but the investment manager reports daily the underlying holdings. The underlying holdings are direct quoted market prices on liquid and regulated financial exchanges. The Plan implemented a white-label fund structure for its defined contribution investment options, aside from
the JCI and Adient company Stock Funds. This structure places the individual fund offerings into unitized collective trusts for each asset class, which are valued at the NAV, published by Fidelity, based on the fair values of the underlying investments.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
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JOHNSON
CONTROLS RETIREMENT SAVINGS AND INVESTMENT PLAN
SCHEDULE H, Line 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
PLAN #026, EIN: 39-0380010
2019
(a)
(b)
(c)
(d)
(e)
Identity
of Issue, Borrower, Lessor or Similar Party
Description of Investment Including Maturity Date, Rate of Interest, Collateral, Par or Maturity Value
Cost
Current Value
*
Participant Loans
3.25% - 9.00%
$0
$
92,712,369
*
Represents
a party-in-interest
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JOHNSON CONTROLS RETIREMENT SAVINGS AND INVESTMENT PLAN
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the members of the Johnson Controls International plc Employee Benefit Policy Committee have duly caused this annual report to be signed by the undersigned thereunto duly authorized.
JOHNSON CONTROLS RETIREMENT SAVINGS AND INVESTMENT PLAN
