Johnson Controls International plc 10-Q for FY2023 Q2
Johnson Controls International plc (JCI)
10-Q
2023-05-05
For: 2023-03-31
View Original
Added on
April 03, 2026
About this 10-Q
Johnson Controls International plc filed this 10-Q on May 5, 2023, covering the quarter ended March 31, 2023 (FY2023 Q2).
Headline figures
Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $6.69B
- up 9.6% from $6.1B a year earlier
- Net income
- $133M
- up 1109.1% from net income of $11M a year earlier
- Diluted EPS
- $0.19
- up 850.0% from $0.02 a year earlier
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 31, 2023
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the Transition Period From _____ To _____
Commission File Number: 001-13836
(Exact name of registrant as specified in its charter)
| (Jurisdiction of Incorporation) | (I.R.S. Employer Identification No.) | ||||||||||
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| (Address of Principal Executive Offices and Postal Code) | (Registrant's Telephone Number) | ||||||||||
Securities Registered Pursuant to Section 12(b) of the Exchange Act:
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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. Yes þ 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). Yes þ 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.
| þ | Accelerated filer | ☐ | Smaller reporting company | ||||||||||||||
| Non-accelerated filer | ¨ | Emerging growth company | |||||||||||||||
| 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 ☐ No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Ordinary Shares Outstanding at March 31, 2023 | |||||||
| Ordinary Shares, $0.01 par value per share | ||||||||
JOHNSON CONTROLS INTERNATIONAL PLC
FORM 10-Q
Report Index
| Page | |||||
| Part I. Financial Information | |||||
| Item 1. Financial Statements (unaudited) | |||||
Consolidated Statements of Income for the Three and Six Month Periods Ended March 31, 2023 and 2022 | |||||
Consolidated Statements of Comprehensive Income for the Three and Six Month Periods Ended March 31, 2023 and 2022 | |||||
Consolidated Statements of Financial Position at March 31, 2023 and September 30, 2022 | |||||
Consolidated Statements of Cash Flows for the Six Month Periods Ended March 31, 2023 and 2022 | |||||
Consolidated Statements of Shareholders' Equity for the Three and Six Month Periods Ended March 31, 2023 and 2022 | |||||
| Notes to Consolidated Financial Statements | |||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | |||||
| Item 4. Controls and Procedures | |||||
| Part II. Other Information | |||||
| Item 1. Legal Proceedings | |||||
| Item 1A. Risk Factors | |||||
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |||||
| Item 6. Exhibits | |||||
| Signatures | |||||
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Johnson Controls International plc
Consolidated Statements of Income
(in millions, except per share data; unaudited)
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net sales | |||||||||||||||||||||||
| Products and systems | $ | $ | $ | $ | |||||||||||||||||||
| Services | |||||||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Products and systems | |||||||||||||||||||||||
| Services | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expenses | ( | ( | ( | ( | |||||||||||||||||||
| Restructuring and impairment costs | ( | ( | ( | ( | |||||||||||||||||||
| Net financing charges | ( | ( | ( | ( | |||||||||||||||||||
| Equity income | |||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income tax provision | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Income attributable to noncontrolling interests | |||||||||||||||||||||||
| Net income attributable to Johnson Controls | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per share attributable to Johnson Controls | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
3
Johnson Controls International plc
Consolidated Statements of Comprehensive Income
(in millions; unaudited)
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ||||||||||||||||||||||||||||||||||
| Realized and unrealized gains on derivatives | |||||||||||||||||||||||||||||||||||
| Pension and postretirement plans | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ||||||||||||||||||||||||||||||||||
| Total comprehensive income | |||||||||||||||||||||||||||||||||||
| Comprehensive income attributable to noncontrolling interests: | |||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | |||||||||||||||||||||||||||||||||
| Realized and unrealized gains (losses) on derivatives | ( | ||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | |||||||||||||||||||||||||||||||||
| Comprehensive income attributable to noncontrolling interests | |||||||||||||||||||||||||||||||||||
| Comprehensive income attributable to Johnson Controls | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
4
Johnson Controls International plc
Consolidated Statements of Financial Position
(in millions, except par value; unaudited)
| March 31, 2023 | September 30, 2022 | ||||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, less allowance for expected credit losses of $ | |||||||||||
| Inventories | |||||||||||
| Current assets held for sale | |||||||||||
| Other current assets | |||||||||||
| Current assets | |||||||||||
| Property, plant and equipment - net | |||||||||||
| Goodwill | |||||||||||
| Other intangible assets - net | |||||||||||
| Investments in partially-owned affiliates | |||||||||||
| Noncurrent assets held for sale | |||||||||||
| Other noncurrent assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Equity | |||||||||||
| Short-term debt | $ | $ | |||||||||
| Current portion of long-term debt | |||||||||||
| Accounts payable | |||||||||||
| Accrued compensation and benefits | |||||||||||
| Deferred revenue | |||||||||||
| Current liabilities held for sale | |||||||||||
| Other current liabilities | |||||||||||
| Current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Pension and postretirement benefits | |||||||||||
| Noncurrent liabilities held for sale | |||||||||||
| Other noncurrent liabilities | |||||||||||
| Long-term liabilities | |||||||||||
| Commitments and contingencies (Note 21) | |||||||||||
Ordinary shares, $ | |||||||||||
Ordinary A shares, € | |||||||||||
Preferred shares, $ | |||||||||||
| Ordinary shares held in treasury, at cost | ( | ( | |||||||||
| Capital in excess of par value | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Shareholders’ equity attributable to Johnson Controls | |||||||||||
| Noncontrolling interests | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
The accompanying notes are an integral part of the consolidated financial statements.
5
Johnson Controls International plc
Consolidated Statements of Cash Flows
(in millions; unaudited)
| Six Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Operating Activities of Continuing Operations | |||||||||||
| Net income attributable to Johnson Controls | $ | $ | |||||||||
| Income attributable to noncontrolling interests | |||||||||||
| Net income | |||||||||||
| Adjustments to reconcile net income to cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Pension and postretirement benefit income | ( | ( | |||||||||
| Pension and postretirement contributions | ( | ( | |||||||||
| Equity in earnings of partially-owned affiliates, net of dividends received | ( | ||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Noncash restructuring and impairment charges | |||||||||||
| Equity-based compensation | |||||||||||
| Other - net | ( | ( | |||||||||
| Changes in assets and liabilities, excluding acquisitions and divestitures: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Other assets | ( | ( | |||||||||
| Restructuring reserves | ( | ( | |||||||||
| Accounts payable and accrued liabilities | ( | ||||||||||
| Accrued income taxes | ( | ||||||||||
| Cash provided by operating activities from continuing operations | |||||||||||
| Investing Activities of Continuing Operations | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Sale of property, plant and equipment | |||||||||||
| Acquisition of businesses, net of cash acquired | ( | ( | |||||||||
| Business divestitures, net of cash divested | |||||||||||
| Other - net | |||||||||||
| Cash used by investing activities from continuing operations | ( | ( | |||||||||
| Financing Activities of Continuing Operations | |||||||||||
| Net proceeds from borrowings with maturities less than three months | |||||||||||
| Proceeds from debt | |||||||||||
| Repayments of debt | ( | ( | |||||||||
| Stock repurchases and retirements | ( | ( | |||||||||
| Payment of cash dividends | ( | ( | |||||||||
| Employee equity-based compensation withholding taxes | ( | ( | |||||||||
| Dividends paid to noncontrolling interests | ( | ( | |||||||||
| Other - net | |||||||||||
| Cash provided by financing activities from continuing operations | |||||||||||
| Discontinued Operations | |||||||||||
| Cash used by operating activities | ( | ||||||||||
| Cash used by discontinued operations | ( | ||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | |||||||||||
| Increase (decrease) in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | |||||||||||
| Less: Restricted cash | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
The accompanying notes are an integral part of the consolidated financial statements.
6
Johnson Controls International plc
Consolidated Statements of Shareholders' Equity
(in millions, except per share data; unaudited)
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Shareholders' Equity Attributable to Johnson Controls | |||||||||||||||||||||||
| Beginning Balance | $ | $ | $ | $ | |||||||||||||||||||
| Ordinary Shares | |||||||||||||||||||||||
| Beginning balance | |||||||||||||||||||||||
| Ending balance | |||||||||||||||||||||||
| Ordinary Shares Held in Treasury, at Cost | |||||||||||||||||||||||
| Beginning balance | ( | ( | ( | ( | |||||||||||||||||||
| Employee equity-based compensation withholding taxes | ( | ( | ( | ( | |||||||||||||||||||
| Ending balance | ( | ( | ( | ( | |||||||||||||||||||
| Capital in Excess of Par Value | |||||||||||||||||||||||
| Beginning balance | |||||||||||||||||||||||
| Share-based compensation expense | — | — | |||||||||||||||||||||
| Other, including options exercised | |||||||||||||||||||||||
| Ending balance | |||||||||||||||||||||||
| Retained Earnings | |||||||||||||||||||||||
| Beginning balance | |||||||||||||||||||||||
| Net income attributable to Johnson Controls | |||||||||||||||||||||||
| Cash dividends declared | ( | ( | ( | ( | |||||||||||||||||||
| Repurchases and retirements of ordinary shares | ( | ( | ( | ( | |||||||||||||||||||
| Ending balance | |||||||||||||||||||||||
| Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||||||
| Beginning balance | ( | ( | ( | ( | |||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||
| Ending balance | ( | ( | ( | ( | |||||||||||||||||||
| Ending Balance | |||||||||||||||||||||||
| Shareholders' Equity Attributable to Noncontrolling Interests | |||||||||||||||||||||||
| Beginning Balance | |||||||||||||||||||||||
| Comprehensive income attributable to noncontrolling interests | |||||||||||||||||||||||
| Dividends attributable to noncontrolling interests | ( | ( | ( | ( | |||||||||||||||||||
| Change in noncontrolling interest share | — | — | — | ||||||||||||||||||||
| Ending Balance | |||||||||||||||||||||||
| Total Shareholders' Equity | $ | $ | $ | $ | |||||||||||||||||||
| Cash Dividends Declared per Ordinary Share | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
7
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
1.Basis of Presentation
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 and six month periods ended March 31, 2023 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 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 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.
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.
8
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
2. New Accounting Standards
Recently Issued Accounting Pronouncements
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.Acquisitions and Divestitures
During the first six months of fiscal 2023, the Company completed certain acquisitions for a combined purchase price, net of cash acquired, of $115 million, of which $89 million was paid as of March 31, 2023. In connection with the acquisitions, the Company recorded goodwill of $53 million within the Global Products segment and $14 million within the Building Solutions EMEA/LA segment.
The Company completed no divestitures during the first six months of fiscal 2023.
During the first six months of fiscal 2022, the Company completed certain acquisitions for a combined purchase price, net of cash acquired, of $160 million, of which $124 million was paid as of March 31, 2022. In connection with the acquisitions, the Company recorded goodwill of $45 million within the Building Solutions Asia Pacific segment, $24 million within the Building Solutions North America segment and $29 million within the Building Solutions EMEA/LA segment.
During the first six months of fiscal 2022, the Company completed a divestiture within the Buildings Solutions EMEA/LA segment. The selling price, net of cash divested, was $18 million, of which $16 million was received as of March 31, 2022. In connection with the divestiture, the Company reduced goodwill by $5 million.
Acquisitions and divestitures were not material individually or in the aggregate during the first six months of fiscal 2023 or 2022.
9
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
4. Assets 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 March 31, 2023 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 and six months ended March 31, 2023, the Company recorded impairment charges for the Global Retail business of $210 million and $438 million, respectively. During the three and six months ended March 31, 2023, the Company recorded impairment charges for a business in the Building Solutions Asia Pacific segment of $0 and $60 million, respectively. The impairment charges were primarily due to reductions in the estimated fair values of the businesses to be disposed as a result of ongoing negotiations with potential buyers and 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.
The following table summarizes the carrying value of the Global Retail assets and liabilities held for sale (in millions):
| March 31, 2023 | September 30, 2022 | ||||||||||||||||
| Accounts receivable - net | $ | $ | |||||||||||||||
| Inventories | |||||||||||||||||
| Other current assets | |||||||||||||||||
| Current assets held for sale | $ | $ | |||||||||||||||
| Property, plant and equipment - net | $ | $ | |||||||||||||||
| Goodwill | |||||||||||||||||
| Other intangible assets - net | |||||||||||||||||
| Other noncurrent assets | |||||||||||||||||
| Noncurrent assets held for sale | $ | $ | |||||||||||||||
| Accounts payable | $ | $ | |||||||||||||||
| Accrued compensation and benefits | |||||||||||||||||
| Deferred revenue | |||||||||||||||||
| Other current liabilities | |||||||||||||||||
| Current liabilities held for sale | $ | $ | |||||||||||||||
| Other noncurrent liabilities | $ | $ | |||||||||||||||
| Noncurrent liabilities held for sale | $ | $ | |||||||||||||||
10
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
5. Revenue Recognition
Disaggregated Revenue
The following tables present the Company's revenues disaggregated by segment and by Products & Systems and Services revenue (in millions):
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||||||||
| Products & Systems | Services | Total | Products & Systems | Services | Total | |||||||||||||||||||||||||||||||||
| Building Solutions North America | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Building Solutions EMEA/LA | ||||||||||||||||||||||||||||||||||||||
| Building Solutions Asia Pacific | ||||||||||||||||||||||||||||||||||||||
| Global Products | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Six Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||||||||
| Products & Systems | Services | Total | Products & Systems | Services | Total | |||||||||||||||||||||||||||||||||
| Building Solutions North America | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Building Solutions EMEA/LA | ||||||||||||||||||||||||||||||||||||||
| Building Solutions Asia Pacific | ||||||||||||||||||||||||||||||||||||||
| Global Products | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
The following table presents further disaggregation of Global Products segment revenues by product type (in millions):
| Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| HVAC | $ | $ | $ | $ | ||||||||||||||||||||||
| Fire & Security | ||||||||||||||||||||||||||
| Industrial Refrigeration | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
Contract Balances
Contract assets relate to the Company’s right to consideration for performance obligations satisfied but not billed. 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.
11
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
The following table presents the location and amount of contract balances in the Company's consolidated statements of financial position (in millions):
| Location of contract balances | March 31, 2023 | September 30, 2022 | ||||||||||||||||||||||||
| Contract assets - current | Accounts receivable - net | $ | $ | |||||||||||||||||||||||
| Contract assets - noncurrent | Other noncurrent assets | |||||||||||||||||||||||||
| Contract liabilities - current | Deferred revenue | |||||||||||||||||||||||||
| Contract liabilities - noncurrent | Other noncurrent liabilities | |||||||||||||||||||||||||
For the three months ended March 31, 2023 and 2022, the Company recognized revenue of $319 million and $308 million, respectively, that was included in the beginning of period contract liability balance. For the six months ended March 31, 2023 and 2022, the Company recognized revenue of $1,165 million and $1,059 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 March 31, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $18.8 billion, of which approximately 65 % is expected to be recognized as revenue over the next two 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 25 to 35 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 service contracts with an original expected duration of one year or less.
Costs to Obtain or Fulfill a Contract
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.
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):
| March 31, 2023 | September 30, 2022 | |||||||||||||||||||
| Other current assets | $ | $ | ||||||||||||||||||
| Other noncurrent assets | ||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||
12
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
6. Accounts Receivable
7. Inventories
Inventories consisted of the following (in millions):
| March 31, 2023 | September 30, 2022 | ||||||||||
| Raw materials and supplies | $ | $ | |||||||||
| Work-in-process | |||||||||||
| Finished goods | |||||||||||
| Inventories | $ | $ | |||||||||
8. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill in each of the Company’s reportable segments were as follows (in millions):
| Six Months Ended March 31, 2023 | ||||||||||||||||||||||||||||||||
| Building Solutions North America | Building Solutions EMEA/LA | Building Solutions Asia Pacific | Global Products | Total | ||||||||||||||||||||||||||||
| Goodwill | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Accumulated impairment loss | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| Balance at beginning of period | ||||||||||||||||||||||||||||||||
Acquisitions (1) | ||||||||||||||||||||||||||||||||
| Impairments | ( | ( | ||||||||||||||||||||||||||||||
| Foreign currency translation and other | ||||||||||||||||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
(1) Includes measurement period adjustments
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. In the second quarter of fiscal 2023, management completed an updated comprehensive review of the Silent-Aire reporting unit, including its current quarter results and its nearer term
13
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
forecast. Due to current quarter results being lower than its business plan, and the nearer term forecast being revised to reflect lower margins and earnings, the Company determined a triggering event had occurred and a quantitative test of goodwill for possible impairment was necessary. As a result of the goodwill impairment test, the Company recorded a non-cash impairment charge of $184 million within restructuring and impairment costs in the consolidated statements of income in the second quarter of fiscal 2023, which was determined by comparing the carrying amount of the reporting unit to its fair value. The Silent-Aire reporting unit has no remaining goodwill balance as of March 31, 2023. The Company used a discounted cash flow model to estimate the fair value of the reporting unit. The primary assumptions used in the model were management's internal projections of future cash flows, the weighted-average cost of capital and the long-term growth rate, which are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement." There were no other triggering events requiring an impairment assessment be conducted in the six months ended March 31, 2023. However, it is possible that future changes in circumstances would require the Company to record additional non-cash impairment charges.
The Company’s other intangible assets, primarily from business acquisitions, consisted of (in millions):
| March 31, 2023 | September 30, 2022 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||||||||||||||
| Definite-lived intangible assets | |||||||||||||||||||||||||||||||||||
| Technology | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Customer relationships | ( | ( | |||||||||||||||||||||||||||||||||
| Miscellaneous | ( | ( | |||||||||||||||||||||||||||||||||
| ( | ( | ||||||||||||||||||||||||||||||||||
| Indefinite-lived intangible assets | |||||||||||||||||||||||||||||||||||
| Trademarks/trade names | — | — | |||||||||||||||||||||||||||||||||
| — | — | ||||||||||||||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
Amortization of other intangible assets for the three-month periods ended March 31, 2023 and 2022 was $104 million and $106 million, respectively. Amortization of other intangible assets for the six month periods ended March 31, 2023 and 2022 was $208 million and $224 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 six months ended March 31, 2023. However, it is possible that future changes in circumstances would require the Company to record additional non-cash impairment charges.
9. Leases
The following table presents supplemental consolidated statement of financial position information (in millions):
| Location of lease balances | March 31, 2023 | September 30, 2022 | |||||||||||||||
| Operating lease right-of-use assets | Other noncurrent assets | $ | $ | ||||||||||||||
| Operating lease liabilities - current | Other current liabilities | ||||||||||||||||
| Operating lease liabilities - noncurrent | Other noncurrent liabilities | ||||||||||||||||
14
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
The following table presents supplemental noncash operating lease activity, excluding leases acquired in business combinations (in millions):
| Six Months Ended March 31, | ||||||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||
| Right-of-use assets obtained in exchange for operating lease liabilities | $ | $ | ||||||||||||||||||||||||||||||
10. Debt and Financing Arrangements
Short-term debt consisted of the following (in millions):
| March 31, | September 30, | ||||||||||
| 2023 | 2022 | ||||||||||
| Bank borrowings | $ | $ | |||||||||
| Commercial paper | |||||||||||
| Term loans | |||||||||||
| $ | $ | ||||||||||
| Weighted average interest rate on short-term debt outstanding | % | % | |||||||||
As of March 31, 2023, the Company had a syndicated $2.5 billion committed revolving credit facility, which is scheduled to expire in December 2024, and a syndicated $500 million committed revolving credit facility, which is scheduled to expire in November 2023. As of March 31, 2023, there were no draws on the facilities.
Financing Activity
In October 2022, the Company repaid a €200 million ($196 million as of September 30, 2022) term loan with an interest rate of EURIBOR plus 0.5 % and entered into a €150 million ($163 million as of March 31, 2023) term loan with an interest rate of EURIBOR plus 0.7 % which is due in April 2024.
In January 2023, the Company repaid $32 million of outstanding 4.625 % Notes due 2023.
In March 2023, the Company repaid a €150 million ($147 million as of September 30, 2022) term loan with an interest rate of 0.0 %, repaid a €135 million ($133 million as of September 30, 2022) term loan with an interest rate of EURIBOR plus 0.5 % and entered into a €150 million ($163 million as of March 31, 2023) term loan with an interest rate of EURIBOR plus 0.4 % which is due March 2024.
Net Financing Charges
Net financing charges consisted of the following (in millions):
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Interest expense, net of capitalized interest costs | $ | $ | $ | $ | |||||||||||||||||||
| Other financing charges | |||||||||||||||||||||||
| Interest income | ( | ( | ( | ( | |||||||||||||||||||
| Net foreign exchange results for financing activities | ( | ( | ( | ( | |||||||||||||||||||
| Net financing charges | $ | $ | $ | $ | |||||||||||||||||||
15
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
11. Derivative 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 70 % to 90 % 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.
The Company had the following outstanding contracts to hedge forecasted commodity purchases (in metric tons):
| Volume Outstanding as of | ||||||||||||||
| Commodity | March 31, 2023 | September 30, 2022 | ||||||||||||
| Copper | ||||||||||||||
| Aluminum | ||||||||||||||
In March 2023, the Company entered into two forward-starting interest rate swaps with a combined notional amount of €200 million to reduce the market risk associated with changes in interest rates on future potential debt issuances. The interest rate swaps are designated as cash flow hedges. If notes are issued, the fair value of each interest rate swap, which is the difference between the swap's reference rate and the fixed rate when the notes are issued, will be amortized to interest expense over the life of the respective note issuance.
Net Investment Hedges
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.
16
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
The following table summarizes net investment hedges (in billions):
| March 31, | September 30, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| Euro-denominated bonds designated as net investment hedges in Europe | € | € | ||||||||||||
| Yen-denominated debt designated as a net investment hedge in Japan | ¥ | ¥ | ||||||||||||
Derivatives Not Designated as Hedging Instruments
Fair Value of Derivative Instruments
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 | ||||||||||||||||||||||
| March 31, | September 30, | March 31, | September 30, | ||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Other current assets | |||||||||||||||||||||||
| Foreign currency exchange derivatives | $ | $ | $ | $ | |||||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||
| Commodity derivatives | |||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
| Other current liabilities | |||||||||||||||||||||||
| Foreign currency exchange derivatives | $ | $ | $ | $ | |||||||||||||||||||
| Commodity derivatives | |||||||||||||||||||||||
| Long-term debt | |||||||||||||||||||||||
| Foreign currency denominated debt | |||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||||||||
Counterparty Credit Risk
17
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
The gross and net amounts of derivative assets and liabilities were as follows (in millions):
| Fair Value of Assets | Fair Value of Liabilities | |||||||||||||||||||||||||||||||||||||
| March 31, | September 30, | March 31, | September 30, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||
| Gross amount recognized | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Gross amount eligible for offsetting | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Net amount | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Derivatives Impact on the Statements of Income and Statements of Comprehensive Income
The following table presents the pre-tax gains (losses) recorded in other comprehensive income (loss) related to cash flow hedges (in millions):
| Derivatives in ASC 815 Cash Flow Hedging Relationships | Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Foreign currency exchange derivatives | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Interest rate swaps | ||||||||||||||||||||||||||
| Commodity derivatives | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
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 | Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||
| Foreign currency exchange derivatives | Cost of sales | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||
| Commodity derivatives | Cost of sales | ( | ( | ( | ( | |||||||||||||||||||||||||||
| Interest rate swaps | Net financing charges | ( | ||||||||||||||||||||||||||||||
| Total | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||
The following table presents the location and amount of pre-tax gains (losses) 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 | Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||
| Foreign currency exchange derivatives | Cost of sales | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||
| Foreign currency exchange derivatives | Net financing charges | ( | ||||||||||||||||||||||||||||||
| Equity swap | Selling, general and administrative | ( | ( | |||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||
Pre-tax gains (losses) on net investment hedges recorded as foreign currency translation adjustments ("CTA") within other comprehensive income (loss) were $(60 ) million and $50 million for the three months ended March 31, 2023 and 2022, respectively. Pre-tax gains (losses) on net investment hedges recorded as foreign currency translation adjustments ("CTA")
18
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
12. 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 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.
19
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
Recurring Fair Value Measurements
The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value (in millions):
| Fair Value Measurements Using: | |||||||||||||||||||||||
| Total as of March 31, 2023 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| Other current assets | |||||||||||||||||||||||
| Foreign currency exchange derivatives | $ | $ | $ | $ | |||||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||
| Commodity derivatives | |||||||||||||||||||||||
Exchange traded funds (fixed income)(1) | |||||||||||||||||||||||
| Other noncurrent assets | |||||||||||||||||||||||
| Deferred compensation plan assets | |||||||||||||||||||||||
Exchange traded funds (fixed income)(1) | |||||||||||||||||||||||
Exchange traded funds (equity)(1) | |||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
| Other current liabilities | |||||||||||||||||||||||
| Foreign currency exchange derivatives | $ | $ | $ | $ | |||||||||||||||||||
| Commodity derivatives | |||||||||||||||||||||||
| Contingent earn-out liabilities | |||||||||||||||||||||||
| Other noncurrent liabilities | |||||||||||||||||||||||
| Contingent earn-out liabilities | |||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||||||||
20
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
| Fair Value Measurements Using: | |||||||||||||||||||||||
| Total as of September 30, 2022 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| Other current assets | |||||||||||||||||||||||
| Foreign currency exchange derivatives | $ | $ | $ | $ | |||||||||||||||||||
Exchange traded funds (fixed income)(1) | |||||||||||||||||||||||
| Other noncurrent assets | |||||||||||||||||||||||
| Deferred compensation plan assets | |||||||||||||||||||||||
Exchange traded funds (fixed income)(1) | |||||||||||||||||||||||
Exchange traded funds (equity)(1) | |||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
| Other current liabilities | |||||||||||||||||||||||
| Foreign currency exchange derivatives | $ | $ | $ | $ | |||||||||||||||||||
| Commodity derivatives | |||||||||||||||||||||||
| Contingent earn-out liabilities | |||||||||||||||||||||||
| Other noncurrent liabilities | |||||||||||||||||||||||
| Contingent earn-out liabilities | |||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||||||||
(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.
The following table summarizes the changes in contingent earn-out liabilities, which are valued using significant unobservable inputs (Level 3) (in millions):
Balance at September 30, 2022 | $ | |||||||
| Acquisitions | ||||||||
| Payments | ( | |||||||
| Reduction for change in estimates | ( | |||||||
Balance at March 31, 2023 | $ | |||||||
Valuation Methods
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.
Interest rate swaps: The fair value of interest rate swaps represent the difference between the swap's reference rate and the interest rate for a similar instrument as of the reporting period. Interest rate swaps are valued under a market approach using publicized prices.
21
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
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.
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.
The following table presents the portion of unrealized gains (losses) recognized in the consolidated statements of income that relate to equity securities still held at March 31, 2023 and 2022 (in millions):
| Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Deferred compensation plan assets | $ | $ | ( | $ | $ | |||||||||||||||||||||
| Investments in exchange traded funds | ( | ( | ||||||||||||||||||||||||
All of the gains (losses) on investments in exchange traded funds related to restricted investments.
13. Stock-Based Compensation
The Johnson Controls International plc 2021 Equity and Incentive 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.
A summary of the stock-based awards granted is presented below:
| Six Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||||||||||||||
| Number Granted | Weighted Average Grant Date Fair Value | Number Granted | Weighted Average Grant Date Fair Value | ||||||||||||||||||||||||||||||||
| Restricted stock/units | $ | $ | |||||||||||||||||||||||||||||||||
| Performance shares | |||||||||||||||||||||||||||||||||||
| Stock options | |||||||||||||||||||||||||||||||||||
22
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
Performance Share Awards
The following table summarizes the assumptions used in determining the fair value of performance share units granted:
| Six Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Risk-free interest rate | |||||||||||
| Expected volatility of the Company’s stock | |||||||||||
Stock Options
The following table summarizes the assumptions used in determining the fair value of stock options granted:
| Six Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Expected life of option (years) | |||||||||||
| Risk-free interest rate | |||||||||||
| Expected volatility of the Company’s stock | |||||||||||
| Expected dividend yield on the Company’s stock | |||||||||||
14. Earnings Per Share
The following table reconciles the numerators and denominators used to calculate basic and diluted earnings per share (in millions):
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net income attributable to Johnson Controls | $ | $ | $ | $ | |||||||||||||||||||
| Weighted Average Shares Outstanding | |||||||||||||||||||||||
| Basic weighted average shares outstanding | |||||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Stock options, unvested restricted stock and unvested performance share awards | |||||||||||||||||||||||
| Diluted weighted average shares outstanding | |||||||||||||||||||||||
| Antidilutive Securities | |||||||||||||||||||||||
| Stock options and unvested restricted stock | |||||||||||||||||||||||
23
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
15. Equity
Share repurchase program
During the three and six months ended March 31, 2023, the Company repurchased and immediately retired $93 million and $247 million of its ordinary shares, respectively. For the three and six months ended March 31, 2022, the Company repurchased and immediately retired $509 million and $1,035 million of its ordinary shares, respectively. As of March 31, 2023, approximately $3.4 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)
The following schedules present changes in AOCI attributable to Johnson Controls (in millions, net of tax):
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Foreign currency translation adjustments | |||||||||||
| Balance at beginning of period | $ | ( | $ | ( | |||||||
Aggregate adjustment for the period (net of tax effect of $ | ( | ( | |||||||||
| Balance at end of period | ( | ( | |||||||||
| Realized and unrealized gains (losses) on derivatives | |||||||||||
| Balance at beginning of period | ( | ( | |||||||||
Current period changes in fair value (net of tax effect of $ | |||||||||||
Reclassification to income (net of tax effect of $ | ( | ||||||||||
| Balance at end of period | ( | ( | |||||||||
| Pension and postretirement plans | |||||||||||
| Balance at beginning of period | |||||||||||
Reclassification to income (net of tax effect of $( | ( | ||||||||||
| Balance at end of period | |||||||||||
| Accumulated other comprehensive loss, end of period | $ | ( | $ | ( | |||||||
24
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
| Six Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Foreign currency translation adjustments | |||||||||||
| Balance at beginning of period | $ | ( | $ | ( | |||||||
Aggregate adjustment for the period (net of tax effect of $ | |||||||||||
| Balance at end of period | ( | ( | |||||||||
| Realized and unrealized gains (losses) on derivatives | |||||||||||
| Balance at beginning of period | ( | ( | |||||||||
Current period changes in fair value (net of tax effect of $ | |||||||||||
Reclassification to income (net of tax effect of $ | ( | ||||||||||
| Balance at end of period | ( | ( | |||||||||
| Pension and postretirement plans | |||||||||||
| Balance at beginning of period | |||||||||||
Reclassification to income (net of tax effect of $( | ( | ( | |||||||||
| Balance at end of period | |||||||||||
| Accumulated other comprehensive loss, end of period | $ | ( | $ | ( | |||||||
(1) 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.
16. Pension and Postretirement Plans
The components of the Company’s net periodic benefit cost (credit) 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):
| U.S. Pension Plans | |||||||||||||||||||||||
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Interest cost | $ | $ | $ | $ | |||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||||||||
| Net actuarial loss | |||||||||||||||||||||||
| Settlement loss | |||||||||||||||||||||||
| Net periodic benefit cost (credit) | $ | $ | $ | ( | $ | ( | |||||||||||||||||
25
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
| Non-U.S. Pension Plans | |||||||||||||||||||||||
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||||||||
| Net actuarial gain | ( | ( | |||||||||||||||||||||
| Settlement loss | |||||||||||||||||||||||
| Net periodic benefit cost (credit) | $ | $ | $ | $ | ( | ||||||||||||||||||
| Postretirement Benefits | |||||||||||||||||||||||
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Interest cost | $ | $ | $ | $ | |||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of prior service credit | ( | ( | ( | ( | |||||||||||||||||||
| Net periodic benefit credit | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Cumulative fiscal 2023 lump sum payouts triggered remeasurement events for certain pension plans in both the first and second quarters of fiscal 2023. During the three and six months ended March 31, 2023, the Company recognized net actuarial losses of $15 million and $23 million, respectively, primarily due to decreases in discount rates, partially offset by favorable plan asset performance.
Cumulative fiscal 2022 lump sum payouts triggered remeasurement events for certain pension plans in both the first and second quarters of fiscal 2022. During the three and six months ended March 31, 2022, the Company recognized net actuarial losses of $59 million and $17 million, respectively, primarily due to unfavorable plan asset performance, partially offset by increases in discount rates.
17. Significant 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 and six months ended March 31, 2023, the Company recorded $24 million and $81 million of restructuring and impairment costs in the consolidated statements of income, respectively. 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," and Note 8, "Goodwill and Other Intangible Assets," of the notes to the consolidated financial statements for disclosure of other impairment costs.
26
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
The following table summarizes restructuring and impairment costs (in millions):
| Three Months Ended March 31, 2023 | Six Months Ended March 31, 2023 | ||||||||||||||||
| Building Solutions North America | $ | $ | |||||||||||||||
| Building Solutions EMEA/LA | |||||||||||||||||
| Building Solutions Asia Pacific | |||||||||||||||||
| Global Products | |||||||||||||||||
| Corporate | |||||||||||||||||
| Total | $ | $ | |||||||||||||||
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 six months ended March 31, 2023 (in millions):
| Employee Severance and Termination Benefits | Long-Lived Asset Impairments | Other | Total | ||||||||||||||||||||||||||
| Original reserve | $ | $ | $ | $ | |||||||||||||||||||||||||
| Utilized—cash | ( | ( | ( | ||||||||||||||||||||||||||
| Utilized—noncash | ( | ( | |||||||||||||||||||||||||||
Balance at December 31, 2022 | |||||||||||||||||||||||||||||
| Additional restructuring costs | |||||||||||||||||||||||||||||
| Utilized—cash | ( | ( | ( | ||||||||||||||||||||||||||
| Utilized—noncash | ( | ( | |||||||||||||||||||||||||||
Balance at March 31, 2023 | $ | $ | $ | $ | |||||||||||||||||||||||||
18. Income Taxes
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 March 31, 2023, the Company's effective tax rate was 22.0 % and was higher than the statutory tax rate of 12.5
For the six months ended March 31, 2023, the Company's effective tax rate was 16.0 % and was higher than the statutory tax rate of 12.5
For the three months ended March 31, 2022, the Company's effective tax rate was 52.7 % and was higher than the statutory tax rate of 12.5 % primarily due to the tax impact of impairment charges, the establishment of a deferred tax liability on the outside basis difference of the Company's investment in certain subsidiaries as a result of the planned divestiture of its Global Retail business, and tax rate differentials, partially offset by the income tax effects of mark-to-market adjustments and the benefits of continuing global tax planning initiatives.
27
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
For the six months ended March 31, 2022, the Company's effective tax rate was 21.5 % and was higher than the statutory tax rate of 12.5 % primarily due to the tax impact of impairment charges, the establishment of a deferred tax liability on the outside basis difference of the Company's investment in certain subsidiaries as a result of the planned divestiture of its Global Retail business, and tax rate differentials, partially offset by the income tax effects of mark-to-market adjustments and 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 $2,537 million, of which $1,973 million, if recognized, would impact the effective tax rate. Accrued interest, net at September 30, 2022 was approximately $284 million (net of tax benefit). Interest accrued during the six months ended March 31, 2023 and 2022 was approximately $56 million (net of tax benefit) and approximately $30 million (net of tax benefit), respectively. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.
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:
| Tax Jurisdiction | Tax Years Covered | |||||||
| Belgium | 2015 - 2021 | |||||||
| Germany | 2007 - 2018 | |||||||
| Luxembourg | 2017 - 2018 | |||||||
| Mexico | 2015 - 2017 | |||||||
| United Kingdom | 2014 - 2015; 2018; 2020 - 2021 | |||||||
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.
Other Tax Matters
The Company recorded restructuring and impairment costs of $418 million, which generated a $35 million tax benefit, during the three months ended March 31, 2023 and $384 million, which generated a $7 million tax benefit, during the three months ended March 31, 2022.
The Company recorded restructuring and impairment costs of $763 million, which generated an $87 million tax benefit, during the six months ended March 31, 2023 and $433 million, which generated a $14 million tax benefit, during the six months ended March 31, 2022.
During the three and six months ended March 31, 2022, the Company recorded a deferred tax liability on the outside basis difference of the Company’s investment in certain subsidiaries as a result of the planned divestiture of its Global Retail business which resulted in a tax charge of $13
28
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
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
19. Segment Information
ASC 280, "Segment Reporting," establishes the standards for reporting information about segments in financial statements. In applying the criteria set forth in ASC 280, the Company has determined that it has four 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 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.
29
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
Financial information relating to the Company’s reportable segments is as follows (in millions):
| Net Sales | |||||||||||||||||||||||
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Building Solutions North America | $ | $ | $ | $ | |||||||||||||||||||
| Building Solutions EMEA/LA | |||||||||||||||||||||||
| Building Solutions Asia Pacific | |||||||||||||||||||||||
| Global Products | |||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | |||||||||||||||||||
| Segment EBITA | |||||||||||||||||||||||
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Building Solutions North America | $ | $ | $ | $ | |||||||||||||||||||
| Building Solutions EMEA/LA | |||||||||||||||||||||||
| Building Solutions Asia Pacific | |||||||||||||||||||||||
| Global Products | |||||||||||||||||||||||
| Total segment EBITA | |||||||||||||||||||||||
| Corporate expenses | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of intangible assets | ( | ( | ( | ( | |||||||||||||||||||
| Restructuring and impairment costs | ( | ( | ( | ( | |||||||||||||||||||
| Net mark-to-market adjustments | ( | ( | ( | ( | |||||||||||||||||||
| Net financing charges | ( | ( | ( | ( | |||||||||||||||||||
| Income before income taxes | $ | $ | $ | $ | |||||||||||||||||||
20. Guarantees
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.
30
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
The changes in the carrying amount of the Company’s total product warranty liability were as follows (in millions):
| Six Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Balance at beginning of period | $ | $ | |||||||||
| Accruals for warranties issued during the period | |||||||||||
| Settlements made (in cash or in kind) during the period | ( | ( | |||||||||
| Accruals from acquisitions and divestitures | ( | ||||||||||
| Changes in estimates to pre-existing warranties | ( | ||||||||||
| Currency translation | ( | ||||||||||
| Balance at end of period | $ | $ | |||||||||
21. Commitments 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. The following table presents the location and amount of reserves for environmental liabilities in the Company's consolidated statements of financial position (in millions):
| March 31, 2023 | September 30, 2022 | ||||||||||
| Other current liabilities | $ | $ | |||||||||
| Other noncurrent liabilities | |||||||||||
| Total reserves for environmental liabilities | $ | $ | |||||||||
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 $228 million in the fourth quarter of fiscal 2022, which are recorded on an undiscounted basis. The Company expects that it will pay the amounts recorded over an estimated period of up to 20 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
31
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
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 performed over an estimated period of up to 20 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 extracts groundwater containing PFAS, treats it using advanced filtration systems, and returns 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 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 and 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 March 2023, EPA announced a proposed National Primary Drinking Water Regulation (“NPDWR”) for six PFAS compounds including PFOA and PFOS. The NPDWR proposes establishing legally enforceable levels, called Maximum Contaminant Levels, of 4.0 parts per trillion for each of PFOA and PFOS. EPA indicated that it anticipates finalizing the regulation by the end of 2023.
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 (“CERCLA”) 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.
32
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
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 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 $17
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 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 that date. Tyco Fire Products responded to the WDNR’s September 2021 notice by the December 27, 2021 deadline set by WDNR and submitted additional updates to WDNR on October 25, 2022 and February 16, 2023. On April 10, 2023, the WDNR issued a third “Notice of Noncompliance” to Tyco Fire Products and Johnson Controls, Inc. concerning land-applied biosolids in the Marinette region. 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 two subsidiaries to complete a site investigation and cleanup of PFAS contamination in accordance with the WDNR’s requests. The parties are proceeding with fact discovery and the court has
33
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
set a trial date of December 3, 2024. 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.
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 six 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 have been transferred 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
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 39 pending putative class actions in federal courts originating from 15 states and territories. All but two of these cases have been direct-filed in or transferred to the MDL and it is anticipated that the remaining cases will be transferred to the MDL.
AFFF Individual or Mass Actions
There are more than 3,900 individual or “mass” actions pending that were filed in state or federal courts originating from 52 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 7,000 plaintiffs in Colorado and more than 3,900 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
34
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
transferred. There are several matters that are proceeding in state courts, including actions in Arizona and Illinois.
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 350 cases involving municipal or water provider plaintiffs that were filed in state or federal courts originating from 30 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 5, 2023, (City of Stuart (Florida) v. 3M Co. et al.). On April 26, 2023, the parties entered a stipulation dismissing Chemguard with prejudice from the City of Stuart case, and it is expected that the parties will enter into a stipulation dismissing Tyco with prejudice from the City of Stuart case. The MDL Court 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
35
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
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.
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 two 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 two cases brought by individuals against the State. These two cases have also been transferred to the MDL.
In early November 2021, the Attorney General of the State of North Carolina filed four 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 four cases have been removed to federal court and transferred to the MDL. In October 2022, the Attorney General filed two 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 two 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. This complaint has been 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
36
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
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.
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. This complaint has been removed to federal court and transferred to the MDL.
In March 2023, the Attorney General of the State of Maine filed a lawsuit in Maine state court against a number of manufacturers and other defendants, including affiliates of the Company, with respect to PFAS damage of the State’s natural resources allegedly resulting from the manufacture, distribution, release, promotion, sale, and use of PFAS-containing AFFF within the state. It is anticipated that this complaint will be removed to federal court and transferred to the MDL.
In March 2023, the Attorney General of the State of Illinois filed a lawsuit in Illinois state court against a number of manufacturers and other defendants, including affiliates of the Company, with respect to PFAS damage of the State’s environmental and natural resources allegedly resulting from the manufacture, storage, sale, distribution, marketing, and use of PFAS-containing AFFF within the State. It is anticipated that this complaint will be removed to federal court and transferred to the MDL.
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 all of the above AFFF 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.
37
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
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.
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):
| March 31, 2023 | September 30, 2022 | ||||||||||
| Other current liabilities | $ | $ | |||||||||
| Other noncurrent liabilities | |||||||||||
| Total asbestos-related liabilities | |||||||||||
| Other current assets | |||||||||||
| Other noncurrent assets | |||||||||||
| Total asbestos-related assets | |||||||||||
| Net asbestos-related liabilities | $ | $ | |||||||||
The following table presents the components of asbestos-related assets (in millions):
| March 31, 2023 | September 30, 2022 | ||||||||||
| Restricted | |||||||||||
| Cash | $ | $ | |||||||||
| Investments | |||||||||||
| Total restricted assets | |||||||||||
| Insurance receivables for asbestos-related liabilities | |||||||||||
| Total asbestos-related assets | $ | $ | |||||||||
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
38
Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2023
(unaudited)
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.
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):
| March 31, 2023 | September 30, 2022 | ||||||||||
| Other current liabilities | $ | $ | |||||||||
| Accrued compensation and benefits | |||||||||||
| Other noncurrent liabilities | |||||||||||
| Total self-insured liabilities | $ | $ | |||||||||
The following table presents the location and amount of insurance receivables in the Company's consolidated statements of financial position (in millions):
| March 31, 2023 | September 30, 2022 | ||||||||||
| Other current assets | $ | $ | |||||||||
| Other noncurrent assets | |||||||||||
| Total insurance receivables | $ | $ | |||||||||
Other Matters
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.
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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
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
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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 March 31, 2023 compared to the three months ended March 31, 2022, while "Year-to-Date" refers to the six months ended March 31, 2023 compared to the six months ended March 31, 2022.
Macroeconomic Trends
Much of the demand for the Company’s products and solutions is driven by construction, facility expansion, retrofit and maintenance projects within the commercial, institutional, industrial, data center, governmental and residential sectors. Construction projects are heavily dependent on general economic conditions, localized demand for real estate and the availability of credit, public funding or other financing sources. Positive or negative fluctuations in construction, industrial facility expansion, retrofit activity, maintenance projects and other capital investments in buildings within the sectors that the Company serves, as well as availability of credit, financing or funding for such projects, 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 and six months ended March 31, 2023, revenue and profits were adversely impacted due to the strengthening of the U.S. dollar against foreign currencies.
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 could 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
41
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.
The COVID-19 pandemic has and could continue 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's results have been and could continue to be negatively 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. This could include events such as the reinstitution of lockdowns or similar restrictive measures or the occurrence of labor shortages at the Company's facilities.
The extent to which the Company’s results of operations and financial condition are impacted in the future will depend on 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 March 31, | Six Months Ended March 31, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||||||||||||
| Net sales | $ | 6,686 | $ | 6,098 | 10 | % | $ | 12,754 | $ | 11,960 | 7 | % | |||||||||||||||||||||||
The increase in consolidated net sales for the three months ended March 31, 2023 was due to higher organic sales ($762 million) and incremental sales from acquisitions ($28 million), partially offset by the unfavorable impact of foreign currency translation ($198 million) and lower sales due to business divestitures ($4 million). Excluding the impact of foreign currency translation and business acquisitions and divestitures, consolidated net sales increased 13% as compared to the prior year, attributable to increased pricing in response to inflation pressures and higher volumes. Refer to the "Segment Analysis" below within this Item 2 for a discussion of net sales by segment.
The increase in consolidated net sales for the six months ended March 31, 2023 was due to higher organic sales ($1,259 million) and incremental sales from acquisitions ($55 million), partially offset by the unfavorable impact of foreign currency translation ($498 million) and lower sales due to business divestitures ($22 million). Excluding the impact of foreign currency translation and business acquisitions and divestitures, consolidated net sales increased 11% 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 March 31, | Six Months Ended March 31, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||||||||||||
| Cost of sales | $ | 4,445 | $ | 4,141 | 7 | % | $ | 8,422 | $ | 8,112 | 4 | % | |||||||||||||||||||||||
| Gross profit | 2,241 | 1,957 | 15 | % | 4,332 | 3,848 | 13 | % | |||||||||||||||||||||||||||
| % of sales | 33.5 | % | 32.1 | % | 34.0 | % | 32.2 | % | |||||||||||||||||||||||||||
Cost of sales and gross profit increased for the three-month period ended March 31, 2023, and gross profit as a percentage of sales increased by 140 basis points. Gross profit increased due to sales growth and favorable price/cost, partially offset by unfavorable foreign currency translation ($62 million). 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").
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Cost of sales and gross profit increased for the six-month period ended March 31, 2023, and gross profit as a percentage of sales increased by 180 basis points. Gross profit increased due to sales growth and favorable price/cost, partially offset by unfavorable foreign currency translation ($156 million). 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").
Selling, General and Administrative Expenses
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||||||||||||
| Selling, general and administrative expenses | $ | 1,579 | $ | 1,454 | 9 | % | $ | 3,150 | $ | 2,823 | 12 | % | |||||||||||||||||||||||
| % of sales | 23.6 | % | 23.8 | % | 24.7 | % | 23.6 | % | |||||||||||||||||||||||||||
Selling, general and administrative expenses ("SG&A") for the three-month period ended March 31, 2023 increased $125 million, and SG&A as a percentage of sales decreased by 20 basis points. The increase in SG&A was primarily due to certain investments to support growth, one-time transaction and separation costs, partially offset by favorable foreign currency translation ($40 million) and the favorable year-over-year impact of net mark-to-market adjustments. Refer to the "Segment Analysis" below within this Item 2 for a discussion of segment EBITA.
Selling, general and administrative expenses ("SG&A") for the six-month period ended March 31, 2023 increased $327 million, and SG&A as a percentage of sales increased by 110 basis points. The increase in SG&A was primarily due to certain investments to support growth, one-time transaction and separation costs and a loss associated with a fire at a leased warehouse facility, partially offset by favorable foreign currency translation ($105 million) and the favorable year-over-year impact of net mark-to-market adjustments. Refer to the "Segment Analysis" below within this Item 2 for a discussion of segment EBITA.
Restructuring and Impairment Costs
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||||||||||||
| Restructuring and impairment costs | $ | 418 | $ | 384 | 9 | % | $ | 763 | $ | 433 | 76 | % | |||||||||||||||||||||||
Restructuring and impairment costs for the three-month period ended March 31, 2023 included $210 million of impairment costs related to the Global Retail business classified as held-for-sale, $184 million of goodwill impairment costs related to the Silent-Aire reporting unit, $17 million in severance charges and $7 million in other long-lived asset impairments and other restructuring costs.
Restructuring and impairment costs for the six-month period ended March 31, 2023 included $498 million of impairment costs related to businesses classified as held-for-sale, $184 million of goodwill impairment costs related to the Silent-Aire reporting unit, $47 million in severance charges and $34 million in other long-lived asset impairments and other restructuring costs.
Restructuring and impairment costs for the three and six month periods ended March 31, 2022 included $235 million of goodwill impairment costs related to the North America Retail reporting unit, $86 million of impairment costs related to businesses classified as held-for-sale, and $36 million of impairment related to internal-use software projects that were no longer probable of being completed. In addition, the three and six month periods ended March 31, 2022 included $9 million and $37 million of severance charges, respectively, and $18 million and $39 million, respectively, in other long-lived asset impairments and other restructuring costs.
Refer to Note 4, "Assets and Liabilities Held for Sale," Note 8, "Goodwill and Other Intangible Assets," 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.
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Net Financing Charges
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||||||||||||
| Net financing charges | $ | 71 | $ | 51 | 39 | % | $ | 138 | $ | 104 | 33 | % | |||||||||||||||||||||||
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.
Equity Income
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||||||||||||
| Equity income | $ | 50 | $ | 42 | 19 | % | $ | 112 | $ | 112 | — | % | |||||||||||||||||||||||
The increase in equity income for the three months ended March 31, 2023 was primarily due to higher income at certain partially-owned affiliates of the Johnson Controls - Hitachi joint venture. Refer to the "Segment Analysis" below within this Item 2 for a discussion of segment EBITA.
Income Tax Provision
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||||||||||||
| Income tax provision | $ | 49 | $ | 58 | -16 | % | $ | 63 | $ | 129 | -51 | % | |||||||||||||||||||||||
| Effective tax rate | 22.0 | % | 52.7 | % | 16.0 | % | 21.5 | % | |||||||||||||||||||||||||||
The effective tax rate for the three and six months ended March 31, 2023 decreased as compared to the three and six months ended March 31, 2022 primarily due to higher prior year tax impacts of impairment charges and the prior year establishment of a deferred tax liability on the outside basis difference of the Company's investment in certain subsidiaries as a result of the planned divestiture of its Global Retail business. 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 March 31, | Six Months Ended March 31, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||||||||||||
| Income attributable to noncontrolling interests | $ | 41 | $ | 41 | — | % | $ | 79 | $ | 79 | — | % | |||||||||||||||||||||||
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Net Income Attributable to Johnson Controls
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||||||||||||
| Net income attributable to Johnson Controls | $ | 133 | $ | 11 | * | $ | 251 | $ | 392 | -36 | % | ||||||||||||||||||||||||
* Measure not meaningful
The increase in net income attributable to Johnson Controls for the three months ended March 31, 2023 was primarily due to higher gross profit, partially offset by higher SG&A, both of which are discussed above. The decrease in net income attributable to Johnson Controls for the six months ended March 31, 2023 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 March 31, 2023 was $0.19 compared to $0.02 for the three months ended March 31, 2022. Diluted earnings per share attributable to Johnson Controls for the six months ended March 31, 2023 was $0.36 compared to $0.56 for the six months ended March 31, 2022.
Comprehensive Income Attributable to Johnson Controls
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||||||||||||
| Comprehensive income attributable to Johnson Controls | $ | 151 | $ | 13 | * | $ | 316 | $ | 481 | -34 | % | ||||||||||||||||||||||||
* Measure not meaningful
The increase in comprehensive income attributable to Johnson Controls for the three months ended March 31, 2023 was due to higher net income attributable to Johnson Controls ($122 million) and an increase in other comprehensive income attributable to Johnson Controls ($16 million) resulting from realized and unrealized gains on derivatives and currency translation adjustments.
The decrease in comprehensive income attributable to Johnson Controls for the six months ended March 31, 2023 was due to lower net income attributable to Johnson Controls ($141 million) and a decrease in other comprehensive income attributable to Johnson Controls ($24 million) resulting from currency translation adjustments and higher realized and unrealized gains on derivatives in the prior year.
Segment Analysis
Management evaluates the performance of its business units based primarily on segment EBITA, which represents income ns 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.
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Net Sales
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||||||||||||
| Building Solutions North America | $ | 2,520 | $ | 2,227 | 13 | % | $ | 4,887 | $ | 4,379 | 12 | % | |||||||||||||||||||||||
| Building Solutions EMEA/LA | 1,031 | 958 | 8 | % | 2,006 | 1,917 | 5 | % | |||||||||||||||||||||||||||
| Building Solutions Asia Pacific | 667 | 623 | 7 | % | 1,313 | 1,298 | 1 | % | |||||||||||||||||||||||||||
| Global Products | 2,468 | 2,290 | 8 | % | 4,548 | 4,366 | 4 | % | |||||||||||||||||||||||||||
| $ | 6,686 | $ | 6,098 | 10 | % | $ | 12,754 | $ | 11,960 | 7 | % | ||||||||||||||||||||||||
Three Months:
•The increase in Building Solutions North America was due to higher prices and volumes ($302 million) and incremental sales related to business acquisitions ($5 million), partially offset by the unfavorable impact of foreign currency translation ($14 million). Excluding the impacts of business acquisitions and foreign currency translation, sales growth was led by double-digit growth in HVAC & Controls and Fire & Security.
•The increase in Building Solutions EMEA/LA was due to higher prices ($104 million) and incremental sales related to business acquisitions ($23 million), partially offset by the unfavorable impact of foreign currency translation ($50 million) and business divestitures ($4 million). Excluding the impacts of foreign currency translation and business acquisitions and divestitures, sales growth was led by low double-digit growth in Fire & Security and HVAC & Controls. By region, there was strong organic growth in Europe and Latin America, with more modest growth in the Middle East.
•The increase in Building Solutions Asia Pacific was due to higher prices and volumes ($85 million), partially offset by the unfavorable impact of foreign currency translation ($41 million). Excluding the impacts of foreign currency translation, sales growth was led by continued demand for HVAC & Controls. By region, sales in China rebounded in the quarter, with strong double-digit growth in the service and install businesses.
•The increase in Global Products was due to higher prices and volumes ($271 million), partially offset by the unfavorable impact of foreign currency translation ($93 million). Excluding the impacts of foreign currency translation, sales growth was driven by strong growth in Applied, Fire Detection, Industrial Refrigeration and Commercial HVAC products.
Year-to-Date:
•The increase in Building Solutions North America was due to higher prices and volumes ($525 million) and incremental sales related to business acquisitions ($12 million), partially offset by the unfavorable impact of foreign currency translation ($29 million). Excluding the impacts of business acquisitions and foreign currency translation, sales growth was led by growth in HVAC & Controls and Fire & Security.
•The increase in Building Solutions EMEA/LA was due to higher prices ($207 million) and incremental sales related to business acquisitions ($43 million), partially offset by the unfavorable impact of foreign currency translation ($139 million) and business divestitures ($22 million). Excluding the impacts of foreign currency translation and business acquisitions and divestitures, sales growth was led by growth in Fire & Security and HVAC & Controls. By region, there was strong organic growth in Europe, Latin America and the Middle East.
•The increase in Building Solutions Asia Pacific was due to higher prices ($127 million), mostly offset by the unfavorable impact of foreign currency translation ($112 million). Excluding the impacts of foreign currency translation, sales growth was led by continued demand for HVAC & Controls. By region, sales in China grew, with strong growth in the service and install businesses.
•The increase in Global Products was due to the net impact of higher prices and lower volumes ($400 million), partially offset by the unfavorable impact of foreign currency translation ($218 million). Excluding the impacts of foreign
46
currency translation, sales growth was driven by strong price realization and strong growth in Commercial HVAC, Fire Detection, Applied and Industrial Refrigeration products.
Segment EBITA
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||||||||||||
| Building Solutions North America | $ | 315 | $ | 235 | 34 | % | $ | 582 | $ | 485 | 20 | % | |||||||||||||||||||||||
| Building Solutions EMEA/LA | 69 | 79 | -13 | % | 144 | 183 | -21 | % | |||||||||||||||||||||||||||
| Building Solutions Asia Pacific | 79 | 74 | 7 | % | 147 | 142 | 4 | % | |||||||||||||||||||||||||||
| Global Products | 488 | 412 | 18 | % | 870 | 713 | 22 | % | |||||||||||||||||||||||||||
| $ | 951 | $ | 800 | 19 | % | $ | 1,743 | $ | 1,523 | 14 | % | ||||||||||||||||||||||||
Three Months:
•The increase in Building Solutions North America was primarily due to favorable price/cost, volume leverage and productivity savings.
•The decrease in Building Solutions EMEA/LA was primarily due to the unfavorable impact of certain non-recurring items and foreign currency translation ($7 million).
•The increase in Building Solutions Asia Pacific was primarily due to favorable price/cost, partially offset by the unfavorable impact of foreign currency translation ($8 million).
•The increase in Global Products was primarily due to strong price realization and improved productivity, partially offset by the unfavorable impact of foreign currency translation ($10 million).
Year-to-Date:
•The increase in Building Solutions North America was primarily due to favorable price/cost, volume leverage and productivity savings, partially offset by unfavorable project mix.
•The decrease in Building Solutions EMEA/LA was primarily due to the unfavorable impact of foreign currency translation ($16 million) and unfavorable project mix, partially offset by favorable volume leverage and productivity savings.
•The increase in Building Solutions Asia Pacific was primarily due to favorable price/cost, partially offset by the unfavorable impact of foreign currency translation ($18 million).
•The increase in Global Products was primarily due to strong price realization and productivity savings, partially offset by an uninsured loss associated with a fire at a leased warehouse facility and the unfavorable impact of foreign currency translation ($25 million).
Backlog
The Company’s backlog is applicable to its sales of systems and services. At March 31, 2023, the backlog was $13.0 billion, of which $11.7 billion was attributable to the building solutions (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.
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At March 31, 2023, remaining performance obligations were $18.8 billion, which is $5.8 billion higher than the Company's backlog of $13.0 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 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
| March 31, | September 30, | ||||||||||||||||
| (in millions) | 2023 | 2022 | Change | ||||||||||||||
| Current assets | $ | 12,756 | $ | 11,685 | |||||||||||||
| Current liabilities | (12,403) | (11,239) | |||||||||||||||
| 353 | 446 | (21 | %) | ||||||||||||||
| Less: Cash and cash equivalents | (1,975) | (2,031) | |||||||||||||||
| Less: Current assets held for sale | (446) | (387) | |||||||||||||||
| Add: Short-term debt | 1,737 | 669 | |||||||||||||||
| Add: Current portion of long-term debt | 922 | 865 | |||||||||||||||
| Add: Current liabilities held for sale | 316 | 236 | |||||||||||||||
| Working capital (as defined) | $ | 907 | $ | (202) | * | ||||||||||||
| Accounts receivable - net | $ | 6,002 | $ | 5,528 | 9 | % | |||||||||||
| Inventories | 3,048 | 2,510 | 21 | % | |||||||||||||
| Accounts payable | 4,348 | 4,241 | 3 | % | |||||||||||||
* 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 March 31, 2023 as compared to September 30, 2022, was primarily due to increases in inventory due to supply chain disruptions and softer demand in the residential end market and in accounts receivable.
•The Company’s days sales in accounts receivable at March 31, 2023 and September 30, 2022 were 58 days and 51 days, respectively. There have been no significant adverse changes in the level of overdue receivables or significant changes in revenue recognition methods.
•The Company’s inventory turns for the three months ended March 31, 2023 were lower than the comparable period ended September 30, 2022 primarily due to softer demand in the residential end market and certain other project delays.
•Days in accounts payable at both March 31, 2023 and September 30, 2022 were 85 days.
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Cash Flows From Continuing Operations
| Six Months Ended March 31, | ||||||||||||||
| (in millions) | 2023 | 2022 | ||||||||||||
| Cash provided by operating activities | $ | 18 | $ | 324 | ||||||||||
| Cash used by investing activities | (314) | (332) | ||||||||||||
| Cash provided by financing activities | 262 | 444 | ||||||||||||
•The decrease in cash provided by operating activities was primarily due to the timing of accounts payable and accrued liabilities payments, partially offset by a lower cash outflow for inventory and lower net tax payments.
•The decrease in cash used by investing activities was primarily due to slightly lower capital expenditures and less cash paid for acquisitions.
•The decrease in cash provided by financing activities was primarily due to lower cash inflows from net debt and borrowings activity, partially offset by lower cash outflows for stock repurchases.
Capitalization
| March 31, | September 30, | ||||||||||||||||
| (in millions) | 2023 | 2022 | Change | ||||||||||||||
| Short-term debt | $ | 1,737 | $ | 669 | |||||||||||||
| Current portion of long-term debt | 922 | 865 | |||||||||||||||
| Long-term debt | 7,832 | 7,426 | |||||||||||||||
| Total debt | 10,491 | 8,960 | 17 | % | |||||||||||||
| Less: Cash and cash equivalents | 1,975 | 2,031 | |||||||||||||||
| Total net debt | 8,516 | 6,929 | 23 | % | |||||||||||||
| Shareholders’ equity attributable to Johnson Controls ordinary shareholders | 15,890 | 16,268 | (2) | % | |||||||||||||
| Total capitalization | $ | 24,406 | $ | 23,197 | 5 | % | |||||||||||
| Total net debt as a % of total capitalization | 34.9 | % | 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 March 31, 2023, approximately $3.4 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 $0.36 per common share in the quarter ended March 31, 2023 and intends to continue paying dividends throughout fiscal 2023.
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•The Company believes its capital resources and liquidity position, including cash and cash equivalents of $2.0 billion at March 31, 2023, 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 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 $1,554 million and $172 million of commercial paper outstanding as of March 31, 2023 and September 30, 2022, respectively.
–The Company maintains a 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 March 31, 2023 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 March 31, 2023, 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 March 31, 2023, 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 six months of fiscal 2023, the Company made approximately $26 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
50
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 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 following unsecured, unsubordinated senior notes (collectively, ("the Notes) which were issued by Johnson Controls International plc ("Parent Company") and Tyco Fire & Security Finance S.C.A. (“TFSCA”):
•€500 million aggregate principal amount of 0.375% Senior Notes due 2027
•€600 million aggregate principal amount of 3.000% Senior Notes due 2028
•$625 million aggregate principal amount of 1.750% Senior Notes due 2030
•$500 million aggregate principal amount of 2.000% Sustainability-Linked Senior Notes due 2031
•$400 million aggregate principal amount of 4.900% Senior Notes due 2032
•€500 million aggregate principal amount of 1.000% Senior Notes due 2032
TFSCA is a corporate partnership limited by shares (société en commandite par actions) incorporated and organized under the laws of the Grand Duchy of Luxembourg (“Luxembourg”) and 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 Parent Company is incorporated and organized under the laws of Ireland. 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 tables below 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").
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The following table presents summarized income statement information (in millions):
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||||||||||||||||
| Net sales | $ | — | $ | — | |||||||||||||
| Gross profit | — | — | |||||||||||||||
| Net loss | (228) | (268) | |||||||||||||||
| Income attributable to noncontrolling interests | — | — | |||||||||||||||
| Net loss attributable to the entity | (228) | (268) | |||||||||||||||
Excluded from the table above are intercompany transactions between the Obligor Group and Non-Obligor Subsidiaries as follows (in millions):
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||||||||||||||||
| Net sales | $ | — | $ | — | |||||||||||||
| Gross profit | — | — | |||||||||||||||
| Net income (loss) | (32) | 92 | |||||||||||||||
| Income attributable to noncontrolling interests | — | — | |||||||||||||||
| Net income (loss) attributable to the entity | (32) | 92 | |||||||||||||||
The following table presents summarized balance sheet information as of March 31, 2023 and September 30, 2022 (in millions):
| March 31, 2023 | September 30, 2022 | ||||||||||||||||
| Current assets | $ | 22 | $ | 1,231 | |||||||||||||
| Noncurrent assets | 248 | 243 | |||||||||||||||
| Current liabilities | 7,493 | 5,463 | |||||||||||||||
| Noncurrent liabilities | 7,571 | 7,176 | |||||||||||||||
| Noncontrolling interests | — | — | |||||||||||||||
Excluded from the table above are intercompany balances between the Obligor Group and Non-Obligor Subsidiaries as follows (in millions):
| March 31, 2023 | September 30, 2022 | ||||||||||||||||
| Current assets | $ | 1,926 | $ | 455 | |||||||||||||
| Noncurrent assets | 1,947 | 2,952 | |||||||||||||||
| Current liabilities | 6,401 | 2,538 | |||||||||||||||
| Noncurrent liabilities | 6,354 | 6,228 | |||||||||||||||
| Noncontrolling interests | — | — | |||||||||||||||
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.
New Accounting Standards
Refer to Note 2, "New Accounting Standards," of the notes to the consolidated financial statements.
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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 March 31, 2023, the Company had not experienced any adverse changes in market risk exposures that materially affected the quantitative and qualitative disclosures presented in its 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 March 31, 2023 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 March 31, 2023 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 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.
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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 and six months ended March 31, 2023, the Company repurchased approximately $93 million and $247 million of its ordinary shares on an open market. As of March 31, 2023, approximately $3.4 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 March 31, 2023.
| 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 | |||||||||||||||||||
| 1/1/23 - 1/31/23 | |||||||||||||||||||||||
| Purchases by Company | 416,756 | $ | 66.99 | 416,756 | 3,432,660,109 | ||||||||||||||||||
| 2/1/23 - 2/28/23 | |||||||||||||||||||||||
| Purchases by Company | 453,642 | 64.97 | 453,642 | 3,403,185,963 | |||||||||||||||||||
| 3/1/23 - 3/31/23 | |||||||||||||||||||||||
| Purchases by Company | 582,666 | 61.20 | 582,666 | 3,367,524,831 | |||||||||||||||||||
During the three months ended March 31, 2023, 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.
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ITEM 6. EXHIBITS
INDEX TO EXHIBITS
| Exhibit No. | Description | ||||
| 31.1 | |||||
| 31.2 | |||||
| 32.1 | |||||
| 101 | The following materials from Johnson Controls International plc's Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, 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) | ||||
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SIGNATURES
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.
| JOHNSON CONTROLS INTERNATIONAL PLC | |||||||||||
| Date: May 5, 2023 | By: | /s/ Olivier Leonetti | |||||||||
| Olivier Leonetti | |||||||||||
| Executive Vice President and Chief Financial Officer | |||||||||||
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Exhibit 31.1
CERTIFICATIONS
I, George R. Oliver, of Johnson Controls International plc, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Johnson Controls International plc;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 5, 2023
| /s/ George R. Oliver | ||
| George R. Oliver Chairman and Chief Executive Officer | ||
Exhibit 31.2
CERTIFICATIONS
I, Olivier Leonetti, of Johnson Controls International plc, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Johnson Controls International plc;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 5, 2023
| /s/ Olivier Leonetti | ||
| Olivier Leonetti Executive Vice President and Chief Financial Officer | ||
Exhibit 32.1
CERTIFICATION OF PERIODIC FINANCIAL REPORTS
We, George R. Oliver and Olivier Leonetti, of Johnson Controls International plc, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.the Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (Periodic Report) to which this statement is an exhibit fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and
2.information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of Johnson Controls International plc.
Date: May 5, 2023
| /s/ George R. Oliver | ||
| George R. Oliver Chairman and Chief Executive Officer | ||
| /s/ Olivier Leonetti | ||
| Olivier Leonetti Executive Vice President and Chief Financial Officer | ||