What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-05 compared with 2023-02-01 · 144 added, 106 removed, 248 unchanged (50% of the section changed)

38 unchanged sentences

The following information should be read in conjunction with the September 30, 2022 consolidated financial statements and notes thereto, along with management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended September 30, 2022 filed with the SEC on November 15, 2022.

References in the following discussion and analysis to "Three Months" (or similar language) refer to the three months ended December 31, 2022 compared to the three months ended December 31, 2021.

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 installation of the Company’s products and solutions is driven by commercial and residential construction and industrial facility expansion and maintenance projects.

Commercial and residential construction projects are heavily dependent on general economic conditions, localized demand for commercial and residential real estate and availability of credit.

Positive or negative fluctuations in commercial and residential construction, industrial facility expansion and maintenance projects and other capital investments in buildings could have a corresponding impact on the Company’s financial condition, results of operations and cash flows.

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.

7 unchanged sentences

dollar could increase or reduce the Company’s profit margin, respectively, and impact the comparability of results from period to period .

During the three months ended December 31, 2022, revenue and profits were adversely impacted due to the strengthening of the U.S.

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 continued strength of the U.S.

dollar could continue to adversely impact the Company's results.

The Company continues to observe trends demonstrating increased interest and demand for its products and services that enable smart, safe, efficient and sustainable buildings.

7 unchanged sentences

The Company is leveraging its install base, together with data-driven products and services, to offer outcome-based solutions to customers with a focus on generating accelerated growth in services and recurring revenue.

The Company has experienced, and expects to continue to experience, increased material cost inflation and component shortages, as well as disruptions and delays in its supply chain, as a result of global macroeconomic trends, including increased global demand, the conflict between Russia and Ukraine, government-mandated actions in response to COVID-19, particularly in China, and labor shortages.

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.

6 unchanged sentences

Although these actions have not had and are not expected to have a material impact on the Company’s operating results, the broader consequences of this conflict, including heightened supply chain disruption, inflation, economic instability and other factors have and could continue to adversely impact the Company’s results of operations.

Impact of COVID-19 Pandemic

The COVID-19 pandemic continues to impact aspects of the Company's operations and results.

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 continues to be influenced by COVID-19-related trends impacting site access and the labor force, which have and may continue to negatively impact the Company’s revenues and margins.

Challenges in reaching sufficient vaccination levels and the introduction of new variants of COVID-19 have caused some governments to extend or reinstitute lockdowns and similar restrictive measures, which, in some cases, have limited the Company’s ability to access customer sites to install and maintain its products and deliver services.

In addition, the Company has experienced and continues to experience labor shortages at certain facilities as the Company expands its production capacity to meet increased customer demand.

Although the Company is mitigating these shortages through focused recruitment efforts and competitive compensation packages, the Company could continue to experience such shortages in the future.

The extent to which the COVID-19 pandemic continues to impact the Company’s results of operations and financial condition will depend on future developments that are highly uncertain and cannot be predicted.

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.

Three Months Ended

(in millions) 2022 2021 Change

March 31, Six Months Ended

(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 December 31, 2022 was due to higher organic sales ($497 million) and incremental sales from acquisitions ($27 million), partially offset by the unfavorable impact of foreign currency translation ($300 million) and lower sales due to business divestitures ($18 million).

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.

2 unchanged sentences

Three Months Ended

(in millions) 2022 2021 Change

March 31, Six Months Ended

(in millions) 2023 2022 Change 2023 2022 Change

Cost of sales $ 4,445 $ 4,141 7 % $ 8,422 $ 8,112 4 %

1 unchanged sentence

% of sales 33.5 % 32.1 % 34.0 % 32.2 %

Cost of sales and gross profit increased for the three-month period ended December 31, 2022, and gross profit as a percentage of sales increased by 220 basis points.

Gross profit increased due to sales growth and favorable price/cost, partially offset by unfavorable foreign currency translation ($94 million) and the unfavorable year-over-year impact of net mark-to-market adjustments.

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").

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

(in millions) 2022 2021 Change

March 31, Six Months Ended

(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 December 31, 2022 increased $202 million, and SG&A as a percentage of sales increased by 250 basis points.

The increase in SG&A was primarily due to the unfavorable year-over-year impact of net mark-to-market adjustments, a loss associated with a fire at a leased warehouse facility, certain investments to support growth and one-time transaction and separation costs, partially offset by favorable foreign currency translation ($65 million).

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

(in millions) 2022 2021 Change

March 31, Six Months Ended

(in millions) 2023 2022 Change 2023 2022 Change

Restructuring and impairment costs $ 418 $ 384 9 % $ 763 $ 433 76 %

* Measure not meaningful

Restructuring and impairment costs for the three-month period ended December 31, 2022 included $288 million of impairment costs related to businesses classified as held-for-sale, $30 million in severance and $27 million in other long-lived asset impairments and restructuring costs.

Restructuring and impairment costs for the three-month period ended December 31, 2021 included primarily severance and other cash related items.

Refer to Note 4, "Assets and Liabilities Held for Sale" and Note 17, "Significant Restructuring and Impairment Costs," of the notes to the consolidated financial statements for further disclosure related to the Company's restructuring plans and impairment costs.

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.

Net Financing Charges

Three Months Ended

(in millions) 2022 2021 Change

March 31, Six Months Ended

(in millions) 2023 2022 Change 2023 2022 Change

Net financing charges $ 71 $ 51 39 % $ 138 $ 104 33 %

2 unchanged sentences

Three Months Ended

(in millions) 2022 2021 Change

March 31, Six Months Ended

(in millions) 2023 2022 Change 2023 2022 Change

Equity income $ 50 $ 42 19 % $ 112 $ 112 — %

The decrease in equity income for the three months ended December 31, 2022 was primarily due to lower income at certain partially-owned affiliates of Johnson Controls within the Building Solutions EMEA/LA segment.

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.

1 unchanged sentence

Three Months Ended

(in millions) 2022 2021 Change

March 31, Six Months Ended

(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 %

In calculating the provision for income taxes, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances known at each interim period.

On a quarterly basis, the actual effective tax rate is adjusted, as appropriate, based upon changed facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter.

The statutory tax rate in Ireland is being used as a comparison since the Company is domiciled in Ireland.

For the three months ended December 31, 2022, the Company's effective tax rate for continuing operations was 8.2% and was lower than the statutory tax rate of 12.5% primarily due to impairment and restructuring charges and the benefits of continuing global tax planning initiatives, partially offset by tax rate differentials.

For the three months ended December 31, 2021, the Company's effective tax rate for continuing operations was 14.5% and was higher than the statutory tax rate of 12.5% primarily due to the income tax effects of mark-to-market adjustments and tax rate differentials, partially offset by the benefits of continuing global tax planning initiatives.

The effective tax rate for the three months ended December 31, 2022 decreased as compared to the three months ended December 31, 2021 primarily due to the discrete tax items.

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.

1 unchanged sentence

Three Months Ended

(in millions) 2022 2021 Change

Income from continuing operations attributable to noncontrolling interests $ 38 $ 38 — %

March 31, Six Months Ended

(in millions) 2023 2022 Change 2023 2022 Change

Income attributable to noncontrolling interests $ 41 $ 41 — % $ 79 $ 79 — %

Net Income Attributable to Johnson Controls

Three Months Ended

(in millions) 2022 2021 Change

March 31, Six Months Ended

(in millions) 2023 2022 Change 2023 2022 Change

Net income attributable to Johnson Controls $ 133 $ 11 * $ 251 $ 392 -36 %

The decrease in net income attributable to Johnson Controls for the three months ended December 31, 2022 was primarily due to higher restructuring and impairment costs and higher SG&A, partially offset by higher gross profit, all of which are discussed above.

Diluted earnings per share attributable to Johnson Controls for the three months ended December 31, 2022 was $0.17 compared to $0.54 for the three months ended December 31, 2021.

* 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

(in millions) 2022 2021 Change

March 31, Six Months Ended

(in millions) 2023 2022 Change 2023 2022 Change

Comprehensive income attributable to Johnson Controls $ 151 $ 13 * $ 316 $ 481 -34 %

The decrease in comprehensive income attributable to Johnson Controls for the three months ended December 31, 2022 was due to lower net income attributable to Johnson Controls ($263 million) and a decrease in other comprehensive income attributable to Johnson Controls ($40 million) resulting from currency translation adjustments and realized and unrealized losses on derivatives.

* 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 from continuing operations before income taxes and noncontrolling interests, excluding general corporate expenses, intangible asset amortization, net financing charges, restructuring and impairment costs, and net mark-to-market adjustments related to pension and postretirement plans and restricted asbestos investments.

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.

Three Months Ended

(in millions) 2022 2021 Change

March 31, Six Months Ended

(in millions) 2023 2022 Change 2023 2022 Change

Building Solutions North America $ 2,520 $ 2,227 13 % $ 4,887 $ 4,379 12 %

3 unchanged sentences

$ 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).

Sales growth was led by continued growth in the project-based business, including low double-digit growth in new construction.

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 mid-teens growth in the service-based business and low double-digit growth in Fire & Security.

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 decrease in Building Solutions Asia Pacific was due to the unfavorable impact of foreign currency translation ($71 million), partially offset by the net impact of higher prices and lower volumes ($42 million).

Excluding the impacts of foreign currency translation, sales growth was led by strong demand for HVAC & Controls.

By region, sales in China grew 1% in the quarter, as strong service execution offset a decline in the project-based business.

• The increase in 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 currency translation, sales growth was driven by strong price realization and continued growth in Applied and Fire Detection products.

Excluding the impacts of foreign

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

(in millions) 2022 2021 Change

March 31, Six Months Ended

(in millions) 2023 2022 Change 2023 2022 Change

Building Solutions North America $ 315 $ 235 34 % $ 582 $ 485 20 %

3 unchanged sentences

$ 951 $ 800 19 % $ 1,743 $ 1,523 14 %

• The increase in Building Solutions North America was primarily due to favorable price/cost and productivity savings , partially offset by unfavorable project mix.

• The decrease in Building Solutions EMEA/LA was primarily due to unfavorable project mix and the unfavorable impact of foreign currency translation ($9 million), partially offset by favorable volume leverage and productivity savings.

• Building Solutions Asia Pacific remained flat as favorable price/cost and productivity savings were offset by the unfavorable impact of foreign currency translation ($10 million) and lower volumes.

• The increase in Global Products was primarily due to favorable price/cost and productivity savings, partially offset by an uninsured loss associated with a fire at a leased warehouse facility in ($40 million) and the unfavorable impact of foreign currency translation ($15 million).

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).

The Company’s backlog is applicable to its sales of systems and services.

At December 31, 2022, the backlog was $12.7 billion, of which $11.3 billion was attributable to the field business.

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.

At December 31, 2022, remaining performance obligations were $18.4 billion, which is $5.7 billion higher than the Company's backlog of $12.7 billion.

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:

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 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;

3 unchanged sentences

Working Capital

December 31, September 30,

March 31, September 30,

(in millions) 2023 2022 Change

3 unchanged sentences

Cash and cash equivalents (1,975) (2,031)

Current assets held for sale (446) (387)

Short-term debt 1,737 669

Current portion of long-term debt 922 865

Current assets held for sale (418) (387)

Current liabilities held for sale 316 236

7 unchanged sentences

Management believes that this measure of working capital, which excludes financing-related items and businesses to be divested, provides a more useful measurement of the Company’s operating performance.

• The increase in working capital at December 31, 2022 as compared to September 30, 2022, was primarily due to an increase in inventory due to supply chain disruptions, an increase in accounts receivable and a decrease in accounts payable.

• The Company’s days sales in accounts receivable at December 31, 2022 and September 30, 2022 were 60 days and 51 days, respectively.

There has been no significant adverse changes in the level of overdue receivables or significant changes in revenue recognition methods.

• The Company’s inventory turns for the three months ended December 31, 2022 were lower than the comparable period ended September 30, 2022 primarily due to supply chain disruptions.

• Days in accounts payable at December 31, 2022 were 93 days, higher than 85 days at the comparable period ended September 30, 2022, primarily due to timing of payments.

• 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.

Cash Flows From Continuing Operations

Three Months Ended December 31,

Six Months Ended March 31,

(in millions) 2023 2022

Cash provided (used) by operating activities $ (296) $ 392

Cash provided by operating activities $ 18 $ 324

Cash used by investing activities (314) (332)

Cash provided (used) by financing activities 9 (357)

• The increase in cash used by operating activities was primarily due to the timing of accounts payable and accrued liabilities payments.

• The decrease in cash used by investing activities was primarily due to lower cash payments made for acquisitions and increased sales of property, plant and equipment, partially offset by prior year divestitures.

• The increase in cash provided by financing activities was primarily due to lower stock repurchases.

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

December 31, September 30,

March 31, September 30,

(in millions) 2023 2022 Change

12 unchanged sentences

• The Company's material cash requirements primarily consist of working capital requirements, repayments of long-term debt and related interest, operating leases, dividends, capital expenditures, potential acquisitions and share repurchases.

• As of December 31, 2022, approximately $3.5 billion remains available under the Company's share repurchase authorization, which does not have an expiration date and may be amended or terminated by the Board of Directors at any time without prior notice.

• 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 $0.35 per common share in the quarter ended December 31, 2022 and intends to continue paying dividends throughout fiscal 2023.

• The Company believes its capital resources and liquidity position, including cash and cash equivalents of $1.5 billion at December 31, 2022, are adequate to fund operations and meet its obligations for the foreseeable future.

The Company expects requirements for working capital, capital expenditures, dividends, minimum pension contributions, debt maturities

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 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.

• 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 $715 million and $172 million of commercial paper outstanding as of December 31, 2022 and September 30, 2022, respectively.

– The Company expects to file a new shelf registration statement with the SEC under which it may issue additional debt securities, ordinary shares, preferred shares, depository shares, warrants purchase contracts and units that may be offered in one or more offerings on terms to be determined at the time of the offering.

The Company 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 December 31, 2022 and September 30, 2022.

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 December 31, 2022, the Company's credit ratings and outlook were as follows:

As of March 31, 2023, the Company's credit ratings and outlook were as follows:

Rating Agency Short-Term Rating Long-Term Rating Outlook

6 unchanged sentences

For purposes of calculating these covenants, consolidated shareholders’ equity attributable to Johnson Controls is calculated without giving effect to (i) the application of Accounting Standards Codification ("ASC") 715-60, "Defined Benefit Plans - Other Postretirement," or (ii) the cumulative foreign currency translation adjustment.

As of December 31, 2022, the Company was in compliance with all covenants and other requirements set forth in its credit agreements and the indentures governing its notes, and expects to remain in compliance for the foreseeable future.

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.

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pension and postretirement plans, respectively.

During the first three months of fiscal 2023, the Company made approximately $9 million in total pension and postretirement contributions.

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.

3 unchanged sentences

However, in fiscal 2022, the Company recorded income tax expense related to a change in the Company's assertion over the outside basis differences of the Company’s investment in certain subsidiaries as a result of the planned divestitures.

The Company currently does not intend nor foresee a need to repatriate undistributed earnings included in the outside basis differences other than in tax efficient manners.

The Company currently does not

intend nor foresee a need to repatriate undistributed earnings included in the outside basis differences other than in tax efficient manners.

The Company's intent is to reduce basis differences only when it would be tax efficient.

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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.

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.

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Summarized Financial Information

The following information is provided in compliance with Rule 13-01 of Regulation S-X under the Securities Exchange Act of 1934 with respect to the (i) $625 million aggregate principal amount of 1.750% Senior Notes due 2030 (the “2030 Notes”), (ii) €500 million aggregate principal amount of 0.375% Senior Notes due 2027 (the “2027 Notes”), (iii) €500 million aggregate principal amount of 1.000% Senior Notes due 2032 (the “2032 Notes”), (iv) $500 million aggregate principal amount of 2.000% Sustainability-Linked Senior Notes due 2031 (the “2031 Notes”), (v) €600 million aggregate principal amount of 3.000% Senior Notes due 2028 (the “2028 Notes”) and (vi) $400 million aggregate principal amount of 4.900% Senior Notes due 2032 (the “2032 Notes 2” and together with the 2032 Notes, the 2030 Notes, the 2028 Notes and the 2027 Notes, the “Notes”), each issued by Johnson Controls International plc ("Parent Company") and Tyco Fire & Security Finance S.C.A.

(“TFSCA”), a corporate partnership limited by shares ( société en commandite par actions ) incorporated and organized under the laws of the Grand Duchy of Luxembourg (“Luxembourg”).

TFSCA is a wholly-owned consolidated subsidiary of the Company that is 99.924% owned directly by the Parent Company and 0.076% owned by TFSCA’s sole general partner and manager, Tyco Fire & Security S.à r.l., which is itself wholly-owned by the Company.

The Notes are the Parent Company’s and TFSCA’s unsecured, unsubordinated obligations.

The Parent Company is incorporated and organized under the laws of Ireland and TFSCA is incorporated and organized under the laws of Luxembourg.

The 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.

• €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 following tables set forth summarized financial information of the Parent Company and TFSCA (collectively, the “Obligor Group”) on a combined basis after intercompany transactions have been eliminated, including adjustments to remove the receivable and payable balances, investment in, and equity in earnings from, those subsidiaries of the Parent Company other than TFSCA (collectively, the "Non-Obligor Subsidiaries").

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").

The following table presents summarized income statement information (in millions):

Three Months Ended December 31, 2022 Year Ended

Six Months Ended March 31, 2023 Year Ended

September 30, 2022

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Gross profit — —

Loss from continuing operations (94) (268)

Net loss (228) (268)

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Excluded from the table above are intercompany transactions between the Obligor Group and Non-Obligor Subsidiaries as follows (in millions):

Three Months Ended December 31, 2022 Year Ended

Six Months Ended March 31, 2023 Year Ended

September 30, 2022

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Gross profit — —

Income from continuing operations 3 92

Net income 3 92

Net income (loss) (32) 92

Income attributable to noncontrolling interests — —

Net income attributable to the entity 3 92

The following table presents summarized balance sheet information as of December 31, 2022 and September 30, 2022 (in millions):

December 31, 2022 September 30, 2022

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

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Excluded from the table above are intercompany balances between the Obligor Group and Non-Obligor Subsidiaries as follows (in millions):

December 31, 2022 September 30, 2022

March 31, 2023 September 30, 2022

Current assets $ 1,926 $ 455

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of December 31, 2022, the Company had not experienced any adverse changes in market risk exposures that materially affected the quantitative and qualitative disclosures presented in the Company's Annual Report on Form 10-K for the year ended September 30, 2022.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis