What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-12-14 compared with 2022-11-15 · 185 added, 194 removed, 340 unchanged (53% of the section changed)

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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 and commissioning building products and systems, including residential and commercial 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, security and fire-protection space), energy-management consulting and data-driven “smart building” services and solutions.

The Company partners with customers by leveraging its broad product portfolio and digital capabilities, including its OpenBlue platform,

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.

The Company is a global leader in engineering, manufacturing, commissioning and retrofitting building products and systems, including residential and commercial 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.

The Company's fiscal year ends on September 30.

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This discussion should be read in conjunction with Item 8, the consolidated financial statements and the notes to consolidated financial statements.

A detailed discussion of the 2021 to 2020 year-over-year changes are not included herein and can be found in the Management's Discussion and Analysis section in the Company's 2021 Annual Report on Form 10-K filed November 15, 2021 under the heading "Fiscal year 2021 compared to fiscal year 2020" which is incorporated herein by reference.

A detailed discussion of the 2022 to 2021 year-over-year changes are not included herein and can be found in the Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 2022 Annual Report on Form 10-K filed November 15, 2022 under the heading "Fiscal year 2022 compared to fiscal year 2021" which is incorporated herein by reference.

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.

The economic conditions in China, specifically challenges in real estate, began negatively impacting the Building Solutions Asia Pacific segment in the fourth quarter of fiscal 2023.

The Company expects continued softening in China in fiscal 2024.

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.

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

During fiscal 2022, revenue and profits were adversely impacted due to the significant strengthening of the U.S.

During fiscal 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.

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In particular, legislative and regulatory initiatives such as the U.S.

Climate Smart Buildings Imitative, U.S.

Inflection Reduction Act and EU Energy Performance of Buildings Directive include provisions designed to fund and encourage investment in decarbonization and digital technologies for buildings.

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

investing in new digital and product capabilities, including its OpenBlue platform, to enable it to deliver sustainable, high-efficiency products and tailored services to enable customers to achieve their sustainability goals.

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

The Company has experienced, and expects to continue to experience, increased input 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, geopolitical and economic tensions, including the conflicts between Russia and Ukraine and Israel and Hamas, 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 to positively impact revenue due to increased demand and price increases to offset inflation, while negatively impacting margins due to supply chain disruptions and cost pressures.

The Company has also experienced delays in converting its backlog due to continued supply chain disruptions, negatively impacting both revenues and margins.

Although the Company has experienced recent improvement in its supply chain, the Company expects that these trends will continue to impact its results into fiscal 2023.

Therefore, 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.

Although this decision has not had and is 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.

During fiscal 2022, the Company's facilities generally operated at normal levels, however, the Company has experienced some disruptions to its business in China due to government-mandated lockdowns in several major cities.

The Company has experienced increases in demand as governments have distributed vaccines and lifted COVID-19-related restrictions, leading to increases in retrofit activity and commercial building construction.

As a result of the pandemic, the Company has seen an increase in demand for its products and solutions that promote building health and optimize customers’ infrastructure.

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

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

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

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

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

See Part I, Item 1A, of this Annual Report on Form 10-K for an additional discussion of risks related to COVID-19.

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, during fiscal 2023, the Company observed improved margins as supply chain disruptions eased and higher priced backlog was converted to sales.

Although the Company has experienced recent improvement in its supply chain, it 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.

The extent to which the Company’s results of operations and financial condition are impacted by these and other factors in the future will depend on developments that are highly uncertain and cannot be predicted.

See Part I, Item 1A, of this Annual Report on Form 10-K for an additional discussion of risks.

Cybersecurity Incident

During the weekend of September 23, 2023, the Company experienced a cybersecurity incident impacting its internal information technology ("IT") infrastructure and applications.

The incident was detected shortly after receiving reports of outages to certain of the Company’s systems.

Promptly after detecting the issue, the Company implemented its incident management and response plan and business continuity plans, including implementing remediation measures to mitigate the impact of the incident and restore affected systems and functions.

The Company also engaged leading cybersecurity experts and other specialized consultants to assist in its investigation and remediation of the incident, as well as the restoration of impacted applications and systems.

The Company’s investigation and remediation efforts remain ongoing, including the analysis of data accessed, exfiltrated or otherwise impacted during the cybersecurity incident.

Based on the information reviewed to date, the Company believes the unauthorized activity has been contained and has not observed evidence of any impact to its digital products, services and solutions, including OpenBlue and Metasys.

The cybersecurity incident consisted of unauthorized access, data exfiltration and deployment of ransomware by a third party to a portion of the Company’s internal IT infrastructure.

The incident caused disruptions and limitation of access to portions of the Company’s business applications supporting aspects of the Company’s operations and corporate functions, which disruptions and limitations continued into the early portion of the first quarter of fiscal 2024.

To date, the Company has largely restored the impacted applications and systems.

Lost and deferred revenues and expenses related to the cybersecurity incident adversely impacted fiscal 2023 net income by approximately $30 million, or approximately $0.04 per diluted share.

This was primarily attributable to order processing and logistics disruptions and delays, and expenses associated with the response to, and remediation of, the incident.

The Company has incurred and expects to incur additional expenses associated with the response to, and remediation of, the incident in fiscal 2024, most of which the Company expects to incur in the first half of the year.

These expenses include third-party expenditures, including IT recovery and forensic experts and others performing professional services to investigate and remediate the incident, as well as incremental operating expenses incurred from the resulting disruption to the Company’s business operations.

Further, the cybersecurity incident caused disruptions to certain of the Company’s billing systems, which is expected to negatively impact cash provided from continuing operations during the first quarter of fiscal 2024.

The overall impact of the cybersecurity incident in fiscal 2024 is not expected to be material to net income, net of insurance recoveries, or cash flows from continuing operations;

however, the timing of recognizing the insurance recoveries may differ from the timing of recognizing the associated expenses.

The Company maintains insurance covering certain losses associated with cybersecurity incidents.

The Company did not recognize any insurance recoveries related to the cybersecurity incident in the three months ended September 30, 2023.

The Company currently expects that a substantial portion of its direct costs incurred related to containing, investigating and remediating the incident, as well as business interruption losses, will be reimbursed through insurance recoveries.

Restructuring and Cost Optimization Initiatives

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 restructuring plans as necessary.

In fiscal 2021, the Company announced its plans to optimize its cost structure through broad-based SG&A actions focused on simplification, standardization and centralization, with the intent to deliver annualized savings of $300 million by fiscal 2023 (the “2021 Plan”).

Additionally, the Company announced cost of sales actions to drive $250 million in annual run rate savings by fiscal 2023.

The Company believes it is on track to deliver and exceed the productivity savings by fiscal 2023.

For more information on the Company’s restructuring plans, see “Liquidity and Capital Resources—Restructuring.”

In the third quarter of fiscal 2023, the Company began developing a restructuring plan with certain actions focused on continued scaling of Selling, general and administrative expenses ("SG&A") to its planned growth.

The scope of the plan was substantially finalized in the fourth quarter of fiscal 2023 and certain actions related to this plan were committed and executed during the fourth quarter, primarily related to workforce reductions, and were recorded to restructuring and impairment costs in the consolidated statements of income.

Additional restructuring charges are expected in subsequent quarters.

The Company expects savings from the restructuring initiatives to be substantially offset by incremental ongoing operating costs and investments to grow the business.

Restructuring charges incurred during the first and second quarters of fiscal 2023 were the result of other segment and Corporate-level restructuring plans.

FISCAL YEAR 2023 COMPARED TO FISCAL YEAR 2022

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Net sales $ 26,793 $ 25,299 6 %

The increase in net sales was due to higher organic sales ($2,033 million), incremental sales from acquisitions ($356 million) and the impact of prior year nonrecurring purchase accounting adjustments ($6 million), partially offset by the unfavorable impact of foreign currency translation ($741 million) and lower sales due to business divestitures ($23 million).

Excluding the impact of foreign currency translation, business acquisitions and divestitures and nonrecurring adjustments, consolidated net sales increased 9% as compared to the prior year, attributable to higher volumes and increased pricing in response to inflation pressures.

The increase in net sales was due to higher organic sales ($1,997 million) and the favorable net impact of acquisitions and divestitures ($113 million), partially offset by the unfavorable impact of foreign currency translation ($616 million).

Excluding the impact of foreign currency translation and business acquisitions and divestitures, consolidated net sales increased 8% over the prior year, attributable to increased pricing in response to inflation pressures.

Refer to the "Segment Analysis" below within Item 7 for a discussion of net sales by segment.

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% of sales 33.5 % 33.0 %

Cost of sales and gross profit both increased and gross profit as a percentage of sales decreased by 110 basis points.

Gross profit increased due to organic sales growth and business acquisitions, partially offset by the unfavorable impact of foreign currency translation ($229 million), supply chain inefficiencies, price/cost pressures and the unfavorable year-over-year impact of net pension mark-to-market adjustments ($121 million).

Gross profit as a percentage of sales decreased as the benefit of volume leverage was more than offset by supply chain inefficiencies and price/cost pressures.

Cost of sales and gross profit both increased and gross profit as a percentage of sales increased by 50 basis points.

Gross profit increased due to organic sales growth and favorable price/cost, partially offset by the unfavorable impact of foreign currency translation ($192 million) and the unfavorable year-over-year impact of net pension mark-to-market adjustments ($42 million).

Gross profit as a percentage of sales increased primarily due to favorable price/cost.

Refer to the "Segment Analysis" below within Item 7 for a discussion of segment earnings before interest, taxes and amortization ("EBITA").

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% of sales 23.1 % 23.5 %

Selling, general and administrative expenses ("SG&A") increased by $687 million, and SG&A as a percentage of sales increased by 130 basis points.

The increase in SG&A on a percentage basis was primarily due to the current year environmental remediation charge and related reserves ($255 million), the unfavorable year-over-year impact of net mark-to-market adjustments on pension plans ($154 million), the unfavorable year-over-year impact of net mark-to-market adjustments on restricted asbestos investments ($93 million), the absence of certain one-time cost mitigation actions and current year business acquisitions, partially offset by a favorable earn-out liability adjustment ($43 million) and favorable foreign currency translation ($141 million).

Selling, general and administrative expenses ("SG&A") increased by $236 million, and SG&A as a percentage of sales improved by 40 basis points.

The increase in SG&A was primarily due to certain investments to support growth, one-time transaction and separation costs, the unfavorable year-over-year impact of net mark-to-market adjustments ($84 million) and a loss associated with a fire at a leased warehouse facility ($40 million), partially offset by non-recurring environmental remediation charges in the prior year ($255 million) and favorable foreign currency translation ($118 million).

Refer to the "Segment Analysis" below within Item 7 for a discussion of segment EBITA.

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Restructuring and impairment costs $ 1,064 $ 721 48 %

* Measure not meaningful

Restructuring and impairment costs in fiscal 2022 included $419 million impairment costs related to businesses classified as held-for-sale, $75 million impairment of goodwill attributable to the Silent-Aire reporting unit, $45 million impairment of long-lived assets in the Building Solutions Asia Pacific segment reclassified from held for sale and $182 million in severance, long-lived asset impairments and other costs associated with the 2021 Plan.

All of the fiscal 2021 restructuring and impairment costs were related to the 2021 Plan.

Refer to "Note 3, "Assets and Liabilities Held for Sale & Discontinued Operations," Note 8, "Goodwill and Other Intangible Assets," and Note 17, "Significant Restructuring and Impairment Costs," of the notes to consolidated financial statements for further disclosure related to the Company's restructuring plans and impairment costs.

Restructuring and impairment costs in fiscal 2023 includes $498 million of impairment charges related to businesses classified or previously classified as held for sale, $276 million in severance and other charges resulting from restructuring initiatives, $184 million of goodwill impairment charges related to the Silent-Aire reporting unit, and $106 million of impairment charges for various long-lived assets.

Restructuring and impairment costs in fiscal 2022 includes $359 million of impairment charges related to the North America and Global Retail business which was previously held for sale, $182 million in severance and other charges resulting from restructure initiatives, $105 million of impairments for a business and assets previously held for sale, and $75 million of goodwill impairment charges related to the Silent-Aire reporting unit.

Refer to "Note 3, "Assets and Liabilities Held for Sale & Discontinued Operations," Note 7, "Property, Plant and Equipment," Note 8, "Goodwill and Other Intangible Assets," and Note 17, "Restructuring and Related Costs," of the notes to consolidated financial statements for further disclosure related to the Company's restructuring plans and impairment costs.

Net Financing Charges

Year Ended September 30,

(in millions) 2022 2021 Change

2023 2022 Change

Interest expense, net of capitalized interest costs $ 307 $ 225 36 %

Other financing charges 52 27 93 %

Gain on debt extinguishment (25) — *

Interest income (18) (6) *

Net foreign exchange results for financing activities (35) (33) 6 %

Net financing charges $ 281 $ 213 32 %

Refer to Note 10, "Debt and Financing Arrangements," of the notes to consolidated financial statements for further disclosure related to the Company's net financing charges.

* Measure not meaningful

Refer to Note 10, "Debt and Financing Arrangements," of the notes to consolidated financial statements for further disclosure related to the Company's debt.

Equity Income

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Equity income $ 265 $ 246 8 %

The decrease in equity income was primarily due to lower income at certain partially-owned affiliates of the Johnson Controls - Hitachi joint venture and at certain partially-owned affiliates within the Building Solutions North America segment.

The increase in equity income 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 Item 7 for a discussion of segment EBITA.

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(in millions) 2023 2022 Change

Income tax provision (benefit) $ (13) $ 868 *

Income tax (benefit) $ (323) $ (13) *

Effective tax rate (19) % (1) %

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The statutory tax rate in Ireland of 12.5% is being used as a comparison since the Company is domiciled in Ireland.

For fiscal 2022, the effective tax rate for continuing operations was (1)% and was lower than the statutory tax rate primarily due to tax reserve adjustments as the result of expired statute of limitations for certain tax years and the benefits of continuing global tax planning initiatives, partially offset by the income tax effects of impairment and restructuring charges, valuation allowance adjustments, 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 divestitures and tax rate differentials.

For fiscal 2021, the effective tax rate for continuing operations was 33% and was higher than the statutory tax rate primarily due to the tax impacts of an intercompany transfer of certain of the Company’s intellectual property rights, valuation allowance adjustments, 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 fiscal 2022 effective tax rate decreased as compared to fiscal 2021 primarily due to the income tax effects of mark-to-market adjustments, tax reserve adjustments as the result of expired statute of limitations for certain tax years and the benefits of continuing global tax planning initiatives, partially offset by valuation allowance adjustments, 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 divestitures, impairment and restructuring charges and tax rate differentials.

For fiscal 2023, the effective tax rate for continuing operations was (19)% and was lower than the statutory tax rate primarily due to the favorable tax impacts of intellectual property tax adjustments, tax reserve adjustments as the result of tax audit resolutions and remeasurements, valuation allowance adjustments and the benefits of continuing global tax planning initiatives, partially offset by the unfavorable impact of impairment and restructuring charges.

For fiscal 2022, the effective tax rate for continuing operations was (1)% and was lower than the statutory tax rate primarily due to favorable impact of tax reserve adjustments as the result of expired statute of limitations for certain tax years and the benefits of continuing global tax planning initiatives, partially offset by the unfavorable impact of impairment and restructuring charges, valuation allowance adjustments, and 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 divestitures and tax rate differentials.

The fiscal 2023 effective tax rate was lower than fiscal 2022 primarily due to tax reserve adjustments as the result of tax audit resolutions, valuation allowance adjustments and the benefits of continuing global tax planning initiatives, partially offset by the impact of impairment and restructuring charges.

Refer to Note 18, "Income Taxes," of the notes to consolidated financial statements for further details.

enacted the Inflation Reduction Act of 2022 (“IRA”) in August 2022, which, among other sections, creates a new book minimum tax of at least 15% of consolidated GAAP pre-tax income for corporations with average book income in excess of $1 billion.

The book minimum tax will first apply to us in fiscal 2024.

We do not expect the IRA to have a material impact on our effective tax rate.

In addition, in October 2021, 136 out of 140 countries in the Organization for Economic Co-operation and Development ("OECD") Inclusive Framework on Base Erosion and Profit Shifting ("IF"), including Ireland, politically committed to potentially fundamental changes to the international corporate tax system, including the potential implementation of a global minimum corporate tax rate.

While the details of these pronouncements presently remain unclear and timing of implementation uncertain, the impact of local country IF adoption could have a material impact on the Company's effective tax

rate in future periods.

It is also possible that jurisdictions in which the Company does business could react to such IF developments unilaterally by enacting tax legislation that could adversely affect the Company or its affiliates.

Income From Discontinued Operations, Net of Tax

Year Ended September 30,

(in millions) 2022 2021 Change

Income from discontinued operations, net of tax $ — $ 124 *

* Measure not meaningful

Refer to Note 3, "Assets and Liabilities Held for Sale & Discontinued Operations," of the notes to consolidated financial statements for further information.

The book minimum tax will first apply to the Company in fiscal 2024.

The Company does not expect the IRA to have a material impact on its effective tax rate, however, it is possible that the U.S.

Congress could advance other tax legislation proposals in the future that could have a material impact on the Company's tax rate.

In addition, in October 2021, the Organization for Economic Co-operation and Development ("OECD")/G20 inclusive framework on Base Erosion and Profit Shifting (the Inclusive Framework) published a statement updating and finalizing the key components of a two-pillar plan on global tax reform which has now been agreed upon by the majority of OECD members.

Pillar One allows countries to reallocate a portion of residual profits earned by multinational enterprises ("MNE"), with an annual global revenue exceeding €20 billion and a profit margin over 10%, to other market jurisdictions.

The adoption of Pillar One and its potential effective date remain uncertain.

Pillar Two requires MNEs with an annual global revenue exceeding €750 million to pay a global minimum tax of 15%.

On December 15, 2022, the Council of the EU formally adopted Directive (EU) 2022/2523 (the “Pillar Two Directive”) to achieve a coordinated implementation of Pillar Two in EU Member States consistent with EU law.

On October 19, 2023, the Irish Minster of Finance published Irish Finance (No.2) Bill 2023, which includes implementation of the 15% Pillar Two global minimum tax.

The bill, subject to amendment during the legislative process, is expected to be signed into law by late December.

The Pillar Two legislation is anticipated to be effective for the Company with the fiscal year beginning October 1, 2024.

The Company is continuing to evaluate the potential impact on future periods of the Pillar Two Framework, pending legislative adoption by individual countries, as such changes could result in an increase in its effective tax rate.

Income Attributable to Noncontrolling Interests

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(in millions) 2023 2022 Change

Income from continuing operations attributable

to noncontrolling interests $ 191 $ 233 -18 %

The decrease in income from continuing operations attributable to noncontrolling interests was primarily due to lower net income at certain partially-owned affiliates of the Johnson Controls - Hitachi joint venture.

Income attributable to noncontrolling interests $ 184 $ 191 -4 %

The decrease in income attributable to noncontrolling interests was primarily due to lower net income at certain partially-owned affiliates within the Global Products segment.

Net Income Attributable to Johnson Controls

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$ 1,849 $ 1,532 21 %

The decrease in net income attributable to Johnson Controls was primarily due to higher SG&A, higher restructuring and impairment costs and the non-recurrence of prior year income from discontinued operations, partially offset by lower income tax provision and higher gross profit.

The increase in net income attributable to Johnson Controls was primarily due to higher gross profit and higher income tax benefits, partially offset by higher restructuring and impairment costs and higher SG&A.

Diluted earnings per share attributable to Johnson Controls was $2.69 for the year ended September 30, 2023 compared to $2.19 for the year ended September 30, 2022.

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Johnson Controls $ 1,805 $ 1,055 71 %

The decrease in comprehensive income attributable to Johnson Controls was due to a decrease in other comprehensive income attributable to Johnson Controls ($819 million) resulting primarily from foreign currency translation adjustments and lower net income attributable to Johnson Controls ($105 million).

The year-over-year unfavorable foreign currency translation adjustments were primarily driven by the weakening of the British pound, euro and Canadian dollar in the current year compared to strengthening of the British pound, Canadian dollar and Mexican peso against the U.S.

dollar in the prior year.

The increase in comprehensive income attributable to Johnson Controls was due to an increase in other comprehensive income attributable to Johnson Controls ($433 million) resulting primarily from reductions in foreign currency translation expense and an increase in net income attributable to Johnson Controls ($317 million).

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.

Effective October 1, 2021, the Company's marine businesses previously included in the Building Solutions Asia Pacific and Global Products reportable segments are now part of the Building Solutions EMEA/LA reportable segment.

information has been re-cast to present the comparative periods on a consistent basis.

This change was not material to the segment presentation.

Refer to Note 19, “Segment Information,” of the notes to the consolidated financial statements for further information.

Beginning on October 1, 2021, the Company began reporting certain retrofit projects in the Building Solutions EMEA/LA and Building Solutions Asia Pacific segments as products and systems revenue on a prospective basis as they have evolved to be more aligned with other install offerings.

for the Year Ended

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$ 26,793 $ 25,299 6 % $ 4,018 $ 3,406 18 %

• The increase in Building Solutions North America was due to higher volumes and prices ($672 million) and incremental sales related to business acquisitions ($22 million), partially offset by the unfavorable impact of foreign currency translation ($12 million).

The sales increase was led by strong growth in the HVAC & Controls platform.

• The decrease in Building Solutions EMEA/LA was due to the unfavorable impact of foreign currency translation ($269 million) and business divestitures ($22 million), partially offset by higher volumes and prices ($214 million) and incremental sales related to business acquisitions ($38 million).

Excluding the impacts of foreign currency translation and business acquisitions and divestitures, sales increased, driven by growth in the Fire & Security platforms and the HVAC & Controls platform.

By region, strong growth in Europe and single digit growth in Latin America was partially offset by growth decline in the Middle East.

• The increase in Building Solutions Asia Pacific was due to the net impact of higher prices and lower volumes ($178 million) and incremental sales related to business acquisitions ($42 million), partially offset by the unfavorable impact of foreign currency translation ($121 million) and business divestitures ($1 million).

The increase in sales was led by strong demand for HVAC & Controls and Industrial Refrigeration equipment.

By region, the sales growth was driven by sales in China.

• The increase in Global Products was due to higher volumes and prices ($975 million) and incremental sales related to business acquisitions ($254 million), partially offset by the unfavorable impact of foreign currency translation ($339 million).

Sales growth was driven by broad-based demand for Commercial and Residential HVAC and Fire & Security products and strong price realization.

• The increase in Building Solutions North America was due to organic growth, including higher prices ($979 million) and incremental sales related to business acquisitions ($29 million), partially offset by the unfavorable impact of foreign currency translation ($45 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 organic growth, including higher prices ($324 million) and the net impact of business acquisitions and divestitures ($29 million), partially offset by the unfavorable impact of foreign currency translation ($102 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 .

• The increase in Building Solutions Asia Pacific was due to organic growth, including higher prices ($182 million) and the net impact of business acquisitions and divestitures ($19 million), partially offset by the unfavorable impact of foreign currency translation ($169 million).

The economic conditions in China, specifically challenges in real estate, began negatively impacting the Building Solutions Asia Pacific segment in the fourth quarter of fiscal 2023, but had an insignificant impact on results for the full year.

Excluding the impacts of foreign currency translation and business acquisitions and divestitures, sales growth was led by continued demand for HVAC & Controls.

• The increase in Global Products was due to the net impact of higher prices and lower volumes ($512 million) and incremental sales related to business acquisitions ($36 million), partially offset by the unfavorable impact of foreign currency translation ($300 million).

Excluding the impacts of foreign currency translation and business acquisitions, sales growth was driven by strong price realization and growth in Commercial HVAC and Industrial Refrigeration products.

Segment EBITA

• The decrease in Building Solutions North America was primarily due to lower absorption related to supply chain disruptions and labor constraints and the unfavorable impact of foreign currency translations, partially offset by productivity savings.

• The decrease in Building Solutions EMEA/LA was primarily due to supply chain disruptions, the suspension of operations in Russia ($11 million), and the unfavorable impact of foreign currency translation ($29 million), partially offset by favorable price/cost and productivity savings.

• The decrease in Building Solutions Asia Pacific was primarily due to supply chain disruptions, unfavorable mix and the unfavorable impact of foreign currency translation ($23 million), partially offset by favorable price/cost and productivity savings.

• The increase in Global Products was primarily due to favorable volumes and mix, productivity savings and a favorable earn-out liability adjustment ($43 million), partially offset by the current year environmental remediation charge ($222 million), the unfavorable impact of foreign currency translation ($37 million) and lower equity income driven primarily by certain partially-owned affiliates of the Johnson Controls - Hitachi joint venture ($13 million).

• 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 reflects the unfavorable impact of foreign currency translation ($13 million) and higher expenses, partially offset by favorable price/cost.

• The increase in Building Solutions Asia Pacific was primarily due to favorable price/cost and productivity savings, partially offset by the unfavorable impact of foreign currency translation ($25 million).

• The increase in Global Products was primarily due to favorable price/cost and productivity savings, partially offset by unfavorable mix, lower gross margin due to lower manufacturing absorption, an uninsured loss associated with a fire at a leased warehouse facility and the unfavorable impact of foreign currency translation ($42 million).

LIQUIDITY AND CAPITAL RESOURCES

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Current liabilities (11,084) (11,239)

446 900 -50 %

Cash and cash equivalents (835) (2,031)

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Current portion of long-term debt 645 865

Current assets held for sale (387) —

Current liabilities held for sale 236 —

Working capital (as defined) $ (152) $ (51) *

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Accounts payable 4,268 4,368 -2 %

• The Company defines working capital as current assets less current liabilities, excluding cash and cash equivalents, short-term debt, the current portion of long-term debt, and current assets and liabilities held for sale.

* Measure not meaningful

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.

• Working capital at September 30, 2022 remained consistent as compared to September 30, 2021 as an increase in inventory due to supply chain disruptions was offset by an increase in accounts payable.

• The Company’s days sales in accounts receivable at September 30, 2022 were 51, a decrease from 58 at September 30, 2021, primarily due to collection efforts and increased use of receivables factoring programs.

• The decrease in working capital at September 30, 2023 as compared to September 30, 2022, was primarily due to an increase in deferred revenue and lower income tax assets, partially offset by an increase in accounts receivable due to increased sales and timing of collections.

• Days sales in accounts receivable were 50 at September 30, 2023, comparable to 51 at September 30, 2022.

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

• The Company’s inventory turns for the year ended September 30, 2022 were lower than the comparable period ended September 30, 2021 primarily due to supply chain disruptions.

• Days in accounts payable at September 30, 2022 were 85 days, higher from 76 days for the comparable period ended September 30, 2021, primarily due to timing of payments.

• The Company’s inventory turns for the year ended September 30, 2023 were slightly lower than the comparable period ended September 30, 2022.

• Days in accounts payable were 84 days at September 30, 2023, down slightly from 88 days at September 30, 2022.

The decrease was primarily due to timing of payments.

Cash Flows From Continuing Operations

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Cash used by financing activities (2,174) (516)

• The decrease in cash provided by operating activities was primarily due to the unfavorable impacts driven by supply chain disruptions.

This resulted in increases in inventory and higher unbilled receivables due to shipment delays, which

were partially offset by the benefit of receivables factoring activity and an increase in accounts payable due to timing of payments.

• The decrease in cash used by investing activities was primarily due to lower cash payments made for acquisitions.

• The increase in cash provided by financing activities was primarily due to higher short-term and long-term debt borrowings.

• The increase in cash provided by operating activities reflects higher net income and the favorable impact of inventory, income tax and accounts receivable activity, which was partially offset by the timing of accounts payable and accrued liabilities payments.

• The increase in cash used by investing activities was primarily due to the FM:Systems acquisition.

Refer to Note 2, "Acquisitions and Divestitures," of the notes to the consolidated financial statements for further disclosure related to the FM:Systems and other acquisitions.

• The decrease in cash provided by financing activities was primarily due to changes in short- and long-term borrowing activity.

The net impact of debt proceeds and repayments used cash of $433 million in fiscal 2023 and generated cash of $2.0 billion in fiscal 2022.

This increase in cash used was partially offset by lower stock repurchases.

Capitalization

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• As of September 30, 2023, purchase obligations are $1.8 billion payable in the next twelve months and $240 million payable thereafter.

These purchase obligations represent commitments under enforceable and legally binding agreements, and do not represent the entire anticipated purchases in the future.

These purchase obligations represent commitments under enforceable and legally binding agreements, and do not represent all future expected purchases.

• As of September 30, 2023, the Company expects to contribute $26 million and $203 million to the global pension and postretirement plans in the next twelve months and thereafter, respectively.

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• The Company declared dividends of $1.45 per share in fiscal 2023 and intends to continue paying quarterly dividends in fiscal 2024.

• The Company believes its capital resources and liquidity position at September 30, 2022 are adequate to meet projected needs.

The Company believes requirements for working capital, capital expenditures, dividends, stock repurchases, minimum pension contributions, debt maturities and any potential acquisitions in fiscal 2023 will continue to be funded

from operations, supplemented by short- and long-term borrowings, if required.

The Company currently manages its short-term debt position in the U.S.

• The Company believes its capital resources and liquidity position, including cash and cash equivalents of $835 million at September 30, 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 fiscal 2024 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 markets and bank loan markets.

In the event the Company is unable to issue commercial paper, it would have the ability to draw on its $2.5 billion revolving credit facility which expires in December 2024 or its $0.5 billion 364-day revolving credit facility which expires in December 2022.

There were no draws on the revolving credit facilities as of September 30, 2022 and 2021.

The Company estimates that as of September 30, 2022, it could borrow up to $2.0 billion based on average borrowing levels during fiscal 2022 on committed credit lines.

Commercial paper outstanding was $200 million as of September 30, 2023 and $172 million as of September 30, 2022.

– 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.

In addition, the Company held cash and cash equivalents of $2.0 billion as of September 30, 2022.

As such, the Company believes it has sufficient financial resources to fund operations and meet its obligations for the foreseeable future.

– The Company has the ability to draw on its syndicated $2.5 billion committed revolving credit facility, which was scheduled to expire in December 2024, and a syndicated $500 million committed revolving credit facility, which expired in November 2023.

Both credit facilities were renewed on December 11, 2023.

The $2.5 billion facility is now scheduled to expire in December 2028 and the $500 million facility is now scheduled to expire in December 2024.

There were no draws on the facilities as of September 30, 2023.

• 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.

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S&P A-2 BBB+ Stable

Moody's P-2 Baa2 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.

• The Company entered into the following new or modified debt arrangements in fiscal 2022:

◦ In November 2021, the Company entered into a €200 million ($196 million as of September 30, 2022) bank term loan which had an interest rate of EURIBOR plus 0.5% and was due and paid in October 2022.

◦ In March 2022, the Company entered into two bank term loans totaling €285 million ($280 million as of September 30, 2022) which both have an interest rate of EURIBOR plus 0.5% and are due in March 2023.

◦ In September 2022, the Company and its wholly owned subsidiary, TFSCA issued €600 million ($589 million as of September 30, 2022) of bonds with an interest rate of 3.0%, which are due in September 2028 and $400 million of bonds with an interest rate of 4.9%, which are due in December 2032.

◦ In September 2022, the Company repaid a ¥25 billion ($181 million) term loan and entered into a ¥30 billion ($208 million as of September 30, 2022) term loan which is due in September 2027.

Both the original and the new debt have an interest rate of LIBOR plus 0.4%.

• 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 Company entered into the following debt transactions in fiscal 2023:

– Repaid $1.6 billion of debt including the following:

▪ €200 million term loan with an interest rate of EURIBOR plus 0.5%

▪ $32 million Senior Notes due 2023 with an interest rate of 4.625%

▪ €150 million term loan with an interest rate of 0.0%

▪ €135 million term loan with an interest rate of EURIBOR plus 0.5%

▪ €846 million Senior Notes due 2023 with an interest rate of 1.0%

▪ Tendered $105 million of its Notes due 2045 with an interest rate of 5.125%

– Issued $1.2 billion of debt including the following:

▪ €150 million term loan with an interest rate of EURIBOR plus 0.7% which is due in April 2024

▪ €150 million term loan with an interest rate of EURIBOR plus 0.4% which is due March 2024

▪ Together with its wholly owned subsidiary, Tyco Fire & Security Finance S.C.A., co-issued €800 million in 4.25% Senior Notes due May 2035

• Financial covenants in the Company's revolving credit facilities require 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.

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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 its assertion over the outside basis differences of its 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

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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The amounts involved may be material.

Restructuring

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 restructuring plans as necessary.

Restructuring plans 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 Company expects the restructuring actions to reduce cost of sales and SG&A due to reduced employee-related costs, depreciation and amortization expense.

In fiscal 2021, the Company announced plans to optimize its cost structure through broad-based SG&A actions focused on simplification, standardization and centralization, with the intent to deliver annualized savings of $300 million by fiscal 2023.

Additionally, the Company announced cost of sales actions intended to drive $250 million in annual run rate savings by fiscal 2023.

The one-time pre-tax costs associated with these actions were originally expected to be approximately $385 million across all segments and at Corporate through fiscal 2023.

The Company has incurred and exceeded these costs during fiscal 2022 due to certain restructuring actions and expenses planned for fiscal 2023 being accelerated into fiscal 2022, which also resulted in incremental savings.

During the year ended September 30, 2022, the Company recorded $182 million and in total, the Company has recorded $424 million of costs resulting from the 2021 restructuring plan, which is the total amount expected to be incurred for this restructuring plan.

The Company has outstanding restructuring reserves of $82 million at September 30, 2022, all of which is expected to be paid in cash.

Co-Issued Securities:

Summarized Financial Information

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

Refer to Note 10, "Debt and Financing Arrangements," of the notes to consolidated financial statements for additional information .

TFSCA is a wholly-owned consolidated subsidiary of the Company that is 99.996% owned directly by the Parent Company and 0.004% 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

• €500 million aggregate principal amount of 1.000% Senior Notes due 2032

• $400 million aggregate principal amount of 4.900% Senior Notes due 2032

• €800 million aggregate principal amount of 4.25% Senior Notes due 2035

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.

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 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").

The following table presents summarized income statement information for the year ended September 30, 2023 (in millions):

September 30, 2022

Group Non-Obligor Subsidiaries

Net sales $ — $ —

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Net loss attributable to the entity (458) (139)

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

September 30, 2022

Net sales $ —

Gross profit —

Income from continuing operations 92

Net income 92

Income attributable to noncontrolling interests —

Net income attributable to the entity 92

The following table presents summarized balance sheet information (in millions):

September 30, 2022

Current assets $ 1,231

Noncurrent assets 243

Current liabilities 5,463

Noncurrent liabilities 7,176

Noncontrolling interests —

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

September 30, 2022

The following table presents summarized balance sheet information as of September 30, 2023 (in millions):

Group Non-Obligor Subsidiaries

Current assets $ 26 $ 5,608

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Estimated losses are recorded when identified.

For agreements with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract.

In order to estimate relative selling price, market data and transfer price studies are utilized.

For agreements with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation using the best estimate of the relative standalone selling price of each distinct good or service in the contract.

In order to estimate relative standalone selling price, market data and transfer price studies are utilized.

If the standalone selling price is not directly observable, the Company estimates the standalone selling price using an adjusted market assessment approach or expected cost plus margin approach.

The Company considers the contractual consideration payable by the customer and assesses variable consideration that may affect the total transaction price, including discounts, rebates, refunds, credits or other similar sources of variable consideration, when determining the transaction price of each contract.

The Company assesses variable consideration that may affect the total transaction price, including discounts, rebates, refunds, credits or other similar sources of variable consideration, when determining the transaction price of each contract.

The Company includes variable consideration in the estimated transaction price when it is probable that significant reversal of revenue recognized would not occur when the uncertainty associated with variable consideration is subsequently resolved.

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Goodwill and Indefinite-Lived Intangible Assets

The Company reviews goodwill for impairment annually as of July 31 or more frequently if events or changes in circumstances indicate the asset might be impaired.

The Company performs impairment reviews for its reporting units, which have been determined to be the Company’s reportable segments or one level below the reportable segments in certain instances, using a fair value method based on management’s judgments and assumptions or third party valuations.

The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date.

In estimating the fair value, the Company uses the multiples of earnings approach based on the average of published multiples of earnings of comparable entities with similar operations and economic characteristics that are applied to the Company's average of historical and future financial results.

In estimating the fair value, the Company uses the multiples of earnings approach based on the average of published multiples of earnings of comparable entities with similar operations and economic characteristics and applies the multiples to the Company's average of historical and future financial results for each reporting unit.

In certain instances, the Company uses discounted cash flow analyses or estimated sales price to further support the fair value estimates.

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Although the Company's cash flow forecasts are based on assumptions that are considered reasonable by management and consistent with the plans and estimates management is using to operate the underlying businesses, there are significant judgments in determining the expected future cash flows attributable to a reporting unit.

During its fiscal 2022 annual impairment test, the Company determined that its Silent-Aire reporting unit's goodwill was impaired by $75 million.

No other reporting unit was determined to be at risk of failing the goodwill impairment test.

Indefinite-lived intangible assets are also subject to at least annual impairment testing.

Management completed its fiscal 2023 annual impairment test as of July 31.

The fair value of all reporting units substantially exceeded their carrying values, with the exception of one reporting unit with $455 million of goodwill whose fair value in excess of its carrying value was approximately 10%.

For this reporting unit, a 1% increase in the discount rate, or a 1.5% decrease in the revenue growth rates, would cause the fair value to be less than the carrying value.

While no impairment was recorded, it is possible that future changes in circumstances could result in a non-cash impairment charge.

Indefinite-lived intangible assets are also subject to at least annual impairment testing in the fourth fiscal quarter or as events occur or circumstances change that indicate the assets may be impaired.

Indefinite-lived intangible assets primarily consist of trademarks and trade names and are tested for impairment using a relief-from-royalty method.

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The key assumptions used in the impairment tests were long-term revenue growth projections, weighted-average cost of capital, the royalty rate and general industry, market and macro-economic conditions.

The assumptions included in the impairment tests require judgment, and changes to these inputs could impact the results of the calculations.

The key assumptions used in the impairment tests were management's projections of future cash flows, weighted-average cost of capital and long-term growth rates.

During fiscal 2023, the Company impaired $184 million of goodwill in its Silent-Aire reporting unit.

The Company continuously monitors for events and circumstances that could negatively impact the key assumptions in determining fair value.

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Reflecting the relatively long-term nature of the plans’ obligations, approximately 14% of the plans’ assets are invested in equity securities and 63% in fixed income securities, with the remainder primarily invested in alternative investments.

For the years ended September 30, 2022 and 2021, the Company’s expected long-term return on U.S.

pension plan assets used to determine net periodic benefit cost was 7.00% and 6.50%, respectively.

The actual rate of return on U.S.

pension plans was below 7.00% in fiscal 2022 and above 6.50% in fiscal 2021.

For the years ended September 30, 2022 and 2021, the Company’s weighted average expected long-term return on non-U.S.

pension plan assets was 3.70% and 4.90%, respectively.

The actual rate of return on non-U.S.

pension plans was below 3.70% in fiscal 2022 and above 4.90% in fiscal 2021.

Beginning in fiscal 2023, the Company believes the long-term rate of return will approximate 8.25% for U.S.

The expected long-term return on U.S.

pension plan assets used to determine net periodic benefit cost was 8.25% and 7.00% for the years ended September 30, 2023 and 2022, respectively.

The weighted average expected long-term return on non-U.S.

pension plan assets was 5.02% and 3.70% for the years ended September 30, 2023 and 2022, respectively.

The actual rate of return on both U.S and non-U.S pension plans was below expected rates in both fiscal 2023 and fiscal 2022.

For fiscal 2024, the Company believes the long-term rate of return will approximate 8.50% for U.S.

pension plans and 5.26% for non-U.S.

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Any differences between actual investment results and the expected long-term asset returns will be reflected in net periodic benefit costs in the fourth quarter of each fiscal year or at the date of a significant remeasurement event.

If the Company’s actual returns on plan assets are less than the Company’s expectations, additional contributions may be required.

If actual returns on plan assets are less than the Company’s expectations, additional contributions may be required.

In fiscal 2023, total employer contributions to the defined benefit pension plans were $55 million, none of which were voluntary contributions made by the Company.

The Company expects to contribute approximately $24 million in cash to its defined benefit pension plans in fiscal 2024.

Based on information provided by its independent actuaries and other relevant sources, the Company believes that the assumptions used are reasonable;

however, changes in these assumptions could impact the Company’s financial position, results of operations or cash flows.

Based on information provided by its independent actuaries and other relevant sources, the Company believes that the assumptions used are reasonable, however, changes in these assumptions could impact the Company’s financial position, results of operations or cash flows.

Mark-to-market adjustments represent actuarial gains (losses) arising from changes in actuarial assumptions and actuarial experiences different from those assumed that are used to value the plan assets and the benefit obligations.

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Accruals are recorded for various contingencies including legal proceedings, environmental matters, self-insurance and other claims that arise in the normal course of business.

The accruals are based on judgment, the probability of losses and, where applicable, the consideration of opinions of internal and/or external legal counsel and actuarially determined estimates.

The accruals are based on judgment, the probability of losses and, where applicable, the consideration of opinions of internal and/or external legal counsel and actuarial determined estimates.

Additionally, the Company records receivables from third party insurers when recovery has been determined to be probable.

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The Company provides for expenses associated with environmental remediation obligations when such amounts are probable and can be reasonably estimated.

During fiscal 2022, the Company increased its accrual for environmental remediation liabilities by $228 million.

Refer to Note 21, "Commitments and Contingencies," of the notes to consolidated financial statements.

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The Company and certain of its subsidiaries along with numerous other companies are named as defendants in personal injury lawsuits based on alleged exposure to asbestos-containing materials.

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 filed against Company affiliates).

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 actuarial determined time period through which asbestos-related claims will be filed against Company affiliates).

Estimated asbestos-related defense costs are included in the asbestos liability.

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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 made 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.

At least 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.

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Refer to Note 21, "Commitments and Contingencies," of the notes to consolidated financial statements for a discussion on management's judgments applied in the recognition and measurement of asbestos-related assets and liabilities.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and other loss carryforwards.

Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and other loss carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The Company records a valuation allowance that primarily represents non-U.S.

The Company records a valuation

allowance that primarily represents non-U.S.

operating and other loss carryforwards for which realization is uncertain.

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Since future financial results may differ from previous estimates, periodic adjustments to the Company’s valuation allowances may be necessary.

At September 30, 2022, the Company had a valuation allowance of $6.0 billion for continuing operations, of which $5.5 billion relates to net operating loss carryforwards primarily in France, Germany, Ireland, Luxembourg, Mexico, Spain, United Kingdom and the U.S.

At September 30, 2023, the Company had a valuation allowance of $6.4 billion for continuing operations, of which $5.6 billion relates to net operating loss carryforwards primarily in Brazil, France, Germany, Ireland, Luxembourg, Mexico, the United Kingdom, and the U.S.

for which sustainable taxable income has not been demonstrated;

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RISK MANAGEMENT

The Company selectively uses derivative instruments to reduce market risk associated with changes in foreign currency, commodities, stock-based compensation and interest rates.

The Company selectively uses derivative instruments to reduce market risk associated with changes in foreign currency, commodities, and interest rates.

All hedging transactions are authorized and executed pursuant to clearly defined policies and procedures, which strictly prohibit the use of financial instruments for speculative purposes.

At the inception of the hedge, the Company assesses the effectiveness of the hedge instrument and designates the hedge instrument as either (1) a hedge of a recognized asset or liability or of a recognized firm commitment (a fair value hedge), (2) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to an unrecognized asset or liability (a cash flow hedge) or (3) a hedge of a net investment in a non-U.S.

At the inception of the hedge, the Company assesses the effectiveness of the hedge instrument and designates the hedge instrument as a hedge of one of the following:

• Forecasted transaction or of the variability of cash flows to be received or paid related to an unrecognized asset or liability (a cash flow hedge)

• Net investment in a non-U.S.

operation (a net investment hedge)

The Company performs hedge effectiveness testing on an ongoing basis depending on the type of hedging instrument used.

All other derivatives not designated as hedging instruments under ASC 815, "Derivatives and Hedging," are revalued in the consolidated statements of income.

All derivatives not designated as hedging instruments under ASC 815, "Derivatives and Hedging," are revalued in the consolidated statements of income.

For all foreign currency derivative instruments designated as cash flow hedges, retrospective effectiveness is tested on a monthly basis using a cumulative dollar offset test.

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operation does not exceed the Company’s net investment positions in the respective non-U.S.

Equity swaps and any other derivative instruments not designated as hedging instruments under ASC 815 require no assessment of effectiveness.

Derivative instruments not designated as hedging instruments under ASC 815 require no assessment of effectiveness.

A discussion of the Company’s accounting policies for derivative financial instruments is included in Note 1, "Summary of Significant Accounting Policies," of the notes to consolidated financial statements, and further disclosure relating to derivatives and hedging activities is included in Note 11, "Derivative Instruments and Hedging Activities," and Note 12, "Fair Value Measurements," of the notes to consolidated financial statements.

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The Company believes it is in substantial compliance with such laws and maintains procedures designed to foster and ensure compliance.

However, the Company has been, and in the future may become, the subject of formal or informal enforcement actions or proceedings regarding noncompliance with such laws or the remediation of Company-related substances released into the environment.

Company has been, and in the future may become, the subject of formal or informal enforcement actions or proceedings regarding noncompliance with such laws or the remediation of Company-related substances released into the environment.

Such matters typically are resolved with regulatory authorities through commitments to compliance, abatement or remediation programs and in some cases payment of penalties.

4 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis