What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-01-30 compared with 2023-08-02 · 129 added, 212 removed, 180 unchanged (65% of the section changed)

8 unchanged sentences

The Company cautions that these statements are subject to numerous important risks, uncertainties, assumptions and other factors, some of which are beyond the Company’s control, that could cause the Company’s actual results to differ materially from those expressed or implied by such forward-looking statements, including, among others, risks related to:

The Company’s ability to manage general economic, business and capital market conditions, including the impact of recessions and economic downturns;

the ability to manage macroeconomic and geopolitical volatility, including global price inflation, shortages impacting the availability of raw materials and component products and the conflict between Russia and Ukraine;

the ability to develop or acquire new products and technologies that achieve market acceptance and meet applicable quality and regulatory requirements;

the ability to innovate and adapt to emerging technologies, ideas and trends in the marketplace;

the strength of the U.S.

or other economies;

fluctuations in currency exchange rates;

changes or uncertainty in laws, regulations, rates, policies or interpretations that impact the Company’s business operations or tax status;

changes to laws or policies governing foreign trade, including economic sanctions, tariffs or trade restrictions;

The Company's ability to develop or acquire new products and technologies that achieve market acceptance and meet applicable quality and regulatory requirements;

the ability to manage general economic, business and capital market conditions, including the impact of recessions, economic downturns and global price inflation;

fluctuations in the cost and availability of public and private financing for the Company's customers;

the ability to innovate and adapt to emerging technologies, ideas and trends in the marketplace, including the incorporation of technologies such as artificial intelligence;

the ability to manage macroeconomic and geopolitical volatility, including shortages impacting the availability of raw materials and component products and the conflicts between Russia and Ukraine and Israel and Hamas;

managing the risks and impacts of potential and actual security breaches, cyberattacks, privacy breaches or data breaches, including business, service, or operational disruptions, the unauthorized access to or disclosure of data, financial loss, reputational damage, increased response and remediation costs, legal, and regulatory proceedings or other unfavorable outcomes;

the Company's ability to remediate its material weakness;

maintaining and improving the capacity, reliability and security of the Company's enterprise information technology infrastructure;

the ability to manage the lifecycle cybersecurity risk in the development, deployment and operation of the Company's digital platforms and services;

changes to laws or policies governing foreign trade, including economic sanctions, tariffs, foreign exchange and capital controls, import/export controls or other trade restrictions;

fluctuations in currency exchange rates;

changes or uncertainty in laws, regulations, rates, policies, or interpretations that impact the Company's business operations or tax status;

the ability to adapt to global climate change, climate change regulation and successfully meet the Company's public sustainability commitments;

the outcome of litigation and governmental proceedings;

the risk of infringement or expiration of intellectual property rights;

the Company’s ability to manage the impacts of natural disasters, climate change, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as the COVID-19 pandemic;

the Company's ability to manage disruptions caused by catastrophic or geopolitical events, such as natural disasters, armed conflict, political change, climate change, pandemics and outbreaks of contagious diseases and other adverse public health developments;

the ability of the Company to drive organizational improvement;

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and the cancellation of or changes to commercial arrangements.

A detailed discussion of risks related to Johnson Controls' business is included in the section entitled "Risk Factors" in Johnson Controls' Annual Report on Form 10-K for the year ended September 30, 2022 filed with the United States Securities and Exchange Commission ("SEC") on November 15, 2022, which is available at www.sec.gov and www.johnsoncontrols.com under the "Investors" tab.

A detailed discussion of risks related to Johnson Controls' business is included in the section entitled "Risk Factors" in Johnson Controls' Annual Report on Form 10-K for the year ended September 30, 2023 filed with the United States Securities and Exchange Commission ("SEC") on December 14, 2023, which is available at www.sec.gov and www.johnsoncontrols.com under the "Investors" tab.

The forward-looking statements included in this document are made only as of the date of this document, unless otherwise specified, and, except as required by law, Johnson Controls assumes no obligation, and disclaims any obligation, to update such statements to reflect events or circumstances occurring after the date of this document.

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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.

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 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 June 30, 2023 compared to the three months ended June 30, 2022, while "Year-to-Date" refers to the nine months ended June 30, 2023 compared to the nine months ended June 30, 2022.

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 following information should be read in conjunction with the September 30, 2023 consolidated financial statements and notes thereto, along with management’s discussion and analysis of financial condition and results of operations included in the Company's Annual Report on Form 10-K for the year ended September 30, 2023 filed with the SEC on December 14, 2023.

References in the following discussion and analysis to "Three Months," "First Quarter" or similar language refer to the three months ended December 31, 2023 compared to the three months ended December 31, 2022.

Macroeconomic Trends

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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.

During the three months ended December 31, 2023, the Company observed a softening of economic conditions in China, negatively impacting the performance of the Building Solutions Asia Pacific segment.

The Company expects economic conditions in China to remain soft throughout the remainder of fiscal 2024, which could impact the performance of the Building Solutions Asia Pacific segment.

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 the three and nine months ended June 30, 2023, revenue and profits were adversely impacted due to the strengthening of the U.S.

dollar against foreign currencies.

During the three months ended December 31, 2023, revenue and profits were positively impacted by movements in foreign exchange rates against the U.S.

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

The Company has experienced, and could continue to experience, increased material cost inflation and component shortages, as well as disruptions and delays in its supply chain, as a result of global macroeconomic trends, including increased global demand, geopolitical and economic tensions, including the conflict between Russia and Ukraine, 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.

Actions taken by the Company to mitigate supply chain disruptions and inflation, including expanding and

redistributing its supplier network, supplier financing, price increases and productivity improvements, have generally been successful in offsetting some, but not all, of the impact of these trends.

The collective impact of these trends has been favorable to revenue due to increased demand and price increases to offset inflation, while negatively impacting margins due to supply chain disruptions and cost pressures.

However, the Company continues to observe improved margins as supply chain disruptions ease and higher priced backlog is converted to sales.

Although the Company has experienced recent improvement in its supply chain, the Company could experience further disruptions, shortages and cost increases in the future, the effect of which will depend on the Company’s ability to successfully mitigate and offset the impact of these events.

During the second quarter of fiscal 2022, the Company suspended its operations in Russia in response to the conflict between Russia and Ukraine, with existing contractual obligations being fulfilled in a manner that fully complies with all sanctions and trade controls.

The Company has subsequently reduced its business presence and operations in Russia.

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

The Company has observed improved margins as supply chain disruptions have largely been resolved and higher priced backlog is converted to sales, but this improvement has been offset by lower volumes.

Although the Company has experienced recent improvement, further disruptions, shortages and cost increases could occur 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 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.

See the section entitled "Risk Factors" in Johnson Controls' Annual Report on Form 10-K for the year ended September 30, 2023 filed with the United States Securities and Exchange Commission ("SEC") on December 14, 2023.

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 restored the impacted applications and systems.

The impact on net income for the three months ended December 31, 2023 of lost and deferred revenues, net of revenues deferred at the end of fiscal 2023 and recognized in the first quarter of fiscal 2024, and expenses during the quarter was approximately $27 million.

These impacts were primarily attributable to expenses associated with the response to, and remediation of, the incident, and are net of insurance recoveries.

The Company expects to incur additional expenses associated with the response to, and remediation of, the incident throughout 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 negatively impacted cash provided from 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 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 Activities

To better align its resources with its growth strategies and reduce the cost structure of its global operations, the Company commits to restructuring plans as necessary.

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.

Early actions of this plan were committed to during the third quarter and charges, primarily related to workforce reductions, were recorded to restructuring and impairment costs in the consolidated statements of income, and additional restructuring charges are expected in subsequent quarters.

Anticipated savings from the restructuring plan are not yet estimable, as the scope of the plan is expected to be finalized during the fourth quarter of fiscal 2023.

In the third and fourth quarters of fiscal 2023, the Company developed a restructuring plan which included workforce reductions and other actions focused on continued scaling of selling, general and administrative expenses ("SG&A") to its planned growth.

The costs of the plan were recorded to restructuring and impairment costs in the consolidated statements of

An additional $39 million of restructuring charges related to this plan were incurred in the three months ended December 31, 2023.

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.

Three Months Ended

June 30, Nine Months Ended

(in millions) 2023 2022 Change 2023 2022 Change

(in millions) 2023 2022 Change

Net sales $ 6,094 $ 6,068 — %

The increase in consolidated net sales for the three months ended June 30, 2023 was due to higher organic sales ($595 million) and the net impact of acquisitions and divestitures ($24 million), partially offset by the unfavorable impact of foreign currency translation ($100 million).

Excluding the impact of foreign currency translation and business acquisitions and divestitures, consolidated net sales increased 9% as compared to the prior year, primarily 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 nine months ended June 30, 2023 was due to higher organic sales ($1,854 million) and the net impact of acquisitions and divestitures ($57 million), partially offset by the unfavorable impact of foreign currency translation ($598 million).

Excluding the impact of foreign currency translation and business acquisitions and divestitures, consolidated net sales increased 10% as compared to the prior year, attributable to increased pricing in response to inflation pressures and higher volumes.

The increase in consolidated net sales for the three-month period ended December 31, 2023 was due to the net impact of acquisitions and divestitures ($41 million) and the favorable impact of foreign currency translation ($28 million), partially offset by lower organic sales ($43 million).

Excluding the impact of foreign currency translation and business acquisitions and divestitures, consolidated net sales decreased 1% as compared to the prior year, primarily attributable to lower volumes, partially offset by higher pricing.

Refer to the "Segment Analysis" below within this Item 2 for a discussion of net sales by segment.

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Three Months Ended

June 30, Nine Months Ended

(in millions) 2023 2022 Change 2023 2022 Change

(in millions) 2023 2022 Change

Cost of sales $ 4,102 $ 3,977 3 %

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% of sales 32.7 % 34.5 %

Cost of sales and gross profit increased for the three-month period ended June 30, 2023, and gross profit as a percentage of sales increased by 80 basis points.

Gross profit increased due to sales growth and favorable price/cost, partially offset by

unfavorable foreign currency translation ($33 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 nine-month period ended June 30, 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 ($189 million).

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

Cost of sales increased and gross profit decreased for the three-month period ended December 31, 2023, and gross profit as a percentage of sales decreased by 180 basis points.

Gross profit and gross profit as a percentage of sales both decreased due to lower volumes, partially offset by favorable price/cost.

Refer to the "Segment Analysis" below within this Item 2 for a discussion of segment earnings before interest, taxes and amortization ("EBITA").

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Three Months Ended

June 30, Nine Months Ended

(in millions) 2023 2022 Change 2023 2022 Change

(in millions) 2023 2022 Change

Selling, general and administrative expenses $ 1,513 $ 1,571 -4 %

% of sales 24.8 % 25.9 %

SG&A for the three-month period ended June 30, 2023 decreased $34 million, and SG&A as a percentage of sales decreased by 220 basis points.

The decrease in SG&A was primarily due to the favorable year-over-year impact of net mark-to-market adjustments and favorable foreign currency translation ($17 million), partially offset by certain investments to support growth and one-time transaction and separation costs.

Refer to the "Segment Analysis" below within this Item 2 for a discussion of segment EBITA.

SG&A for the nine-month period ended June 30, 2023 increased $293 million, and SG&A as a percentage of sales decreased by 10 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 the favorable year-over-year impact of net mark-to-market adjustments and favorable foreign currency translation ($122 million).

SG&A for the three-month period ended December 31, 2023 decreased $58 million, and SG&A as a percentage of sales decreased by 110 basis points.

The decrease in SG&A was primarily due to nonrecurring costs incurred during the prior year including a loss associated with a fire at a leased warehouse facility and one-time transaction and separation costs, and higher mark-to-market gains, partially offset by costs recognized in the first quarter of fiscal 2024 related to the cybersecurity incident.

Refer to the "Segment Analysis" below within this Item 2 for a discussion of segment EBITA.

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Three Months Ended

June 30, Nine Months Ended

(in millions) 2023 2022 Change 2023 2022 Change

(in millions) 2023 2022 Change

Restructuring and impairment costs $ 39 $ 345 -89 %

Restructuring and impairment costs for the three-month period ended June 30, 2023 included $67 million in severance charges and $14 million in other long-lived asset impairments and other restructuring costs.

Restructuring and impairment costs for the nine-month period ended June 30, 2023 included $498 million of impairment costs related to businesses classified or previously classified as held-for-sale, $184 million of goodwill impairment costs related to the Silent-Aire reporting unit, $114 million in severance charges and $48 million in other long-lived asset impairments and other restructuring costs.

Restructuring and impairment costs for the three-month period ended June 30, 2022 included $60 million of impairment costs related to businesses classified as held-for-sale, $52 million of severance charges, $7 million of other long-lived asset impairments and other restructuring costs and $2 million of impairment related to internal-use software projects that were no longer probable of being completed.

Restructuring and impairment costs for the nine-month period ended June 30, 2022 included $235 million of goodwill impairment costs related to the North America Retail reporting unit, $146 million of impairment costs related to businesses classified or previously classified as held-for-sale, $89 million of severance charges, $46 million of other long-lived asset

impairments and other restructuring costs, and $38 million of impairment related to internal-use software projects that were no longer probable of being completed.

Refer to Note 4, "Assets and Liabilities Held for Sale," Note 8, "Goodwill and Other Intangible Assets," and Note 17, "Restructuring and Related 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 December 31, 2023 included $39 million in severance and other charges resulting from restructuring initiatives.

Restructuring and impairment costs for the three-month period ended December 31, 2022 included $288 million of impairment costs related to the North America and Global Retail business which was previously classified as held-for-sale and $57 million in severance and other charges resulting from restructuring initiatives.

Refer to Note 4, "Assets and Liabilities Held for Sale," and Note 17, "Restructuring and Related 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

June 30, Nine Months Ended

(in millions) 2023 2022 Change 2023 2022 Change

2023 2022 Change

Interest expense, net of capitalized interest costs $ 91 $ 69 32 %

Other financing charges 24 10 140 %

Interest income (5) (4) 25 %

Net foreign exchange results for financing activities (11) (8) 38 %

Net financing charges $ 99 $ 67 48 %

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

Equity Income

Three Months Ended

June 30, Nine Months Ended

(in millions) 2023 2022 Change 2023 2022 Change

Equity income $ 78 $ 63 24 % $ 190 $ 175 9 %

The increase in equity income for the three and nine months ended June 30, 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.

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

Income Tax (Benefit) Provision

Three Months Ended

June 30, Nine Months Ended

(in millions) 2023 2022 Change 2023 2022 Change

(in millions) 2023 2022 Change

Income tax (benefit) provision $ (1) $ 14 *

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* Measure not meaningful

The decrease in the effective tax rate for the three and nine months ended June 30, 2023 was primarily due to reserve adjustments for uncertain tax positions resulting from tax audit developments and statute expirations, 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.

The decrease in the effective tax rate for the three-month period ended December 31, 2023 was primarily due to Swiss tax reform and the benefits of continuing global tax planning, partially offset by the establishment of a deferred tax liability on the outside basis difference of the Company's investment in certain consolidated subsidiaries and tax rate differentials.

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

Income Attributable to Noncontrolling Interests

Three Months Ended

June 30, Nine Months Ended

(in millions) 2023 2022 Change 2023 2022 Change

Income attributable to noncontrolling interests $ 73 $ 64 14 % $ 152 $ 143 6 %

The increase in income attributable to noncontrolling interests for the three and nine months ended June 30, 2023 was primarily due to higher net income at certain partially-owned affiliates within the Global Products segment.

Net Income Attributable to Johnson Controls

Three Months Ended

June 30, Nine Months Ended

(in millions) 2023 2022 Change 2023 2022 Change

Net income attributable to Johnson Controls $ 1,049 $ 379 * $ 1,300 $ 771 69 %

* Measure not meaningful

The increase in net income attributable to Johnson Controls for the three months ended June 30, 2023 was primarily due to lower income tax provision and higher gross profit, both of which are discussed above.

The increase in net income attributable to Johnson Controls for the nine months ended June 30, 2023 was primarily due to higher gross profit and lower income tax provision, partially offset by higher SG&A and restructuring and impairment costs, all of which are discussed above.

Diluted earnings per share attributable to Johnson Controls for the three months ended June 30, 2023 was $1.53 compared to $0.55 for the three months ended June 30, 2022.

Diluted earnings per share attributable to Johnson Controls for the nine months ended June 30, 2023 was $1.89 compared to $1.10 for the nine months ended June 30, 2022.

Comprehensive Income Attributable to Johnson Controls

Three Months Ended

June 30, Nine Months Ended

(in millions) 2023 2022 Change 2023 2022 Change

Comprehensive income attributable to Johnson Controls $ 1,025 $ 62 * $ 1,341 $ 543 *

* Measure not meaningful

The increase in comprehensive income attributable to Johnson Controls for the three months ended June 30, 2023 was due to higher net income attributable to Johnson Controls ($670 million) and an increase in other comprehensive income attributable to Johnson Controls ($293 million) primarily resulting from currency translation adjustments.

The increase in comprehensive income attributable to Johnson Controls for the nine months ended June 30, 2023 was due to higher net income attributable to Johnson Controls ($529 million) and an increase in other comprehensive income attributable to Johnson Controls ($269 million) primarily resulting from currency translation adjustments.

Segment Analysis

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Three Months Ended

June 30, Nine Months Ended

(in millions) 2023 2022 Change 2023 2022 Change

(in millions) 2023 2022 Change

Building Solutions North America $ 2,487 $ 2,367 5 %

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$ 6,094 $ 6,068 — %

Three Months:

• The increase in Building Solutions North America was due to higher prices and volumes ($246 million) and incremental sales related to business acquisitions ($5 million), partially offset by the unfavorable impact of foreign currency translation ($12 million).

Excluding the impacts of business acquisitions and foreign currency translation, sales growth was led by low-teens growth in HVAC & Controls and high single-digit growth in Fire & Security.

• The increase in Building Solutions EMEA/LA was due to higher prices ($89 million) and the net impact of business acquisitions and divestitures ($6 million), partially offset by the unfavorable impact of foreign currency translation ($2 million).

Excluding the impacts of foreign currency translation and business acquisitions and divestitures, sales growth was led by mid-teens growth in service and high single-digit growth in HVAC & Controls and Fire & Security.

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 ($98 million) and incremental sales related to business acquisitions ($8 million), partially offset by the unfavorable impact of foreign currency translation ($35 million).

Excluding the impacts of foreign currency translation and business acquisitions, sales growth was led by high-teen growth in service and continued momentum for HVAC & Controls.

By region, sales in China grew over 25%, with strong double-digit growth in the service and install businesses as China rebounded from COVID-19 shutdowns in the prior year.

• The increase in Global Products was due to higher prices ($162 million) and incremental sales related to business acquisitions ($5 million), partially offset by the unfavorable impact of foreign currency translation ($51 million).

Excluding the impacts of foreign currency translation and business acquisitions, sales growth was driven by growth in Applied, Fire Detection, Industrial Refrigeration and Commercial Ducted HVAC products.

Year-to-Date:

• The increase in Building Solutions North America was due to higher prices and volumes ($771 million) and incremental sales related to business acquisitions ($17 million), partially offset by the unfavorable impact of foreign currency translation ($41 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 ($296 million) and the net impact of business acquisitions and divestitures ($27 million), partially offset by the unfavorable impact of foreign currency translation ($141 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 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 ($225 million) and incremental sales related to business acquisitions ($8 million), partially offset by the unfavorable impact of foreign currency translation ($147 million).

Excluding the impacts of foreign currency translation and business acquisitions, 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 ($562 million) and incremental sales related to business acquisitions ($5 million), partially offset by the unfavorable impact of foreign currency translation ($269 million).

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

• The increase in Building Solutions North America was primarily due to organic growth, including higher prices ($98 million), incremental sales related to business acquisitions ($16 million) and the favorable impact of foreign currency translation ($6 million).

Excluding the impacts of foreign currency translation and business acquisitions and divestitures, sales growth was led by double-digit growth in Applied HVAC & Controls.

• The increase in Building Solutions EMEA/LA was primarily due to the favorable impact of foreign currency translation ($42 million), organic growth, including higher prices ($18 million) and incremental sales related to business acquisitions ($6 million).

Excluding the impacts of foreign currency translation and business acquisitions and divestitures, sales growth was led by continued momentum in Applied HVAC & Controls and Fire & Security, led by high-single digit growth in Service.

• The decrease in Building Solutions Asia Pacific was primarily due to organic sales declines ($131 million) and the unfavorable impact of foreign currency translation ($10 million).

Excluding the impacts of foreign currency translation and business acquisitions and divestitures, sales decreased as mid single-digit Service growth was more than offset by accelerating weakness in the China Install business.

• The decrease in Global Products was due to the net impact of lower volumes and higher prices ($28 million) and the unfavorable impact of foreign currency translation ($10 million), partially offset by the net impact of business acquisitions and divestitures ($20 million).

Excluding the impacts of foreign currency translation and business acquisitions and divestitures, sales decreased as low single-digit growth in Commercial HVAC was more than offset by declines in global Residential sales.

Segment EBITA

Three Months Ended

June 30, Nine Months Ended

(in millions) 2023 2022 Change 2023 2022 Change

(in millions) 2023 2022 Change

Building Solutions North America $ 285 $ 267 7 %

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Global Products 369 382 -3 %

$ 1,170 $ 998 17 % $ 2,913 $ 2,521 16 %

Three Months:

• The increase in Building Solutions North America was primarily due to favorable price/cost, ongoing productivity savings and growth in service.

• The increase in Building Solutions EMEA/LA was primarily due to favorable price/cost and productivity improvements.

• The increase in Building Solutions Asia Pacific was primarily due to service performance, favorable price/cost and productivity savings.

• The increase in Global Products was primarily due to favorable price/cost and productivity savings, partially offset by the unfavorable impact of continued weakness in the residential North America market and foreign currency translation ($11 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 price/cost and productivity savings.

• 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 ($21 million).

• The increase in Global Products was primarily due to favorable price/cost and productivity savings, partially offset by unfavorable mix, an uninsured loss associated with a fire at a leased warehouse facility and the unfavorable impact of foreign currency translation ($36 million).

• The increase in Building Solutions North America was primarily due to favorable price/cost as higher margin backlog converted to sales and continued growth in Service.

• The increase in Building Solutions EMEA/LA was primarily due to growth in Service.

• The decrease in Building Solutions Asia Pacific was primarily due to continued weakness in the China Install business.

• The decrease in Global Products was primarily due to lower volumes driving unfavorable manufacturing absorption and unfavorable mix, partially offset by favorable price and an uninsured loss associated with a fire at a leased warehouse facility in the prior year.

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

At June 30, 2023, the backlog was $13.3 billion, of which $12.0 billion was attributable to the building solutions (field) business.

At December 31, 2023, the backlog was $13.7 billion, of which $12.1 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 June 30, 2023, remaining performance obligations were $19.2 billion, which is $5.9 billion higher than the Company's backlog of $13.3 billion.

At December 31, 2023, remaining performance obligations were $19.9 billion, which is $6.2 billion higher than the Company's backlog of $13.7 billion.

Differences between the Company’s remaining performance obligations and backlog are primarily due to:

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Working Capital

June 30, September 30,

December 31, September 30,

(in millions) 2023 2023 Change

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Current liabilities (12,409) (11,084)

Cash and cash equivalents (1,057) (2,031)

Short-term debt 186 669

Current portion of long-term debt 1,081 865

Working capital (as defined) $ 1,088 $ (51) *

Working capital $ (355) $ (347) 2 %

Accounts receivable - net $ 6,045 $ 6,006 1 %

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Accounts payable 3,976 4,268 (7 %)

* Measure not meaningful

• Working capital is a non-GAAP financial measure.

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

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

• The increase in working capital at June 30, 2023 as compared to September 30, 2022, was primarily due to increases in accounts receivable due to increased sales and timing of collections and increases in inventory due to seasonality factors and softer demand in the residential end market.

• The Company’s days sales in accounts receivable at June 30, 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 June 30, 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 were 83 days at June 30, 2023 and 88 days at September 30, 2022.

• Working capital is approximately flat at December 31, 2023 as compared to September 30, 2023.

The seasonal increase in inventory, the reduction in accounts payable due to timing, and the increase in cash was offset by higher current borrowings.

Cash Flows From Continuing Operations

Nine Months Ended June 30,

Three Months Ended December 31,

(in millions) 2023 2022

Cash provided by operating activities $ 831 $ 811

Cash used by operating activities $ (246) $ (296)

Cash used by investing activities (74) (189)

Cash provided (used) by financing activities (1,111) 29

• The increase in cash provided by operating activities reflects higher net income and lower cash payments for inventory, partially offset by the timing of accounts payable and accrued liabilities payments.

• The decrease in cash used by investing activities was primarily due to lower capital expenditures, partially offset by higher cash paid for acquisitions.

• The decrease in cash provided by financing activities was primarily due to lower net cash inflows from debt and borrowings, partially offset by lower cash outflows for stock repurchases.

Cash provided by financing activities 1,228 9

• Cash used by operating activities was relatively consistent with prior year due to the seasonal usage of cash in the first fiscal quarter of the year.

• The decrease in cash used by investing activities was primarily due to lower capital expenditures and acquisitions.

• The increase in cash provided by financing activities was primarily due to increases in commercial paper and other short-term debt and the lack of share repurchases in the three months ended December 31, 2023.

Capitalization

June 30, September 30,

(in millions) 2023 2022 Change

December 31, September 30,

(in millions) 2023 2023

Short-term debt $ 1,998 $ 385

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Cash and cash equivalents 1,801 835

Total net debt 8,707 6,929 26 %

Shareholders’ equity attributable to Johnson Controls ordinary shareholders

Net debt $ 8,808 $ 8,013

Shareholders’ equity attributable to Johnson Controls ordinary shareholders ("Equity")

$ 16,698 $ 16,545

Total capitalization $ 25,031 $ 23,197 8 %

Total net debt as a % of total capitalization 34.8 % 29.9 %

• Net debt and net debt as a percentage of total capitalization are non-GAAP financial measures.

The Company believes the percentage of total net debt to total capitalization is useful to understanding the Company’s financial condition as it provides a view of the extent to which the Company relies on external debt financing for its funding and is a measure of risk to its shareholders.

Total capitalization (Total debt plus Equity) 27,307 25,393

Net capitalization (Net debt plus Equity) 25,506 24,558

Total debt as a % of Total capitalization 38.9 % 34.8 %

Net debt as a % of Net capitalization 34.5 % 32.6 %

• Net debt and net debt as a percentage of net capitalization are non-GAAP financial measures.

The Company believes the percentage of net debt to net capitalization is useful to understanding the Company’s financial condition as it provides a view of the extent to which the Company relies on external debt financing for its funding and is a measure of risk to its shareholders.

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

• As of June 30, 2023, approximately $3.0 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 December 31, 2023, approximately $3.0 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 $0.37 per common share in the quarter ended June 30, 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 $1.1 billion at June 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 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 $0.37 per common share in the quarter ended December 31, 2023 and intends to continue paying dividends throughout fiscal 2024.

• The Company believes its capital resources and liquidity position, including cash and cash equivalents of $1.8 billion at December 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 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 and bank loan markets.

No commercial paper was outstanding as of June 30, 2023.

Commercial paper outstanding totaled $172 million as of September 30, 2022.

Commercial paper outstanding totaled $1.4 billion as of December 31, 2023 and $0.2 billion as of September 30, 2023.

– 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 June 30, 2023 and September 30, 2022.

– The Company also has the ability to draw on its $2.5 billion revolving credit facility which is scheduled to expire in December 2028 or its $0.5 billion revolving credit facility which is scheduled to expire in December 2024.

There were no draws on the revolving credit facilities as of December 31, 2023 and 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.

As of June 30, 2023, the Company's credit ratings and outlook were as follows:

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

Rating Agency Short-Term Rating Long-Term Rating Outlook

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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 June 30, 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.

As of December 31, 2023, the Company was in compliance with all covenants and other requirements set forth in its credit agreements and the indentures governing its notes, and expects to remain in compliance for the foreseeable future.

None of the Company’s debt agreements limit access to stated borrowing levels or require accelerated repayment in the event of a decrease in the Company's credit rating.

• The key financial assumptions used in calculating the Company’s pension liability are determined annually, or whenever plan assets and liabilities are re-measured as required under accounting principles generally accepted in the U.S., including the expected rate of return on its plan assets.

In fiscal 2023, the Company believes the long-term rate of return will approximate 8.25%, 3.70% and 6.65% for U.S.

pension, non-U.S.

pension and postretirement plans, respectively.

During the first nine months of fiscal 2023, the Company made approximately $38 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 and $3 million in cash to its postretirement plans in fiscal 2023.

• The Company earns a significant amount of its income outside of the parent company.

Outside basis differences in these subsidiaries are deemed to be permanently reinvested except in limited circumstances.

However, in the first quarter of fiscal 2024, the Company provided income tax expense related to a change in the Company's assertion over the outside basis differences of the Company’s investment in certain consolidated subsidiaries.

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.

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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.

In the U.S., should the Company require more capital than is generated by its operations, the Company could elect to raise capital in the U.S.

through debt or equity issuances.

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In addition, the Company expects existing non-U.S.

cash, cash equivalents, short-term investments and cash flows from operations to continue to be sufficient to fund the Company’s non-U.S.

cash, cash equivalents, short-term investments and cash flows from operations to continue to be sufficient to fund the

Company’s non-U.S.

operating activities and cash commitments for investing activities, such as material capital expenditures, for at least the next twelve months and thereafter for the foreseeable future.

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The amounts involved may be material.

• Refer to Note 10, "Debt and Financing Arrangements," of the notes to the consolidated financial statements for additional information on debt activity and items impacting capitalization.

• Refer to Note 10, "Debt and Financing Arrangements," of the notes to the consolidated financial statements for additional information on debt balances and items impacting capitalization.

Co-Issued Securities:

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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 (in millions):

Nine Months Ended June 30, 2023 Year Ended

September 30, 2022

Net sales $ — $ —

Gross profit — —

Net loss (390) (268)

Income attributable to noncontrolling interests — —

Net loss attributable to the entity (390) (268)

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

Nine Months Ended June 30, 2023 Year Ended

The following table presents the Net loss attributable to the Parent Company and TFSCA (collectively, the "Obligor Group") and the net income (loss) attributable to intercompany transactions between the Obligor Group and subsidiaries of the Parent Company other than TFSCA (collectively, the "Non-Obligor Subsidiaries") which are excluded from the Net loss attributable to the Obligor Group (in millions):

Three Months Ended December 31, 2023 Year Ended

September 30, 2023

Net sales $ — $ —

Gross profit — —

Net income (loss) (81) 92

Income attributable to noncontrolling interests — —

Net income (loss) attributable to the entity (81) 92

The following table presents summarized balance sheet information as of June 30, 2023 and September 30, 2022 (in millions):

June 30, 2023 September 30, 2022

Current assets $ 207 $ 1,231

Noncurrent assets 243 243

Current liabilities 2,314 5,463

Noncurrent liabilities 8,232 7,176

Noncontrolling interests — —

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

June 30, 2023 September 30, 2022

Net loss attributable to the Obligor Group $ (146) $ (458)

Net income (loss) attributable to intercompany transactions 139 (139)

The Obligor Group does not have sales, gross profit or amounts attributable to noncontrolling interests.

The following table presents summarized balance sheet information of the Obligor Group and intercompany balances between the Obligor Group and the Non-Obligor Subsidiaries which are excluded from the Obligor Group amounts (in millions):

Obligor Group Intercompany Balances

December 31, 2023 September 30, 2023 December 31, 2023 September 30, 2023

Current assets $ 1,081 $ 26 $ 422 $ 5,608

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Noncurrent liabilities 7,722 7,585 9,483 3,462

Noncontrolling interests — —

The same accounting policies as described in Note 1, "Summary of Significant Accounting Policies," of the Company's Annual Report on 10-K for the year ended September 30, 2023 are used by the Parent Company and each of its subsidiaries in connection with the summarized financial information presented above.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of June 30, 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.

As of December 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, 2023.

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