What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-31 compared with 2024-05-01 · 98 added, 83 removed, 261 unchanged (41% of the section changed)

17 unchanged sentences

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

the Company's ability to successfully execute and complete portfolio simplification, including the possibility that the expected benefits will not be realized or will not be realized within the expected time frame;

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

16 unchanged sentences

Johnson Controls International plc, headquartered in Cork, Ireland, is a global leader in smart, healthy and sustainable buildings, serving a wide range of customers in more than 150 countries.

The Company’s products, services, systems and solutions advance the safety, comfort and intelligence of spaces to serve people, places and the planet.

The Company’s products, services, systems and

solutions advance the safety, comfort and intelligence of spaces to serve people, places and the planet.

The Company is committed to helping its customers win and creating greater value for all of its stakeholders through its strategic focus on buildings.

3 unchanged sentences

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," "Second Quarter" or similar language refer to the three months ended March 31, 2024 compared to the three months ended March 31, 2023, while "Year-to-Date" refers to six months ended March 31, 2024 compared to the six months ended March 31, 2023.

References in the following discussion and analysis to "Three Months," "Third Quarter" or similar language refer to the three months ended June 30, 2024 compared to the three months ended June 30, 2023, while "Year-to-Date" refers to nine months ended June 30, 2024 compared to the nine months ended June 30, 2023.

Macroeconomic Trends

2 unchanged sentences

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 six months ended March 31, 2024, the Company observed continued softening of economic conditions in China, negatively impacting the performance of the Building Solutions Asia Pacific segment.

During the nine months ended June 30, 2024, the Company observed continued 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.

9 unchanged sentences

Revenue and profits were negatively impacted by movements in foreign exchange rates against the U.S.

dollar during the three and six months ended March 31, 2024.

dollar during the three and nine months ended June 30, 2024.

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

5 unchanged sentences

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.

5 unchanged sentences

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.

Portfolio Simplification Transactions

The Company has been engaged in an ongoing evaluation of its non-core product lines in connection with its objective to be a pure-play provider of comprehensive solutions for commercial buildings.

During the third quarter of fiscal 2024, the Company entered into a definitive agreement to sell its Air Distribution Technologies business included within the Global Products segment.

During the fourth quarter of fiscal 2024, the Company entered into a definitive agreement to sell its Residential and Light Commercial ("R&LC") HVAC business to Robert Bosch GmbH (“Bosch”).

The RL&C business includes the Company's North America Ducted business and Johnson Controls-Hitachi Air Conditioning Holding (UK) Ltd., the Company’s global Residential joint venture with Hitachi Global Life Solutions, Inc.

(“Hitachi”), of which the Company owns 60% and Hitachi owns 40%.

The Company expects to report the operating results of the R&LC HVAC business in discontinued operations beginning in the fourth quarter of fiscal 2024.

The Company expects that the sale of the Air Distribution Technologies business will close in the fourth quarter of fiscal 2024 and the sale of the RL&C business will close in the fourth quarter of fiscal 2025.

Cybersecurity Incident

5 unchanged sentences

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

The impact on net income for the six months ended March 31, 2024 was approximately $29 million.

The impact is primarily attributable to expenses associated with the response to, and remediation of, the incident, and is net of insurance recoveries and revenues deferred at the end of fiscal 2023 which were recognized in the first half of fiscal 2024.

Additional expenses are expected in the remainder of the fiscal year, but are not expected to be material.

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.

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 overall impact of the cybersecurity incident did not have a material impact on net income, net of insurance recoveries, or cash flows from operations in the third quarter of fiscal 2024, nor is the impact expected to be material for the full year fiscal 2024.

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.

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

Restructuring Activities

1 unchanged sentence

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

In the three and six months ended March 31, 2024, an additional $24 million and $63 million, respectively, of restructuring charges related to this plan were incurred.

In the three and nine months ended June 30, 2024, an additional $40 million and $103 million, respectively, of

restructuring charges related to this plan were incurred.

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 March 31, Six Months Ended March 31,

Three Months Ended June 30, Nine Months Ended June 30,

(in millions) 2024 2023 Change 2024 2023 Change

Net sales $ 7,231 $ 7,133 1 % $ 20,024 $ 19,887 1 %

For the three months ended March 31, 2024, higher organic sales ($76 million) and the net impact of acquisitions and divestitures ($21 million) were substantially offset by the unfavorable impact of foreign currency translation ($84 million).

Excluding the impact of foreign currency translation and business acquisitions and divestitures, net sales increased 1% over the prior year, primarily attributable to growth in Service, which was partially offset by continued weakness in China's Systems/Install business and declines in Residential HVAC.

For the six months ended March 31, 2024, the net impact of acquisitions and divestitures ($62 million) and higher organic sales ($33 million) were substantially offset by the unfavorable impact of foreign currency translation ($56 million).

Excluding the impact of foreign currency translation and business acquisitions and divestitures, net sales were flat compared to the prior year, as growth in Service was offset primarily by weakness in China's Systems/Install business and declines in global residential HVAC.

The increase in net sales for the three months ended June 30, 2024 was due to higher organic sales ($240 million) and the net impact of acquisitions and divestitures ($7 million), partially offset by the unfavorable impact of foreign currency translation ($149 million).

Excluding the impact of foreign currency translation and business acquisitions and divestitures, net sales increased 3% over the prior year, as strong high single-digit Service growth more than offset continued weakness in China’s Systems/Install business.

The increase in net sales for the nine months ended June 30, 2024 was due to higher organic sales ($273 million) and the net impact of acquisitions and divestitures ($69 million), partially offset by the unfavorable impact of foreign currency translation ($205 million).

Excluding the impact of foreign currency translation and business acquisitions and divestitures, net sales increased 1% over the prior year, as growth in Services was offset primarily by weakness in China's Systems/Install business and declines in global residential HVAC.

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

Cost of Sales / Gross Profit

Three Months Ended March 31, Six Months Ended March 31,

Three Months Ended June 30, Nine Months Ended June 30,

(in millions) 2024 2023 Change 2024 2023 Change

2 unchanged sentences

% of sales 34.4 % 34.1 % 30 bp 33.3 % 34.0 % (70) bp

Decreases in gross profit for both the three and six months ended March 31, 2024 were primarily due to unfavorable mix and lower volumes in the Global Products segment, while higher gross profit in the Systems/Install business of the Building Solutions segments was partially offset by lower gross profit in the Service business due to unfavorable service mix.

Gross profit increased for the three months ended June 30, 2024, primarily due to higher gross profit in the Systems/Install business of the Building Solutions segments.

Gross profit decreased for the nine months ended June 30, 2024, primarily due to unfavorable mix and lower volumes in the Global Products segment, partially offset by higher gross profit in the Systems/Install business of the Building Solutions segments and the Services business.

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

Selling, General and Administrative Expenses

Three Months Ended March 31, Six Months Ended March 31,

Three Months Ended June 30, Nine Months Ended June 30,

(in millions) 2024 2023 Change 2024 2023 Change

1 unchanged sentence

% of sales 15.1 % 21.8 % (670) bp 24.2 % 23.7 % 50 bp

For the three months ended March 31, 2024, the increase in SG&A was primarily due to the accrual of the water systems AFFF settlement agreement costs ($750 million), partially offset by lower transaction and separation costs and higher mark-to-market gains.

For the six months ended March 31, 2024, the increase in SG&A was primarily due to the accrual of the water systems AFFF settlement agreement costs ($750 million), partially offset by lower transaction and separation costs, higher mark-to-market gains, and the absence of the prior year loss associated with a fire at a leased warehouse facility.

For the three months ended June 30, 2024, decreases in SG&A were due to lower costs due to operating efficiencies ($36 million), water systems AFFF insurance recoveries ($351 million), favorable earn-out adjustments ($61 million) and reductions in miscellaneous other expenses including transaction and separation costs ($17 million).

For the nine months ended June 30, 2024, increases in SG&A were due to the net unfavorable impact of the water systems AFFF settlement agreement costs and insurance recoveries ($399 million), partially offset by lower costs due to operating efficiencies ($104 million), favorable earn-out adjustments ($38 million), the favorable impact of a prior year loss associated with a fire at a leased warehouse facility ($40 million), and reductions in miscellaneous other expenses including transaction and separation costs ($68 million).

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

Refer to Note 21, "Commitments and Contingencies," of the notes to the consolidated financial statements for further disclosure related to the water systems AFFF settlement.

Refer to Note 21, "Commitments and Contingencies," of the notes to the consolidated financial statements for further disclosure related to the water systems AFFF settlement and related insurance recoveries.

Restructuring and Impairment Costs

Three Months Ended March 31, Six Months Ended March 31,

Three Months Ended June 30, Nine Months Ended June 30,

(in millions) 2024 2023 2024 2023

Goodwill impairments $ 21 $ — $ 251 $ 184

Held for sale impairments 35 — 35 498

Other impairments 10 — 10 —

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Net Financing Charges

Three Months Ended March 31, Six Months Ended March 31,

Three Months Ended June 30, Nine Months Ended June 30,

(in millions) 2024 2023 Change 2024 2023 Change

1 unchanged sentence

Other financing charges 6 13 (54) 34 34 —

Gain on debt extinguishment (25) — * (25) — *

Interest income (5) (10) (50) (15) (17) (12)

1 unchanged sentence

Net financing charges $ 71 $ 80 (11) % $ 263 $ 218 21 %

* Measure not meaningful

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 March 31, Six Months Ended March 31,

Three Months Ended June 30, Nine Months Ended June 30,

(in millions) 2024 2023 Change 2024 2023 Change

4 unchanged sentences

Segment Analysis

Management evaluates the performance of its segments primarily on segment earnings before interest, taxes and amortization ("EBITA"), which represents income before income taxes and noncontrolling interests, excluding corporate expenses, amortization of intangible assets, restructuring and impairment costs, the water systems AFFF settlement costs, net mark-to-market gains and losses related to pension and postretirement plans and restricted asbestos investments, and net financing charges.

Three Months Ended March 31, Six Months Ended March 31,

Management evaluates the performance of its segments primarily on segment earnings before interest, taxes and amortization ("EBITA"), which represents income before income taxes and noncontrolling interests, excluding corporate expenses, amortization of intangible assets, restructuring and impairment costs, the water systems AFFF settlement costs and insurance recoveries, net mark-to-market gains and losses related to pension and postretirement plans and restricted asbestos investments, and net financing charges.

Three Months Ended June 30, Nine Months Ended June 30,

(in millions) 2024 2023 Change 2024 2023 Change

5 unchanged sentences

Three Months:

• The increase in Building Solutions North America was primarily due to organic growth, including higher prices ($196 million), incremental sales related to business acquisitions ($16 million) and the favorable impact of foreign currency translation ($7 million).

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

• The increase in Building Solutions EMEA/LA was primarily due to organic growth, including higher prices ($36 million).

Sales growth was led by mid-teen growth in Service.

• The increase in Building Solutions North America was primarily due to organic growth ($216 million) and incremental sales related to business acquisitions ($16 million).

Excluding the impact of business acquisitions, sales growth was led by growth greater than 20% in Applied HVAC & Controls.

System sales increased 9% and Services increased 6%.

• The increase in Building Solutions EMEA/LA was primarily due to organic growth across the portfolio ($82 million), partially offset by the unfavorable impact of foreign currency translation ($46 million).

Excluding the impact of foreign currency translation, sales growth was led by mid-teen growth in Services and low single-digit growth in Systems.

• The decrease in Building Solutions Asia Pacific was primarily due to organic sales declines ($134 million) and the unfavorable impact of foreign currency translation ($25 million).

Excluding the impacts of foreign currency translation, sales decreased as high single-digit Service growth was more than offset by continued weakness in the China Systems/Install business.

• The decrease in Global Products was due to the unfavorable impact of foreign currency translation ($54 million) and the net impact of lower volumes and higher prices ($13 million).

Excluding the impacts of foreign currency translation, sales decreased as growth in Applied and Commercial HVAC was more than offset by declines in Residential HVAC and Fire & Security.

Excluding the impact of foreign currency translation, sales decreased as high single-digit Services growth was more than offset by continued weakness in System sales in China.

• Global Products net sales were flat as organic growth ($76 million) was offset by the unfavorable impact of foreign currency translation ($80 million).

Excluding the impact of foreign currency translation, sales increased as growth in Commercial and Residential HVAC was offset by declines in Fire & Security.

Year-to-Date:

• The increase in Building Solutions North America was primarily due to organic growth, including higher prices ($294 million), incremental sales related to business acquisitions ($32 million) and the favorable impact of foreign currency translation ($13 million).

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

• The increase in Building Solutions EMEA/LA was primarily due to organic growth, including higher prices ($54 million) and the favorable impact of foreign currency translation ($38 million).

Excluding the impacts of foreign currency translation, sales growth was led by growth in Service.

• The increase in Building Solutions North America was primarily due to organic growth ($510 million), incremental sales related to business acquisitions ($48 million) and the favorable impact of foreign currency translation ($15

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

• The increase in Building Solutions EMEA/LA was primarily due to organic growth ($136 million), partially offset by the unfavorable impact of foreign currency translation ($8 million).

Excluding the impact of foreign currency translation, sales growth was led by growth in Services.

• The decrease in Building Solutions Asia Pacific was primarily due to organic sales declines ($408 million) and the unfavorable impact of foreign currency translation ($68 million).

Excluding the impacts of foreign currency translation, sales decreased as Service growth was more than offset by weakness in the China Systems/Install business.

• The decrease in Global Products was due to the unfavorable impact of foreign currency translation ($64 million) and the net impact of lower volumes and higher prices ($41 million), partially offset by the net impact of business acquisitions and divestitures ($24 million).

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

Excluding the impact of foreign currency translation, sales decreased as Services growth was more than offset by weakness in the China Systems business.

• The decrease in Global Products was due to the unfavorable impact of foreign currency translation ($144 million), partially offset by organic growth ($35 million) and the net impact of business acquisitions and divestitures ($17 million) .

Excluding the impacts of foreign currency translation and business acquisitions and divestitures, sales increased as growth in Commercial HVAC was partially offset by declines in Residential HVAC.

Segment EBITA

Three Months Ended March 31, Six Months Ended March 31,

Three Months Ended June 30, Nine Months Ended June 30,

(in millions) 2024 2023 Change 2024 2023 Change

4 unchanged sentences

Three Months:

• 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 productivity benefits, higher margin backlog converting to sales, and growth in higher margin Service.

• The decrease in Building Solutions Asia Pacific was primarily due to continued declines in the Systems/Install business in China offsetting the impact of positive mix in Service.

• The decrease in Global Products was primarily due to unfavorable mix and volumes, a charge related to a product quality issue, and the more favorable impact of an acquisition earn-out liability adjustment in the prior year.

• The increase in Building Solutions North America was primarily due to higher margin backlog conversion, improved productivity and a favorable earn-out liability adjustment in the current quarter.

• The increase in Building Solutions EMEA/LA was primarily driven by positive mix from the growth in Services and the conversion of higher margin Systems backlog.

• The decrease in Building Solutions Asia Pacific was primarily driven by weakness in China, partially offset by positive mix from the Service business.

• The increase in Global Products was primarily due to positive price/cost and improved productivity, partially offset by unfavorable mix primarily from ongoing weakness in China.

Year-to-Date:

• 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 productivity benefits and growth in higher margin Service.

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

• The decrease in Global Products was primarily due to unfavorable mix, a charge related to a product quality issue, and the more favorable impact of an acquisition earn-out liability adjustment in the prior year, partially offset by the absence of the prior year loss associated with a fire at a leased warehouse facility.

• The increase in Building Solutions North America was primarily due to higher margin backlog conversion and continued growth in Services.

A favorable earn-out liability adjustment also contributed to the increase.

• The increase in Building Solutions EMEA/LA was primarily due to growth in higher margin Services.

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

• The decrease in Global Products was primarily the result of unfavorable mix, the negative impact of a product quality issue and less favorable earn-out liability adjustments in the current year, partially offset by productivity improvements and the absence of the prior year loss associated with a fire at a leased warehouse facility.

Backlog and Orders

Backlog and orders are additional metrics that are meant to provide management with a deeper level of insight into the progress of specific strategic and growth initiatives.

Backlog is applicable to sales of systems and services and totaled $15.2 billion at March 31, 2024, including both Building Solutions and Global Products.

Backlog is applicable to sales of systems and services and totaled $15.5 billion at June 30, 2024, including both Building Solutions and Global Products.

Orders provide management with a signal of customer demand for the Company's products and services, as well as an indication of future revenues and performance.

2 unchanged sentences

Backlog Orders

(in billions) March 31, 2024 Year-over-Year Change (1)

(in billions) June 30, 2024 Year-over-Year Change (1)

Three months ended

March 31, 2024 Year-over-Year Change (1)

June 30, 2024 Year-over-Year Change (1)

Building Solutions North America $ 9.0 14 % $ 3.1 5 %

2 unchanged sentences

Total Building Solutions $ 12.9 10 % $ 5.0 5 %

(1) Change is compared to March 31, 2023 (backlog) and the three months ended March 31, 2023 (orders) and excludes the impact of mergers, acquisitions, dispositions and foreign currency.

Remaining performance obligations were $21.2 billion at March 31, 2024.

(1) Change is compared to June 30, 2023 (backlog) and the three months ended June 30, 2023 (orders) and excludes the impact of mergers, acquisitions, dispositions and foreign currency.

Remaining performance obligations were $ 21.4 billion at June 30, 2024.

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

5 unchanged sentences

Working Capital

(in millions) March 31, 2024 September 30, 2023 Change

(in millions) June 30, 2024 September 30, 2023 Change

Current assets $ 12,153 $ 10,737

4 unchanged sentences

Accounts payable 4,128 4,268 (3) %

* Measure not meaningful

• The decrease in working capital was primarily due to higher current borrowings and the accrual for the water systems AFFF settlement costs, partially offset by increases in accounts receivable and the net impact of various other current assets and liabilities.

• During the three months ended March 31, 2024, the Company discontinued its receivables factoring programs.

The Company did not factor any receivables during the three months ended March 31, 2024, and does not expect to engage in any receivables factoring during the remainder of fiscal year 2024, resulting in an unfavorable impact of approximately $700 million on operating cash flows in fiscal 2024.

• The decrease in working capital was primarily due to higher current and short-term borrowings and the water systems AFFF settlement accrual, partially offset by increases in accounts receivable, AFFF insurance recovery receivables and the net impact of various other current assets and liabilities.

• In March 2024, the Company discontinued its receivables factoring programs.

The Company did not factor any receivables during the three months ended June 30, 2024, and does not expect to engage in any receivables factoring during the remainder of fiscal year 2024, resulting in an unfavorable impact of approximately $700 million on operating cash flows in fiscal 2024.

• Material cash requirements primarily consist of working capital, capital expenditures, dividends, minimum pension contributions, debt maturities and interest, operating leases, payments related to the water systems AFFF settlement, and any potential acquisitions or stock repurchases.

2 unchanged sentences

Cash Flows From Continuing Operations

Six Months Ended March 31,

Nine Months Ended June 30,

(in millions) 2024 2023

Cash provided (used) by operating activities $ (449) $ 18

Cash provided by operating activities $ 572 $ 831

Cash used by investing activities (310) (576)

Cash provided by financing activities 677 262

• The increase in cash used by operating activities was primarily due to increases in accounts receivable due to the discontinuation of factoring programs and tax items, partially offset by decreases in accounts payable due to the timing of payments.

• The decrease in cash used by investing activities was primarily due to greater cash usage in the prior year for acquisitions.

• The increase in cash provided by financing activities was primarily due to changes in net debt activity, partially offset by higher share repurchases in the six months ended March 31, 2024.

Cash used by financing activities (322) (1,111)

• The decrease in cash provided by operating activities was primarily due to increases in accounts receivable due to the discontinuation of factoring programs and to other assets due to AFFF insurance recovery receivables, partially offset by decreases in accounts payable and other accrued liabilities and reduced inventory growth.

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

• The decrease in cash used by financing activities was primarily due to changes in net debt activity, primarily commercial paper, partially offset by higher share repurchases in the nine months ended June 30, 2024.

Capitalization

(in millions) March 31, 2024 September 30, 2023

(in millions) June 30, 2024 September 30, 2023

Short-term debt $ 1,523 $ 385

12 unchanged sentences

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.

• As of March 31, 2024, approximately $2.5 billion remains available under the Company's share repurchase authorization, which does not have an expiration date and may be amended or terminated by the Board of Directors at any time without prior notice.

• As of June 30, 2024, approximately $2.1 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 March 31, 2024 and intends to continue paying dividends throughout fiscal 2024.

• The Company declared a dividend of $0.37 per common share in the quarter ended June 30, 2024 and intends to continue paying dividends throughout fiscal 2024.

• On April 12, 2024, Tyco Fire Products, a subsidiary of the Company, agreed to a settlement with a nationwide class of public water systems that detected PFAS in their drinking water systems that they allege to be associated with the use of AFFF.

Under the terms of the agreement, Tyco Fire Products agreed to contribute $750 million to resolve these PFAS claims.

Tyco Fire Products expects to contribute an initial $250 million on or about May 25, 2024, with the remaining $500 million to be contributed six months after preliminary court approval of the settlement, which is expected to be addressed by the MDL court in or around mid-May, 2024.

Tyco Fire Products has a significant amount of insurance through a number of insurers and expects to apply the proceeds recovered under its policies to cover a substantial portion of the total payment, although the specific amount and timing of any insurance recoveries are uncertain.

Tyco Fire Products contributed an initial payment of $250 million in June 2024, with the remaining $500 million due by the first quarter of fiscal 2025.

Prior to the date of the final contribution, Tyco Fire Products has agreed to contribute any applicable insurance recoveries in excess of the initial $250 million payment, up to the remaining $500 million due, within a specified period following the receipt of such recovery.

During the three months ended June 30, 2024, the Company recorded expected insurance recoveries of $351 million in selling, general and administrative expenses in the consolidated statements of income, substantially all of the proceeds of which are expected to be received in the fourth quarter of fiscal 2024.

In accordance with its agreement and recent insurance recovery, Tyco Fire Products will make an additional payment during the fourth quarter of fiscal 2024 of approximately $90 million, reducing its final payment to approximately $410 million.

The amounts and timing of any additional insurance recoveries are uncertain.

Refer to Note 21, "Commitments and Contingencies," of the notes to the consolidated financial statements for additional discussion of the water systems settlement.

• The Company believes its capital resources and liquidity position, including cash and cash equivalents of $843 million at March 31, 2024, are adequate to fund operations and meet its cash obligations for the foreseeable future.

• The Company believes its capital resources and liquidity position, including cash and cash equivalents of $862 million at June 30, 2024, are adequate to fund operations and meet its cash obligations for the foreseeable future.

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

and euro commercial paper and bank loan markets.

Commercial paper outstanding totaled $1.8 billion as of March 31, 2024 and $0.2 billion as of September 30, 2023.

Commercial paper outstanding totaled $941 million as of June 30, 2024 and $200 million 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.

1 unchanged sentence

– 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 March 31, 2024 and September 30, 2023.

There were no draws on the revolving credit facilities as of June 30, 2024 and September 30, 2023.

– In April 2024, the Company and its wholly-owned subsidiary, Tyco Fire & Security Finance S.C.A, co-issued $700 million unsecured, unsubordinated senior notes with an interest rate of 5.50% which is due April 2029.

In June 2024, the Company completed a debt tender offer to purchase $119 million of its 5.125% Notes due 2045.

• The Company's ability to access the global capital markets and the related cost of financing is dependent upon, among other factors, the Company's credit ratings.

As of March 31, 2024, the Company's credit ratings and outlook were as follows:

As of June 30, 2024, the Company's credit ratings and outlook were as follows:

Rating Agency Short-Term Rating Long-Term Rating Outlook

6 unchanged sentences

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

As of March 31, 2024, 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 June 30, 2024, 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.

33 unchanged sentences

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.

The Parent Company is incorporated and organized

under the laws of Ireland.

TFSCA is incorporated and organized under the laws of Luxembourg.

2 unchanged sentences

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):

Six Months Ended March 31, 2024 Year Ended

Nine Months Ended June 30, 2024 Year Ended

September 30, 2023

4 unchanged sentences

Obligor Group Intercompany Balances

March 31, 2024 September 30, 2023 March 31, 2024 September 30, 2023

June 30, 2024 September 30, 2023 June 30, 2024 September 30, 2023

Current assets $ 927 $ 26 $ 785 $ 5,608

12 unchanged sentences

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of March 31, 2024, 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.

As of June 30, 2024, 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