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Item 7. Management’s Discussion and Analysis

2024-11-19 compared with 2023-12-14 · 245 added, 195 removed, 330 unchanged (57% of the section changed)

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The Company is a global leader in engineering, manufacturing, commissioning and retrofitting building products and systems, including residential and commercial HVAC equipment, industrial refrigeration systems, controls, security systems, fire-detection systems and fire-suppression solutions.

The Company further serves customers by providing technical services, including maintenance, management, repair, retrofit and replacement of equipment (in the HVAC, industrial refrigeration, controls, security and fire-protection space), energy-management consulting and data-driven “smart building” services and solutions powered by its OpenBlue software platform and capabilities.

The Company's OpenBlue digital software platform enables enterprises to better manage their physical spaces by combining the Company's building products and services with cutting-edge technology and digital capabilities to enable data-driven “smart building” services and solutions.

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.

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Unless otherwise stated, references to years in this report relate to fiscal years rather than calendar years.

This discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity of the Company for the year ended September 30, 2023.

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

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

This discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity of the Company on a continuing operations basis for the year ended September 30, 2024 and should be read in conjunction with Item 8, the consolidated financial statements and the notes to consolidated financial statements.

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.

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

The Company expects continued softening in China in fiscal 2024.

During fiscal 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 stabilize in fiscal 2025, however, if conditions do not stabilize, results of the Building Solutions Asia Pacific segment could be negatively impacted.

As a result of the Company’s global presence, a significant portion of its revenues and expenses is denominated in currencies other than the U.S.

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

During fiscal 2023, revenue and profits were adversely impacted due to the strengthening of the U.S.

dollar against foreign currencies.

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

This demand is driven in part by government tax incentives, building performance standards and other regulations designed to limit emissions and combat climate change.

During fiscal 2024, revenue and profits were negatively 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, particularly within verticals including data centers, government, healthcare and higher education.

This demand is driven in part by capital investment, government tax incentives, building performance standards and regulations designed to limit emissions and combat climate change.

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

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This demand is supplemented by an increase in commitments in both the public and private sectors to reduce emissions and/or achieve net zero emissions.

The Company seeks to capitalize on these trends to drive growth by developing and delivering technologies and solutions to create smart, sustainable and healthy buildings.

The Company is

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

The Company 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 objectives.

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 conflicts between Russia and Ukraine and Israel and Hamas, and labor shortages.

Actions taken by the Company to mitigate supply chain disruptions and inflation, including expanding and redistributing its supplier network, supplier financing, price increases and productivity improvements, have generally been successful in offsetting some, but not all, of the impact of these trends.

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

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

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

The 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 Israel and Hamas, and labor shortages.

Actions taken by the Company to mitigate supply chain disruptions and inflation, including expanding and redistributing its supplier network, supplier financing, price increases and productivity improvements, have historically 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 primarily due to ongoing cost pressures.

Although the Company has experienced recent stabilization, it could experience further disruptions, and 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 Part I, Item 1A, of this Annual Report on Form 10-K for an additional discussion of risks.

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 fourth quarter of fiscal 2024, the Company completed the sale of 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”) for approximately $8.1 billion in cash with the Company's portion of the aggregate consideration being approximately $6.7 billion, inclusive of an upfront royalty payment for the licensing of the York tradename.

The R&LC HVAC 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 R&LC HVAC business, which was previously reported in the Global Products segment, meets the criteria to be classified as a discontinued operation and, as a result, its historical financial results are reflected in the consolidated financial statements as a discontinued operation, and assets and liabilities were reclassified as held for sale for all periods presented.

The Company expects that the sale of the R&LC HVAC business will close in the fourth quarter of fiscal 2025.

Cybersecurity Incident

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The 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 first quarter of fiscal 2024.

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 has not observed evidence of any impact to its digital products, services and solutions, including OpenBlue and Metasys.

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 fiscal 2024.

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

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

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

A substantial portion of direct costs incurred related to containing, investigating and remediating the incident, as well as business interruption losses, have been or are expected to be reimbursed through insurance recoveries.

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

Restructuring and Cost Optimization Initiatives

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

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

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

Additional restructuring charges are expected in subsequent quarters.

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

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

During the fourth quarter of fiscal 2024, the Company committed to a multi-year restructuring plan to address stranded costs and further right-size its global operations as a result of previously announced portfolio simplification actions.

It is expected that one-time restructuring costs, including severance and other employee termination benefits, contract termination costs, and certain other related cash and non-cash charges, of approximately $400 million will be incurred over the course of fiscal 2025, 2026 and 2027, resulting in expected annual cost savings of approximately $500 million upon full completion of the plan.

The Company’s ability to execute the most significant aspects of the restructuring plan will be dependent on the timing of the close of the R&LC HVAC business divestiture transaction.

Accordingly, the Company is unable to estimate the specific costs to be incurred and savings to be achieved in fiscal 2025;

however, depending on the timing of the closing of the transaction and the ability to execute more significant aspects of the planned restructuring actions, the impact of costs on net income could be material in fiscal 2025.

Restructuring costs will be incurred across all segments and Corporate functions.

FISCAL YEAR 2024 COMPARED TO FISCAL YEAR 2023

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Net sales $ 22,952 $ 22,331 3 %

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

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

The increase in net sales was due to higher organic sales ($790 million), partially offset by the negative impact of foreign currency translation ($98 million) and the net impact of acquisitions and divestitures ($71 million).

Excluding the impact of foreign currency translation and business acquisitions and divestitures, consolidated net sales increased 4% over the prior year, as strong growth in Products and Systems in the Building Solutions North America segment and growth in Services in all Building Solutions segments were partially offset primarily by weakness in China's Systems/Install business.

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

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% of sales 35.2 % 34.9 %

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

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

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

The increase in gross profit was primarily due to higher gross profit in the Systems/Install and Services businesses of the Building Solutions segments, partially offset by the Global Products segment.

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

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% of sales 24.7 % 24.1 %

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

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

The increase in selling, general and administrative expenses ("SG&A") was primarily due to the net impact of the water systems AFFF settlement agreement costs net of insurance recoveries ($383 million), partially offset by the year-over-year impact of net mark-to-market adjustments ($100 million) and productivity improvements.

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

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Year Ended September 30,

(in millions) 2023 2022 Change

(in millions) 2024 2023

Goodwill and other intangible asset impairments $ 296 $ 212

Held for sale impairments 35 498

Long-lived and other tangible asset impairments 36 78

Restructuring and related costs 143 261

Restructuring and impairment costs $ 510 $ 1,049

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

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

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

Refer to Note 2, "Acquisitions and Divestitures," "Note 3, "Assets and Liabilities Held for Sale and Discontinued Operations," Note 7, "Property, Plant and Equipment," Note 8, "Goodwill and Other Intangible Assets," and Note 17, "Restructuring and Related Costs," of the notes to consolidated financial statements for further disclosure related to the Company's restructuring plans and impairment costs.

Net Financing Charges

Year Ended September 30,

2023 2022 Change

Interest expense, net of capitalized interest costs $ 381 $ 297

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Interest income (17) (17)

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

Net foreign exchange on financing activities (35) (47)

Net financing charges $ 342 $ 258

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

Equity Income

Year Ended September 30,

(in millions) 2023 2022 Change

Equity income $ 265 $ 246 8 %

The increase in equity income was primarily due to higher income at certain partially-owned affiliates of the Johnson Controls - Hitachi joint venture.

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

Income Tax Provision

Income Tax Provision (Benefit)

Year Ended September 30,

(in millions) 2024 2023 Change

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

Income tax provision (benefit) $ 111 $ (468) *

Effective tax rate 7 % (42) %

* Measure not meaningful

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

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

For fiscal 2022, the effective tax rate for continuing operations was (1)% and was lower than the statutory tax rate primarily due to favorable impact of tax reserve adjustments as the result of expired statute of limitations for certain tax years and the benefits of continuing global tax planning initiatives, partially offset by the unfavorable impact of impairment and restructuring charges, valuation allowance adjustments, and the establishment of a deferred tax liability on the outside basis difference of the Company's investment in certain subsidiaries as a result of the planned divestitures and tax rate differentials.

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

The fiscal 2024 effective tax rate was higher than fiscal 2023 primarily due to the establishment of a deferred tax liability on the outside basis difference of the Company’s investment in certain subsidiaries as a result of the planned divestiture of its R&LC HVAC business, partially offset by lower tax reserve adjustments as the result of tax audit resolutions and expired statute of limitations for certain tax years, valuation allowance adjustments and the benefits of continuing global tax planning initiatives.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Income Attributable to Noncontrolling Interests

Pillar Two requires MNEs with an annual global revenue exceeding €750 million to pay a

global minimum tax of 15%.

The OECD has since issued administrative guidance providing transition and safe harbor rules around the implementation of the Pillar Two global minimum tax.

A number of countries, including Ireland, have enacted legislation to implement the core elements of Pillar Two, which will be effective for the Company beginning in fiscal 2025.

The Company continues to evaluate the impact on future periods of Pillar Two, including legislative updates and adoption by additional countries, which could result in an increase to the effective tax rate.

Income From Discontinued Operations, Net of Tax

Year Ended September 30,

(in millions) 2024 2023 Change

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

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

Net Income Attributable to Johnson Controls

Income from discontinued operations, net of tax $ 489 $ 452 8 %

The increase in income from discontinued operations, net of tax was primarily due to decreased SG&A as a result of productivity improvements.

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

FISCAL YEAR 2023 COMPARED TO FISCAL YEAR 2022

Year Ended September 30,

(in millions) 2023 2022 Change

Net income attributable to Johnson Controls

$ 1,849 $ 1,532 21 %

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

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

Comprehensive Income Attributable to Johnson Controls

Net sales $ 22,331 $ 20,637 8 %

The increase in net sales was due to higher organic sales ($1,947 million) and the net impact of acquisitions and divestitures ($113 million), partially offset by the negative impact of foreign currency translation ($366 million).

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

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

Cost of Sales / Gross Profit

Year Ended September 30,

(in millions) 2023 2022 Change

Comprehensive income attributable to

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

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

Cost of sales $ 14,527 $ 13,547 7 %

Gross profit 7,804 7,090 10 %

% of sales 34.9 % 34.4 %

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

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

Selling, General and Administrative Expenses

Year Ended September 30,

(in millions) 2023 2022 Change

Selling, general and administrative expenses $ 5,387 $ 5,078 6 %

% of sales 24.1 % 24.6 %

The increase in SG&A was primarily due to certain investments to support growth, transaction and separation costs, the year-over-year impact of net mark-to-market adjustments ($71 million) and a loss associated with a fire at a leased warehouse facility ($40 million), partially offset by the absence of non-recurring environmental remediation charges in the prior year ($255

million) and positive foreign currency translation.

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

Restructuring and Impairment Costs

Year Ended September 30,

(in millions) 2023 2022

Goodwill and other intangible assets impairments $ 212 $ 310

Held for sale impairments 498 229

Long-lived asset impairments 78 —

Restructuring and related costs 261 162

Restructuring and impairment costs $ 1,049 $ 701

Refer to Note 2, "Acquisitions and Divestitures," Note 3, "Assets and Liabilities Held for Sale and Discontinued Operations," Note 7, "Property, Plant and Equipment," Note 8, "Goodwill and Other Intangible Assets," and Note 17, "Restructuring and Related Costs," of the notes to consolidated financial statements for further disclosure related to the Company's restructuring plans and impairment costs.

Net Financing Charges

Year Ended September 30,

Interest expense, net of capitalized interest costs $ 297 $ 221

Other financing charges 50 27

Gain on debt extinguishment (25) —

Interest income (17) (6)

Net foreign exchange results for financing activities (47) (37)

Net financing charges $ 258 $ 205

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

Income Tax Provision (Benefit)

Year Ended September 30,

(in millions) 2023 2022 Change

Income tax provision (benefit) $ (468) $ (182) *

Effective tax rate (42) % (16) %

* Measure not meaningful

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

For fiscal 2023, the effective tax rate for continuing operations was (42)% and was lower than the statutory tax rate primarily due to the favorable tax impacts of intellectual property tax adjustments, tax reserve adjustments as the result of tax audit resolutions and remeasurements, valuation allowance adjustments and the benefits of continuing global tax planning initiatives, partially offset by the unfavorable impact of impairment and restructuring charges.

For fiscal 2022, the effective tax rate for continuing operations was (16%) and was lower than the statutory tax rate primarily due to the favorable impact of tax reserve adjustments as the result of expired statute of limitations for certain tax years and the benefits of continuing global tax planning initiatives, partially offset by the unfavorable impact of impairment and restructuring charges and the establishment of a deferred tax liability on the outside basis difference of the Company's investment in certain subsidiaries as a result of the planned divestitures.

Income From Discontinued Operations, Net of Tax

Year Ended September 30,

(in millions) 2023 2022 Change

Income from discontinued operations, net of tax $ 452 $ 429 5 %

The increase in income from discontinued operations, net of tax was primarily due to decreased SG&A as a result of productivity improvements.

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

SEGMENT ANALYSIS

Management evaluates the performance of its business units based primarily on segment EBITA, which represents income from continuing operations before income taxes and noncontrolling interests, excluding general corporate expenses, intangible asset amortization, net financing charges, restructuring and impairment costs, and net mark-to-market adjustments related to pension and postretirement plans and restricted asbestos investments.

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

for the Year Ended

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$ 22,952 $ 22,331 3 % $ 3,718 $ 3,370 10 %

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

• The increase in Building Solutions North America was due to organic growth ($957 million), incremental sales related to business acquisitions ($48 million) and the positive impact of foreign currency translation ($13 million).

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 due to organic growth, including higher prices ($233 million) and the net impact of business acquisitions and divestitures ($6 million), partially offset by the negative impact of foreign currency translation ($39 million).

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

• The decrease in Building Solutions Asia Pacific was primarily due to organic sales declines ($440 million), the negative impact of foreign currency translation ($62 million) and the net impact of business acquisitions and divestitures ($7 million).

Excluding the impact of foreign currency translation and business acquisitions and divestitures, 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 net impact of business acquisitions and divestitures ($118 million) and the negative impact of foreign currency translation ($10 million), partially offset by organic growth ($40 million) .

Excluding the impacts of foreign currency translation and business acquisitions and divestitures, sales increased as growth in Commercial HVAC was more than offset by declines in Fire & Security and Industrial Refrigeration.

Segment EBITA

• 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 and productivity improvements.

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

• The increase in Global Products was primarily driven by operational efficiencies leading to productivity improvements.

for the Year Ended

September 30, Segment EBITA

for the Year Ended

September 30,

(in millions) 2023 2022 Change 2023 2022 Change

Building Solutions North America $ 10,330 $ 9,367 10 % $ 1,394 $ 1,122 24 %

Building Solutions EMEA/LA 4,096 3,845 7 % 316 358 (12) %

Building Solutions Asia Pacific 2,746 2,714 1 % 343 332 3 %

Global Products 5,159 4,711 10 % 1,317 970 36 %

$ 22,331 $ 20,637 8 % $ 3,370 $ 2,782 21 %

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

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

• The increase in Building Solutions EMEA/LA was due to organic growth, including higher prices ($324 million) and the net impact of business acquisitions and divestitures ($29 million), partially offset by the unfavorable impact of foreign currency translation ($102 million).

• The increase in Building Solutions EMEA/LA was due to organic growth, including higher prices ($324 million) and the net impact of business acquisitions and divestitures ($29 million), partially offset by the negative impact of foreign currency translation ($102 million).

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

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

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

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

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

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

• The increase in Global Products was due to the net impact of higher prices and lower volumes ($462 million) and incremental sales related to business acquisitions ($36 million), partially offset by the negative impact of foreign currency translation ($50 million).

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

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

• The decrease in Building Solutions EMEA/LA reflects the unfavorable impact of foreign currency translation ($13 million) and higher expenses, partially offset by favorable price/cost.

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

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

• The decrease in Building Solutions EMEA/LA reflects the negative impact of foreign currency translation ($13 million) and higher expenses, partially offset by favorable price/cost.

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

LIQUIDITY AND CAPITAL RESOURCES

4 unchanged sentences

Current liabilities (11,955) (11,084)

(776) (347) *

Cash and cash equivalents (606) (828)

1 unchanged sentence

Current portion of long-term debt 536 645

Current assets held for sale (1,595) (1,552)

Current liabilities held for sale 1,431 1,375

Working capital (as defined) $ (57) $ (346) *

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

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

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

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

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

The decrease was primarily due to timing of payments.

• The increase in working capital (as defined) at September 30, 2024 as compared to September 30, 2023 was primarily due to an increase in accounts receivable primarily due to discontinuing the receivable factoring program during the current year, partially offset by an increase in deferred revenue and accrued compensation and benefits.

Cash Flows From Continuing Operations

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Cash used by financing activities (1,948) (2,059)

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

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

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

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

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

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

• The decrease in cash provided by operating activities reflects lower net income and the impact of higher accounts receivable and other asset balances, which was partially offset by the timing of accounts payable and accrued liabilities payments.

• The decrease in cash used by investing activities was primarily due to the net impact of proceeds from the ADTi divestiture in fiscal 2024 and cash paid for the FM:Systems acquisition in fiscal 2023.

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

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

The net impact of debt proceeds and repayments generated cash of $405 million

in fiscal 2024 and used cash of $457 million in fiscal 2023.

This increase in cash used was substantially offset by higher stock repurchases.

Capitalization

September 30,

(in millions) 2023 2022 Change

(in millions) 2024 2023

Short-term debt $ 953 $ 361

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Cash and cash equivalents 606 828

Total net debt 8,013 6,929 16 %

Shareholders’ equity attributable to Johnson Controls 16,545 16,268 2 %

Total capitalization $ 24,558 $ 23,197 6 %

Net debt $ 8,887 $ 7,996

Shareholders’ equity attributable to Johnson Controls ("Equity") $ 16,098 $ 16,545

Total capitalization (Total debt plus Equity) 25,591 25,369

Net capitalization (Net debt plus Equity) 24,985 24,541

Total net debt as a % of Total capitalization 34.7 % 31.5 %

Total net debt as a % of Net capitalization 35.6 % 32.6 %

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

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

Interest payable on long-term debt is $283 million in the twelve months following September 30, 2023 and $3.6 billion thereafter.

Interest payable on long-term debt outstanding as of September 30, 2024 is $299 million in the twelve months following September 30, 2024 and $3.4 billion thereafter.

• Refer to Note 9, "Leases," of the notes to consolidated financial statements for additional information on lease obligations and maturities.

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

• As of September 30, 2024, the Company had purchase obligations which were payable in the next twelve months of approximately $2 billion and payable thereafter of approximately $120 million, substantially all of which relate to continuing operations.

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

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

• As of September 30, 2024, the Company expects to contribute $25 million and $204 million, of which $22 million and $179 million relates to continuing operations, to the global pension and postretirement plans in the next twelve months and thereafter, respectively.

• As of September 30, 2024, approximately $1.7 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.

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• The Company believes its capital resources and liquidity position, including cash and cash equivalents of $606 million at September 30, 2024, are adequate to fund operations and meet its obligations for the foreseeable future.

The Company expects requirements for working capital, capital expenditures, dividends, minimum pension contributions, debt maturities and any potential acquisitions or stock repurchases in fiscal 2024 will be funded from operations, supplemented by short- and long-term borrowings, if required.

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

debt maturities and any potential acquisitions or stock repurchases in fiscal 2025 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.

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

Both credit facilities were renewed on December 11, 2023.

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

– The Company has the ability to draw on its syndicated $2.5 billion committed revolving credit facility, which is scheduled to expire in December 2028, and a syndicated $500 million committed revolving credit facility, which is scheduled to expire in December 2024.

There were no draws on the facilities as of September 30, 2024.

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• The Company entered into the following debt transactions in fiscal 2024:

– Repaid $1.6 billion of debt including the following:

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

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

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

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

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

– Repaid $924 million of debt including the following:

▪ $484 million Senior Notes due 2024 with interest rates of 3.625%

▪ €300 million term loans with interest rates of Euro Interbank Offered Rate (" EURIBOR") plus 0.4% to 0.7%

▪ Tendered $119 million of its Notes due 2045 with an interest rate of 5.125%

– Issued $1.3 billion of debt including the following:

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

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

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

▪ Together with its wholly owned subsidiary, Tyco Fire & Security Finance S.C.A., co-issued $700 million in 5.50% Senior Notes due in April 2029

▪ €450 million short-term term loans with interest rates of EURIBOR plus 0.65% to 0.78% due in the first quarter of fiscal 2025

▪ $100 million short-term term loan with an interest rate of 5.9% which is due in December 2024

• The Company expects to receive net cash proceeds related to the sale of its R&LC HVAC business of approximately $5.0 billion after tax and transaction-related expenses when the transaction closes, likely in the fourth quarter of fiscal 2025.

Consistent with its capital allocation policy, the Company expects to use a portion of the proceeds to pay down debt to the extent required to retain its investment grade rating, with the remaining proceeds expected to be returned to shareholders through share repurchases.

• On April 12, 2024, Tyco Fire Products 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 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 fiscal 2024, the Company recorded expected insurance recoveries of $371 million in selling, general and administrative expenses in the consolidated statements of income and collected insurance recoveries of $349 million.

In accordance with its agreement and recent insurance

recovery, Tyco Fire Products made an additional payment during the fourth quarter of fiscal 2024 of approximately $85 million, reducing its final payment to approximately $415 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.

• Financial covenants in the Company's revolving credit facilities require a minimum consolidated shareholders’ equity attributable to Johnson Controls of at least $3.5 billion at all times.

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• 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.

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

However, in fiscal 2024, the Company recorded income tax expense related to a change in the Company's assertion over the outside basis differences of the Company’s investment in certain subsidiaries as a result of the planned divestiture of its R&LC HVAC business.

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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• $700 million aggregate principal amount of 5.500% Senior Notes due 2029

• $625 million aggregate principal amount of 1.750% Senior Notes due 2030

• $500 million aggregate principal amount of 2.000% Sustainability-Linked Senior Notes due 2031

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TFSCA is incorporated and organized under the laws of Luxembourg.

The bankruptcy, insolvency, administrative, debtor relief and other laws of Luxembourg or Ireland, as applicable, may be materially different from, or in conflict with, those of the United States, including in the areas of rights of creditors, priority of governmental and other creditors, ability to obtain post-petition interest and duration of the proceeding.

The bankruptcy, insolvency,

administrative, debtor relief and other laws of Luxembourg or Ireland, as applicable, may be materially different from, or in conflict with, those of the United States, including in the areas of rights of creditors, priority of governmental and other creditors, ability to obtain post-petition interest and duration of the proceeding.

The application of these laws, or any conflict among them, could adversely affect noteholders’ ability to enforce their rights under the Notes in those jurisdictions or limit any amounts that they may receive.

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

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

Group Non-Obligor Subsidiaries

Net sales $ — $ —

Gross profit — —

Loss from continuing operations (458) (139)

Net loss (458) (139)

Income attributable to noncontrolling interests — —

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

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):

Year Ended September 30, 2024

Net loss attributable to the Obligor Group $ 609

Net income attributable to intercompany transactions 511

The following table presents summarized balance sheet information as of September 30, 2024 (in millions):

Group Non-Obligor Subsidiaries

Group Intercompany Balances

Current assets $ 1,339 $ 823

2 unchanged sentences

Noncurrent liabilities 7,836 9,028

Noncontrolling interests — —

The same accounting policies as described in Note 1, "Summary of Significant Accounting Policies," of the notes to consolidated financial statements are used by the Parent Company and each of its subsidiaries in connection with the summarized financial information presented above.

15 unchanged sentences

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

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

The Company includes variable consideration in the estimated transaction price when it is probable that significant reversal of

revenue recognized would not occur when the uncertainty associated with variable consideration is subsequently resolved.

These estimates are based on the amount of consideration that the Company expects to be entitled to.

Goodwill and Indefinite-Lived Intangible Assets

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

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

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

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

The Company performs impairment reviews for its reporting units, which have been determined to be the Company’s operating segments or one level below the operating segments, using a qualitative assessment or a quantitative test.

A qualitative assessment is performed when prior quantitative assessments have resulted in significant excess of fair value over the carrying value of a reporting unit, and consideration of qualitative factors allow the Company to conclude it is more likely than not that the fair value of the reporting unit remains greater than its carrying value.

When performing a quantitative goodwill impairment test, the fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date.

To estimate the fair value, the Company uses a discounted cash flow model or estimated sales price for reporting units held for sale.

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

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

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

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

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

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

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

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

Management completed its fiscal 2024 annual impairment test as of July 31, which included a qualitative assessment of all but one of its reporting units.

The Company did not identify any qualitative factors that suggest that it is more likely than not that the fair value of its reporting units is less than their carrying amount, including goodwill, and as such, a quantitative impairment test was not necessary.

The Company performed a quantitative goodwill impairment test of one reporting unit in the Building Solutions EMEA/LA segment with $214 million of goodwill, and its fair value was in excess of its carrying value.

However, for this reporting unit, a 200 basis point increase in the discount rate, or a 200 basis point decrease in the revenue growth rates, would cause the fair value to be less than the carrying value.

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

In the second quarter of fiscal 2024, the Company performed an interim goodwill impairment test as a result of a triggering event and impaired $230 million of goodwill in its Building Solutions EMEA/LA segment.

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

1 unchanged sentence

A considerable amount of management judgment and assumptions are required in performing the impairment tests.

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

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

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

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

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

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

2 unchanged sentences

Pension Plans

The Company provides a range of benefits to its employees and retired employees, including pensions.

Plan assets and obligations are measured annually, or more frequently if there is a significant remeasurement event, based on the Company’s measurement date utilizing various actuarial assumptions such as discount rates, assumed rates of return and compensation increases as of that date.

The Company provides a range of benefits, including pensions, to eligible active and former employees.

Pension plan assets and obligations are measured annually, or more frequently if there is a significant remeasurement event, using various actuarial assumptions such as discount rates, assumed rates of return and compensation increases as of that date.

The Company reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when appropriate.

The Company utilizes a mark-to-market approach for recognizing pension expenses, including measuring the market related value of plan assets at fair value and recognizing actuarial gains and losses in the fourth quarter of each fiscal year or at the date of a remeasurement event.

Refer to Note 16, "Retirement Plans," of the notes to consolidated financial statements for disclosure of the Company's pension plans.

GAAP requires that companies recognize in the statement of financial position a liability for plans that are underfunded or unfunded, or an asset for plans that are over funded.

GAAP also requires that companies measure the benefit obligations and fair value of plan assets that determine a benefit plan’s funded status as of the date of the employer’s fiscal year end.

The Company considers the expected benefit payments on a plan-by-plan basis when setting assumed discount rates.

As a result, the Company uses different discount rates for each plan depending on the plan jurisdiction, the demographics of participants and the expected timing of benefit payments.

pension plans, the Company uses a discount rate provided by an independent third party calculated based on an appropriate mix of high quality bonds.

For the non-U.S.

pension plans, the Company consistently uses the relevant country specific benchmark indices for determining the various discount rates.

The Company’s weighted average discount rate on U.S.

pension plans was 5.48% and 5.08% at September 30, 2023 and 2022, respectively.

The Company’s weighted average discount rate on non-U.S.

pension plans was 4.72% and 4.36% at September 30, 2023 and 2022, respectively.

In estimating the expected return on plan assets, the Company considers the historical returns on plan assets, adjusted for forward-looking considerations, inflation assumptions and the impact of the active management of the plans’ invested assets.

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

The expected long-term return on U.S.

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

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

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

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

The Company considers expected benefit payments on a plan-by-plan basis when estimating discount rates.

Different discount rates are used for each plan depending on the plan jurisdiction and the expected timing of benefit payments.

The Company uses country-specific discount rates determined by an independent third party which are based on government and high-quality corporate bond yields.

In estimating the expected return on plan assets, the Company considers historical returns on plan assets, adjusted for forward-looking considerations, inflation assumptions, asset mix and the impact of the active management of the plans’ invested assets.

For fiscal 2025, the Company believes the long-term rate of return will approximate 6.50% for U.S.

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

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

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

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

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

The primary factors contributing to actuarial gains (losses) are changes in the discount rate used to value benefit obligations and the difference between expected and actual returns on plan assets.

Mark-to-market adjustments are highly volatile and are difficult to forecast.

Refer to Note 16, "Retirement Plans," of the notes to consolidated financial statements for further details.

The following chart illustrates the estimated increases (decreases) in projected benefit obligation and future ongoing pension expense, which excludes any potential mark-to-market adjustments, assuming an increase of 25 basis points in the key assumptions for the Company's pension plans (in millions):

The following chart illustrates the estimated increases (decreases) in projected benefit obligation and future ongoing pension expense, excluding any potential mark-to-market adjustments, assuming an increase of 25 basis points in the key assumptions used for the Company's pension plans (in millions):

Pension Benefits

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

The Company's estimate of the liability and corresponding insurance recovery for pending and future claims and defense costs is based on the Company's historical claim experience, and estimates of the number and resolution cost of potential future claims that may be filed and is discounted to present value from 2068 (which is the Company's reasonable best estimate of the actuarial determined time period through which asbestos-related claims will be filed against Company affiliates).

The Company's estimate of the liability and corresponding insurance recovery for pending and future claims and defense costs is based on the Company's historical claim experience, and estimates of the number and resolution cost of potential future claims that may be filed and is discounted to present values from the time that the costs are expected to be incurred which in some cases is not until 2068 (which is the Company's reasonable best estimate of the actuarial determined time period through which asbestos-related claims will be filed against Company affiliates).

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

The Company's legal strategy for resolving claims also impacts these estimates.

The Company's legal strategy for

resolving claims also impacts these estimates.

The Company considers various trends and developments in evaluating the period of time (the look-back period) over which historical claim and settlement experience is used to estimate and value claims reasonably projected to be made through 2068.

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

The Company records a valuation

allowance that primarily represents non-U.S.

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

operating and other loss carryforwards for which realization is uncertain.

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

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

for which sustainable taxable income has not been demonstrated;

At September 30, 2024, the Company had a valuation allowance of $6.3 billion for continuing operations, of which $5.9 billion relates to net operating and capital loss carryforwards primarily in France, Ireland, Luxembourg, Mexico, and the United Kingdom for which sustainable taxable income has not been demonstrated;

and $0.4 billion for other deferred tax assets.

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

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

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

• Net investment in a non-U.S.

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

operation (a net investment hedge).

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The hedge is deemed as highly effective if the ratio is between 80% and 125%.

For commodity derivative contracts designated as cash flow hedges, effectiveness is tested using a regression calculation.

For commodity derivative contracts designated as cash flow hedges, effectiveness is tested using a qualitative assessment of the critical terms of the hedging instrument and the hedged item.

Ineffectiveness is minimal as the Company aligns most of the critical terms of its derivatives with the supply contracts.

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

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

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

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

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

QUARTERLY FINANCIAL DATA

The following tables present selected quarterly financial data from continuing operations:

(in millions, except per share data)

(quarterly amounts unaudited) First

Quarter Second

Quarter Third

Quarter Fourth

Net sales $ 5,209 $ 5,597 $ 5,898 $ 6,248 $ 22,952

Gross profit 1,778 1,922 2,109 2,268 8,077

Net income (loss) 340 (318) 851 538 1,411

Net income (loss) attributable to

Johnson Controls 340 (321) 852 536 1,407

Earnings (loss) per share

Basic 0.50 (0.47) 1.26 0.80 2.09

Diluted 0.50 (0.47) 1.25 0.80 2.08

Net sales $ 5,155 $ 5,546 $ 5,777 $ 5,853 $ 22,331

Gross profit 1,852 1,916 2,063 1,973 7,804

Net income 101 45 947 488 1,581

Net income attributable to Johnson Controls

97 44 940 481 1,562

Earnings per share

Basic 0.14 0.07 1.37 0.70 2.28

Diluted 0.14 0.07 1.36 0.70 2.27

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

What changed 10-K

Item 7. Management’s Discussion and Analysis