What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-02-05 compared with 2024-07-31 · 127 added, 172 removed, 187 unchanged (62% of the section changed)

9 unchanged sentences

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

the ability of the Company to execute on its operating model and drive organizational improvement;

the Company's ability to successfully execute and complete portfolio simplification, including the completion of the divestiture of the Residential and Light Commercial business, as well as the possibility that the expected benefits of such actions will not be realized or will not be realized within the expected time frame;

the ability to hire and retain senior management and other key personnel, including successfully executing the Company's Chief Executive Officer succession plan;

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

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

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

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

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

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

the Company's ability to remediate its material weakness;

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

the ability to manage macroeconomic and geopolitical volatility, including supply chain shortages, restrictive trade measures and the conflict between Russia and Ukraine and the ongoing conflicts in the Middle East;

managing the risks and impacts of potential and actual security breaches, cyberattacks, privacy breaches or data breaches, maintaining and improving the capacity, reliability and security of the Company's enterprise information technology infrastructure;

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

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;

2 unchanged sentences

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

risks and uncertainties related to the settlement with a nationwide class of public water systems concerning the use of AFFF;

the outcome of litigation and governmental proceedings;

1 unchanged sentence

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

the ability of the Company to drive organizational improvement;

any delay or inability of the Company to realize the expected benefits and synergies of recent portfolio transactions;

the ability to hire and retain senior management and other key personnel;

the tax treatment of recent portfolio transactions;

2 unchanged sentences

and the cancellation of or changes to commercial arrangements.

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

A detailed discussion of risks related to Johnson Controls' business is included in the section entitled "Risk Factors" in Johnson Controls' Annual Report on Form 10-K for the year ended September 30, 2024 filed with the United States Securities and Exchange Commission ("SEC") on November 19, 2024, which is available at www.sec.gov and www.johnsoncontrols.com under the "Investors" tab.

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

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.

Johnson Controls International plc, headquartered in Cork, Ireland, is a global leader in smart, healthy and sustainable buildings, serving a wide range of customers around the globe.

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.

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

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

The Company partners with customers by leveraging its broad product portfolio and digital capabilities powered by OpenBlue, together with its direct channel service and solutions capabilities, to deliver outcome-based solutions across the lifecycle of a building that address customers’ needs to improve energy efficiency, enhance security, create healthy environments and reduce greenhouse gas emissions.

The 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," "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.

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, together with its direct channel service and solutions capabilities, to deliver outcome-based solutions across the lifecycle of a building that address customers’ needs to improve energy efficiency, enhance security, create healthy environments and reduce greenhouse gas emissions.

The following information should be read in conjunction with the September 30, 2024 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, 2024 filed with the SEC on November 19, 2024.

References in the following discussion and analysis to "Three Months," "First Quarter" or similar language refer to the three months ended December 31, 2024 compared to the three months ended December 31, 2023.

Macroeconomic Trends

Much of the demand for the Company’s products and solutions is driven by construction, facility expansion, retrofit and maintenance projects within the commercial, institutional, industrial, data center, governmental and residential sectors.

Construction projects are heavily dependent on general economic conditions, localized demand for real estate and the availability of credit, public funding or other financing sources.

Positive or negative fluctuations in construction, industrial facility expansion, retrofit activity, maintenance projects and other capital investments in buildings within the sectors that the Company serves, as well as availability of credit, financing or funding for such projects, could have a corresponding impact on the Company’s financial condition, results of operations and cash flows.

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.

Much of the demand for the Company’s products and solutions is heavily dependent on general economic conditions, localized demand for real estate and the availability of credit, public funding or other financing sources.

Positive or negative fluctuations in these dependencies could have a corresponding impact on the Company’s financial condition, results of operations and cash flows.

While economic conditions in China stabilized in the three months ended December 31, 2024, industrial growth remains tempered, impacting the performance of the Building Solutions Asia Pacific segment.

The Company expects economic conditions in China to continue 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.

The Company is therefore subject to non-U.S.

currency risks and non-U.S.

exchange exposure.

dollar, which results in non-U.S.

currency risks and exchange exposure.

While the Company employs financial instruments to hedge some of its transactional foreign exchange exposure, these activities do not insulate it completely from those exposures.

In addition, the currency exposure from the translation of non-U.S.

dollar functional currency subsidiaries are not able to be hedged.

In addition, currency exposure from the translation of non-U.S.

dollar functional currency subsidiaries cannot be hedged.

Exchange rates can be volatile and a substantial weakening or strengthening of foreign currencies against the U.S.

1 unchanged sentence

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

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.

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

dollar during the three months ended December 31, 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, which are driven in part by government tax incentives, building performance standards and other regulations designed to limit emissions and combat climate change.

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

2 unchanged sentences

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.

Combined with its investment in digital and product capabilities, including its OpenBlue platform, the Company seeks to capitalize on these trends to enable delivery of sustainable, high-efficiency products and tailored services to enable customers to achieve their sustainability goals.

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

The Company has experienced, and 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 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 primarily due to ongoing cost pressures.

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

The Compan y has experienced, and could again experience, increased material cost inflation and component shortages, as well as disruptions and delays in its supply chain, as a result of global macroeconomic trends, including increased global demand, the imposition of tariffs and other restrictive trade measures, geopolitical and economic tensions, including the conflict between Russia and Ukraine and Israel and Hamas, and labor shortages.

Recently, the United States has announced tariffs on products manufactured in several jurisdictions, including, Mexico, China and Canada, and has made announcements regarding the potential imposition of tariffs on other jurisdictions, such as the European Union.

The United States has and may in the future pause, reimpose or increase tariffs, and countries subject to such tariffs have and in the future may impose reciprocal tariffs or

other restrictive trade measures in response to the imposition of tariffs by the United States.

The Company is actively monitoring and evaluating the development and potential impacts of tariffs on its supply chain and results of operations.

The Company maintains operations worldwide, including the jurisdictions impacted by the recently announced and contemplated tariffs.

If the actual and potential tariffs and reciprocal tariffs are implemented as currently proposed, the Company expects that such actions will negatively impact its revenue growth and margins in future periods.

The net effect of these events will depend on the Company’s ability to successfully mitigate and offset their impact.

The Company has historically taken actions to mitigate trade restrictions, supply chain disruptions and inflation, including, price increases, expanding and redistributing its supplier network, supplier financing, accelerated purchasing and productivity improvements.

These actions have generally been successful in offsetting some, but not all, of the impact of these trends.

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

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

See the section entitled "Risk Factors" in Johnson Controls' Annual Report on Form 10-K for the year ended September 30, 2024 filed with the United States Securities and Exchange Commission ("SEC") on November 19, 2024.

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.

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 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.

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.

Restructuring and Cost Optimization Initiatives

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.

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 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.

The Company has contained the unauthorized access and restored the 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.

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

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 first quarter of fiscal 2024.

A substantial portion of its direct costs incurred related to containing, investigating and remediating the incident, as well as business interruption losses, was reimbursed through insurance recoveries.

The Company is completing its analysis of the impacted data and believes based on its assessment to date that certain data, including employee, job applicant, consultant and other third party personally identifiable information and other related data, was impacted by the incident.

The Company will, as determined appropriate, notify impacted individuals and regulatory authorities.

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 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

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

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

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 June 30, Nine Months Ended June 30,

(in millions) 2024 2023 Change 2024 2023 Change

Three Months Ended December 31,

(in millions) 2024 2023 Change

Net sales $ 5,426 $ 5,209 4 %

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.

The increase in net sales for the three months ended December 31, 2024 was due to higher organic sales ($480 million), partially offset by the net impact of acquisitions and divestitures ($230 million) and the unfavorable impact of foreign currency translation ($33 million).

Excluding the impact of foreign currency translation and business acquisitions and divestitures, net sales increased 10% over the prior year, driven by strong growth in Products and Systems in the Building Solutions North America and Global Products segments and growth in Services in all Building Solutions segments.

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 June 30, Nine Months Ended June 30,

(in millions) 2024 2023 Change 2024 2023 Change

Three Months Ended December 31,

(in millions) 2024 2023 Change

Cost of sales $ 3,500 $ 3,431 2 %

Gross profit 1,926 1,778 8 %

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

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.

% of sales 35.5 % 34.1 %

The increase in gross profit for the three months ended December 31, 2024 was primarily due to margin improvements in the Building Solutions segments as a result of strategically building backlog with long-term, higher margin Systems projects.

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 June 30, Nine Months Ended June 30,

(in millions) 2024 2023 Change 2024 2023 Change

Three Months Ended December 31,

(in millions) 2024 2023 Change

SG&A $ 1,399 $ 1,334 5 %

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

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).

% of sales 25.8 % 25.6 %

For the three months ended December 31, 2024, increases in SG&A were primarily due to transformation costs and transaction/separation costs.

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 and related insurance recoveries.

Restructuring and Impairment Costs

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

Three Months Ended December 31,

(in millions) 2024 2023

Goodwill impairments $ 21 $ — $ 251 $ 184

Held for sale impairments 35 — 35 498

Other impairments 10 — 10 —

Restructuring and related costs 40 81 103 162

Restructuring and impairment costs $ 33 $ 35

Refer to Note 4, "Assets and Liabilities Held for Sale," Note 8, "Goodwill and Other Intangible Assets," and Note 17, "Restructuring and Related Costs," of the notes to the consolidated financial statements for further disclosure related to the Company's restructuring actions and impairment costs.

Refer to Note 14, "Restructuring and Related Costs," of the notes to the consolidated financial statements for further disclosure related to the Company's restructuring actions.

Net Financing Charges

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

(in millions) 2024 2023 Change 2024 2023 Change

Three Months Ended December 31,

(in millions) 2024 2023

Interest expense, net of capitalized interest costs $ 67 $ 85

Other financing charges 6 22

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

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

Interest income, net of foreign exchange results (3) (5)

Net foreign exchange results for financing activities 16 (15)

Net financing charges $ 86 $ 87

* Measure not meaningful

Refer to Note 8, "Debt and Financing Arrangements," of the notes to the consolidated financial statements for further disclosure related to the Company's debt.

Income Tax (Benefit) Provision

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

(in millions) 2024 2023 Change 2024 2023 Change

Income tax (benefit) provision $ 227 $ (329) * $ 99 $ (266) *

Income Tax Provision (Benefit)

Three Months Ended December 31,

(in millions) 2024 2023

Income tax provision (benefit) $ 47 $ (20)

Effective tax rate 11.5 % (6.3) %

* Measure not meaningful

Refer to Note 15, "Income Taxes" of the notes to the consolidated financial statements for further disclosure related to the Company's income taxes.

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 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

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 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 December 31,

(in millions) 2024 2023 Change

Building Solutions North America $ 2,744 $ 2,487 10 %

3 unchanged sentences

$ 5,426 $ 5,209 4 %

Three Months:

• 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 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 ($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 North America was primarily due to organic growth ($260 million).

Sales growth was led by high teens growth in Applied HVAC and Controls.

Products and systems sales increased 12% and Services increased 9%.

• The increase in Building Solutions EMEA/LA was primarily due to organic growth ($57 million), partially offset by the unfavorable impact of foreign currency translation ($25 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 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.

Excluding the impact of foreign currency translation, sales growth was primarily led by 10% growth in Services.

Fire and Security sales increased high single digits.

• The increase in Building Solutions Asia Pacific was primarily due to organic growth ($23 million).

Sales growth was led by 14% growth in Services.

• The decrease in Global Products was primarily due to the impact of business divestitures ($233 million), partially offset by organic growth ($140 million).

Excluding the impact of business divestitures and foreign currency, sales increased 15%, led by over 30% growth in Applied HVAC.

Segment EBITA

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

(in millions) 2024 2023 Change 2024 2023 Change

Three Months Ended December 31,

(in millions) 2024 2023 Change

Building Solutions North America $ 332 $ 285 16 %

2 unchanged sentences

Global Products 326 267 22 %

Three Months:

• 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 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.

• The increase in Building Solutions North America was primarily due to higher margin backlog conversion, partially offset by impacts from ongoing growth investments.

• The increase in Building Solutions EMEA/LA was primarily driven by productivity improvements and positive mix from the growth in Services.

• The increase in Building Solutions Asia Pacific was primarily driven by positive mix from the Service business.

• The increase in Global Products was primarily due to increased volumes and enhanced operational efficiencies.

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 $15.5 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.

Backlog is applicable to sales of products and systems and services and totaled $15.3 billion at December 31, 2024, including both the Building Solutions and Global Products segments.

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.

However, the timing and conversion of backlog and orders are subject to numerous uncertainties and risks and are not necessarily indicative of the amount of revenue to be earned in the upcoming fiscal year.

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Backlog Orders

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

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

Three months ended

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

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

Building Solutions North America $ 9.3 12 % $ 3.0 18 %

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Total Building Solutions $ 13.2 11 % $ 4.8 16 %

(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.

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

Remaining performance obligations were $ 20.9 billion at December 31, 2024.

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

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• Remaining performance obligations include the full remaining term of service contracts with substantial termination penalties versus backlog which includes only one year for all outstanding service contracts.

The Company reports backlog, which it believes is a useful measure of evaluating the Company's operational performance and relationship to total orders.

Liquidity and Capital Resources

Working Capital

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

(in millions) December 31, 2024 September 30, 2024 Change

Current assets $ 11,289 $ 11,179

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Accounts payable 3,214 3,389 (5) %

• 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.

The Company expects cash requirements for the remainder of fiscal 2024 will be funded from operations, supplemented by other sources of short- and long-term borrowings, including term loans, commercial paper and the issuance of debt securities.

The Company also expects to fund a portion of the payments related to the water systems AFFF settlement through insurance recoveries.

* Measure not meaningful

• The increase in working capital at December 31, 2024 as compared to September 30, 2024 was primarily due to an increase in cash and cash equivalents, a decrease in other current liabilities due to a payment related to the AFFF settlement agreement and a decrease in accounts payable due to timing, which were partially offset by a decrease in accounts receivable.

Cash Flows From Continuing Operations

Nine Months Ended June 30,

Three Months Ended December 31,

(in millions) 2024 2023

Cash provided by operating activities $ 572 $ 831

Cash provided (used) by operating activities $ 249 $ (111)

Cash used by investing activities (105) (64)

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.

Cash provided by financing activities 201 1,236

• The increase in cash provided by operating activities was primarily due to decreases in accounts receivable and higher cash used for inventory in the first quarter of fiscal 2024, partially offset by the timing of accounts payable and accrued liabilities payments.

• The increase in cash used by investing activities was primarily due to increased capital expenditures.

• The decrease in cash provided by financing activities was primarily due to changes in net debt activity and higher share repurchases, which were temporarily halted in the first quarter of fiscal 2024.

Capitalization

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

(in millions) December 31, 2024 September 30, 2024

Short-term debt $ 882 $ 953

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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 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.

• As of December 31, 2024, approximately $1.4 billion remains available under the Company's share repurchase authorization, which does not have an expiration date and may be amended or terminated by the Board of Directors at any time without prior notice.

The Company expects to repurchase outstanding shares from time to time depending on market conditions, alternate uses of capital, liquidity, and the economic environment.

• The Company declared a dividend of $0.37 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 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 $862 million at June 30, 2024, are adequate to fund operations and meet its cash obligations for the foreseeable future.

• The Company declared a dividend of $0.37 per common share in the quarter ended December 31, 2024 and intends to continue paying dividends throughout fiscal 2025.

• 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.

• The Company believes its capital resources and liquidity position, including cash and cash equivalents of $1.2 billion at December 31, 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 $941 million as of June 30, 2024 and $200 million as of September 30, 2023.

Commercial paper outstanding totaled $309 million as of December 31, 2024 and $350 million as of September 30, 2024.

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

The Company anticipates that the proceeds of any offering would be used for general corporate purposes, including repayment of indebtedness, acquisitions, additions to working capital, repurchases of ordinary shares, dividends, capital expenditures and investments in the Company's subsidiaries.

– The Company also has the ability to draw on its $2.5 billion revolving credit facility which 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 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.

There were no draws on the revolving credit facilities as of December 31, 2024 and September 30, 2024.

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

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

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

Rating Agency Short-Term Rating Long-Term Rating Outlook

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

As of June 30, 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 December 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.

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

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

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

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

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

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

Should the Company require more capital at its Luxembourg and Ireland holding and financing entities, other than amounts that can be provided in tax efficient methods, the Company could also elect to raise capital through debt or equity issuances.

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The amounts involved may be material.

• Refer to Note 10, "Debt and Financing Arrangements," and Note 21, "Commitments and Contingencies" of the notes to the consolidated financial statements for additional information on debt balances, the water systems AFFF settlement agreement and items impacting capitalization.

• Refer to Note 8, "Debt and Financing Arrangements," of the notes to the consolidated financial statements for additional information on debt balances and items impacting capitalization.

Co-Issued Securities:

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• €500 million aggregate principal amount of 3.125% Senior Notes due 2033

• €800 million aggregate principal amount of 4.250% Senior Notes due 2035

TFSCA is a corporate partnership limited by shares ( société en commandite par actions ) incorporated and organized under the laws of the Grand Duchy of Luxembourg (“Luxembourg”) and is a wholly-owned consolidated subsidiary of the Company that is 99.924% owned directly by the Parent Company and 0.076% owned by TFSCA’s sole general partner and manager, Tyco Fire & Security S.à r.l., which is itself wholly-owned by the Company.

The Parent Company is incorporated and organized

under the laws of Ireland.

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

TFSCA is incorporated and organized under the laws of Luxembourg.

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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):

Nine Months Ended June 30, 2024 Year Ended

Three Months Ended December 31, 2024 Year Ended

September 30, 2024

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Obligor Group Intercompany Balances

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

December 31, 2024 September 30, 2024 December 31, 2024 September 30, 2024

Current assets $ 696 $ 1,339 $ 460 $ 823

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.

As of December 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, 2024.

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