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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2024
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period From _____ To _____
Commission File Number: 001-13836
JOHNSON CONTROLS INTERNATIONAL PLC
(Exact name of registrant as specified in its charter)
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Ireland | 98-0390500 |
(Jurisdiction of Incorporation) | (I.R.S. Employer Identification No.) |
One Albert Quay, Cork, Ireland, T12 X8N6 | | (353) 21-423-5000 |
(Address of Principal Executive Offices and Postal Code) | | (Registrant's Telephone Number) |
Securities Registered Pursuant to Section 12(b) of the Exchange Act:
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Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
Ordinary Shares, Par Value $0.01 | JCI | New York Stock Exchange |
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1.375% Notes due 2025 | JCI25A | New York Stock Exchange |
3.900% Notes due 2026 | JCI26A | New York Stock Exchange |
0.375% Senior Notes due 2027 | JCI27 | New York Stock Exchange |
3.000% Senior Notes due 2028 | JCI28 | New York Stock Exchange |
5.500% Senior Notes due 2029 | JCI29 | New York Stock Exchange |
1.750% Senior Notes due 2030 | JCI30 | New York Stock Exchange |
2.000% Sustainability-Linked Senior Notes due 2031 | JCI31 | New York Stock Exchange |
1.000% Senior Notes due 2032 | JCI32 | New York Stock Exchange |
4.900% Senior Notes due 2032 | JCI32A | New York Stock Exchange |
4.250% Senior Notes due 2035 | JCI35 | New York Stock Exchange |
6.000% Notes due 2036 | JCI36A | New York Stock Exchange |
5.70% Senior Notes due 2041 | JCI41B | New York Stock Exchange |
5.250% Senior Notes due 2041 | JCI41C | New York Stock Exchange |
4.625% Senior Notes due 2044 | JCI44A | New York Stock Exchange |
5.125% Notes due 2045 | JCI45B | New York Stock Exchange |
6.950% Debentures due December 1, 2045 | JCI45A | New York Stock Exchange |
4.500% Senior Notes due 2047 | JCI47 | New York Stock Exchange |
4.950% Senior Notes due 2064 | JCI64A | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | þ | Accelerated filer | ☐ | Smaller reporting company | ☐ |
Non-accelerated filer | ¨ | | | Emerging growth company | ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| | | | | | | | |
Class | | Ordinary Shares Outstanding at June 30, 2024 |
Ordinary Shares, $0.01 par value per share | | 668,013,549 |
JOHNSON CONTROLS INTERNATIONAL PLC
FORM 10-Q
Report Index
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| Page |
Part I. Financial Information | |
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Item 1. Financial Statements (unaudited) | |
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Consolidated Statements of Income for the Three and Nine Month Periods Ended June 30, 2024 and 2023 | |
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Consolidated Statements of Comprehensive Income for the Three and Nine Month Periods Ended June 30, 2024 and 2023 | |
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Consolidated Statements of Financial Position at June 30, 2024 and September 30, 2023 | |
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Consolidated Statements of Cash Flows for the Nine Month Periods Ended June 30, 2024 and 2023 | |
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Consolidated Statements of Shareholders' Equity for the Three and Nine Month Periods Ended June 30, 2024 and 2023 | |
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Notes to Consolidated Financial Statements | |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
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Item 4. Controls and Procedures | |
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Part II. Other Information | |
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Item 1. Legal Proceedings | |
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Item 1A. Risk Factors | |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |
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Item 5. Other Information | |
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Item 6. Exhibits | |
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Signatures | |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Johnson Controls International plc
Consolidated Statements of Income
(in millions, except per share data; unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Net sales | | | | | | | |
Products and systems | $ | 5,422 | | | $ | 5,431 | | | $ | 14,896 | | | $ | 15,070 | |
Services | 1,809 | | | 1,702 | | | 5,128 | | | 4,817 | |
| 7,231 | | | 7,133 | | | 20,024 | | | 19,887 | |
Cost of sales | | | | | | | |
Products and systems | 3,652 | | | 3,708 | | | 10,273 | | | 10,337 | |
Services | 1,091 | | | 994 | | | 3,090 | | | 2,787 | |
| 4,743 | | | 4,702 | | | 13,363 | | | 13,124 | |
| | | | | | | |
Gross profit | 2,488 | | | 2,431 | | | 6,661 | | | 6,763 | |
| | | | | | | |
Selling, general and administrative expenses | 1,090 | | | 1,555 | | | 4,854 | | | 4,705 | |
Restructuring and impairment costs | 106 | | | 81 | | | 399 | | | 844 | |
Net financing charges | 71 | | | 80 | | | 263 | | | 218 | |
Equity income | 58 | | | 78 | | | 176 | | | 190 | |
| | | | | | | |
Income before income taxes | 1,279 | | | 793 | | | 1,321 | | | 1,186 | |
| | | | | | | |
Income tax provision (benefit) | 227 | | | (329) | | | 99 | | | (266) | |
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Net income | 1,052 | | | 1,122 | | | 1,222 | | | 1,452 | |
| | | | | | | |
Less: Income attributable to noncontrolling interests | 77 | | | 73 | | | 150 | | | 152 | |
| | | | | | | |
| | | | | | | |
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Net income attributable to Johnson Controls | $ | 975 | | | $ | 1,049 | | | $ | 1,072 | | | $ | 1,300 | |
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Earnings per share attributable to Johnson Controls | | | | | | | |
Basic | $ | 1.45 | | | $ | 1.54 | | | $ | 1.58 | | | $ | 1.90 | |
Diluted | 1.45 | | | 1.53 | | | 1.58 | | | 1.89 | |
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The accompanying notes are an integral part of the consolidated financial statements.
Johnson Controls International plc
Consolidated Statements of Comprehensive Income
(in millions; unaudited)
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| | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
| | | | | | | |
Net income | $ | 1,052 | | | $ | 1,122 | | | $ | 1,222 | | | $ | 1,452 | |
| | | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Foreign currency translation adjustments | (67) | | | (72) | | | (100) | | | 28 | |
Realized and unrealized gains (losses) on derivatives | 4 | | | 4 | | | (11) | | | 7 | |
Pension and postretirement plans | (1) | | | (1) | | | (3) | | | (2) | |
| | | | | | | |
Other comprehensive income (loss) | (64) | | | (69) | | | (114) | | | 33 | |
| | | | | | | |
Total comprehensive income | 988 | | | 1,053 | | | 1,108 | | | 1,485 | |
| | | | | | | |
Comprehensive income attributable to noncontrolling interests: | | | | | | | |
Net income | 77 | | | 73 | | | 150 | | | 152 | |
| | | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Foreign currency translation adjustments | (16) | | | (47) | | | (18) | | | (5) | |
Realized and unrealized gains (losses) on derivatives | — | | | 2 | | | — | | | (3) | |
Other comprehensive loss | (16) | | | (45) | | | (18) | | | (8) | |
Comprehensive income attributable to noncontrolling interests | 61 | | | 28 | | | 132 | | | 144 | |
| | | | | | | |
Comprehensive income attributable to Johnson Controls | $ | 927 | | | $ | 1,025 | | | $ | 976 | | | $ | 1,341 | |
The accompanying notes are an integral part of the consolidated financial statements.
Johnson Controls International plc
Consolidated Statements of Financial Position
(in millions, except par value; unaudited)
| | | | | | | | | | | |
| | | |
| June 30, 2024 | | September 30, 2023 |
Assets | | | |
| | | |
Cash and cash equivalents | $ | 862 | | | $ | 835 | |
Accounts receivable, less allowance for expected credit losses of $129 and $90, respectively | 6,667 | | | 6,006 | |
Inventories | 2,863 | | | 2,776 | |
Current assets held for sale | 205 | | | — | |
Other current assets | 1,556 | | | 1,120 | |
Current assets | 12,153 | | | 10,737 | |
| | | |
Property, plant and equipment - net | 3,011 | | | 3,136 | |
Goodwill | 17,676 | | | 17,936 | |
Other intangible assets - net | 4,315 | | | 4,888 | |
Investments in partially-owned affiliates | 1,054 | | | 1,056 | |
Noncurrent assets held for sale | 487 | | | — | |
Other noncurrent assets | 4,629 | | | 4,489 | |
Total assets | $ | 43,325 | | | $ | 42,242 | |
| | | |
Liabilities and Equity | | | |
| | | |
Short-term debt | $ | 1,523 | | | $ | 385 | |
Current portion of long-term debt | 998 | | | 645 | |
Accounts payable | 4,128 | | | 4,268 | |
Accrued compensation and benefits | 1,012 | | | 958 | |
Deferred revenue | 2,143 | | | 1,996 | |
Current liabilities held for sale | 149 | | | — | |
Other current liabilities | 2,771 | | | 2,832 | |
Current liabilities | 12,724 | | | 11,084 | |
| | | |
Long-term debt | 7,867 | | | 7,818 | |
Pension and postretirement benefits | 225 | | | 278 | |
Noncurrent liabilities held for sale | 203 | | | — | |
Other noncurrent liabilities | 5,163 | | | 5,368 | |
Long-term liabilities | 13,458 | | | 13,464 | |
| | | |
Commitments and contingencies (Note 21) | | | |
| | | |
| | | |
| | | |
Ordinary shares, $0.01 par value | 7 | | | 7 | |
Ordinary A shares, €1.00 par value | — | | | — | |
Preferred shares, $0.01 par value | — | | | — | |
Ordinary shares held in treasury, at cost | (1,266) | | | (1,240) | |
Capital in excess of par value | 17,447 | | | 17,349 | |
Retained earnings | 831 | | | 1,384 | |
Accumulated other comprehensive loss | (1,051) | | | (955) | |
Shareholders’ equity attributable to Johnson Controls | 15,968 | | | 16,545 | |
Noncontrolling interests | 1,175 | | | 1,149 | |
Total equity | 17,143 | | | 17,694 | |
Total liabilities and equity | $ | 43,325 | | | $ | 42,242 | |
The accompanying notes are an integral part of the consolidated financial statements.
Johnson Controls International plc
Consolidated Statements of Cash Flows
(in millions; unaudited)
| | | | | | | | | | | |
| Nine Months Ended June 30, |
| 2024 | | 2023 |
Operating Activities | | | |
Net income attributable to Johnson Controls | $ | 1,072 | | | $ | 1,300 | |
Income attributable to noncontrolling interests | 150 | | | 152 | |
Net income | 1,222 | | | 1,452 | |
Adjustments to reconcile net income to cash provided by operating activities: | | | |
Depreciation and amortization | 687 | | | 621 | |
Pension and postretirement benefit income | (30) | | | (23) | |
Pension and postretirement contributions | (21) | | | (38) | |
Equity in (earnings) losses of partially-owned affiliates, net of dividends received | 2 | | | (27) | |
Deferred income taxes | (389) | | | (270) | |
Noncash restructuring and impairment charges | 333 | | | 701 | |
Equity-based compensation | 84 | | | 92 | |
Other - net | (125) | | | (104) | |
Changes in assets and liabilities, excluding acquisitions and divestitures: | | | |
Accounts receivable | (763) | | | (667) | |
Inventories | (215) | | | (383) | |
Other assets | (553) | | | (214) | |
Restructuring reserves | (79) | | | 33 | |
Accounts payable and accrued liabilities | 405 | | | (127) | |
Accrued income taxes | 14 | | | (215) | |
Cash provided by operating activities | 572 | | | 831 | |
| | | |
Investing Activities | | | |
Capital expenditures | (324) | | | (366) | |
| | | |
Acquisition of businesses, net of cash acquired | 1 | | | (260) | |
Other - net | 13 | | | 50 | |
Cash used by investing activities | (310) | | | (576) | |
| | | |
Financing Activities | | | |
Net proceeds (payments) from borrowings with maturities less than three months | 679 | | | (248) | |
Proceeds from debt | 1,281 | | | 1,171 | |
Repayments of debt | (438) | | | (536) | |
Stock repurchases and retirements | (876) | | | (613) | |
Payment of cash dividends | (753) | | | (729) | |
Employee equity-based compensation withholding taxes | (26) | | | (34) | |
Dividends paid to noncontrolling interests | (121) | | | (149) | |
Other - net | (68) | | | 27 | |
Cash used by financing activities | (322) | | | (1,111) | |
| | | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 29 | | | (67) | |
Decrease in cash, cash equivalents and restricted cash | (31) | | | (923) | |
Cash, cash equivalents and restricted cash at beginning of period | 924 | | | 2,066 | |
Cash, cash equivalents and restricted cash at end of period | 893 | | | 1,143 | |
Less: Restricted cash | 31 | | | 86 | |
Cash and cash equivalents at end of period | $ | 862 | | | $ | 1,057 | |
The accompanying notes are an integral part of the consolidated financial statements.
Johnson Controls International plc
Consolidated Statements of Shareholders' Equity
(in millions, except per share data; unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Shareholders' Equity Attributable to Johnson Controls | | | | | | | |
| | | | | | | |
Beginning Balance | $ | 15,658 | | | $ | 15,890 | | | $ | 16,545 | | | $ | 16,268 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Ordinary Shares - Beginning and ending balance | 7 | | | 7 | | | 7 | | | 7 | |
| | | | | | | |
Ordinary Shares Held in Treasury, at Cost | | | | | | | |
Beginning balance | (1,264) | | | (1,235) | | | (1,240) | | | (1,203) | |
Employee equity-based compensation withholding taxes | (2) | | | (2) | | | (26) | | | (34) | |
| | | | | | | |
| | | | | | | |
Ending balance | (1,266) | | | (1,237) | | | (1,266) | | | (1,237) | |
| | | | | | | |
Capital in Excess of Par Value | | | | | | | |
Beginning balance | 17,411 | | | 17,295 | | | 17,349 | | | 17,224 | |
Share-based compensation expense | 25 | | | 22 | | | 65 | | | 66 | |
Other, including options exercised | 11 | | | 8 | | | 33 | | | 35 | |
Ending balance | 17,447 | | | 17,325 | | | 17,447 | | | 17,325 | |
| | | | | | | |
Retained Earnings | | | | | | | |
Beginning balance | 507 | | | 669 | | | 1,384 | | | 1,151 | |
Net income attributable to Johnson Controls | 975 | | | 1,049 | | | 1,072 | | | 1,300 | |
Cash dividends declared | (249) | | | (253) | | | (749) | | | (739) | |
Repurchases and retirements of ordinary shares | (402) | | | (366) | | | (876) | | | (613) | |
| | | | | | | |
| | | | | | | |
Ending balance | 831 | | | 1,099 | | | 831 | | | 1,099 | |
| | | | | | | |
Accumulated Other Comprehensive Income (Loss) | | | | | | | |
Beginning balance | (1,003) | | | (846) | | | (955) | | | (911) | |
Other comprehensive income (loss) | (48) | | | (24) | | | (96) | | | 41 | |
Ending balance | (1,051) | | | (870) | | | (1,051) | | | (870) | |
Ending Balance | 15,968 | | | 16,324 | | | 15,968 | | | 16,324 | |
| | | | | | | |
Shareholders' Equity Attributable to Noncontrolling Interests | | | | | | | |
| | | | | | | |
Beginning Balance | 1,183 | | | 1,188 | | | 1,149 | | | 1,134 | |
Comprehensive income attributable to noncontrolling interests | 61 | | | 28 | | | 132 | | | 144 | |
Dividends attributable to noncontrolling interests | (69) | | | (77) | | | (108) | | | (139) | |
Other, including options exercised | — | | | — | | | 2 | | | — | |
| | | | | | | |
Ending Balance | 1,175 | | | 1,139 | | | 1,175 | | | 1,139 | |
| | | | | | | |
Total Shareholders' Equity | $ | 17,143 | | | $ | 17,463 | | | $ | 17,143 | | | $ | 17,463 | |
Cash Dividends Declared per Ordinary Share | $ | 0.37 | | | $ | 0.37 | | | $ | 1.11 | | | $ | 1.08 | |
The accompanying notes are an integral part of the consolidated financial statements.
Johnson Controls International plc
Notes to Consolidated Financial Statements
June 30, 2024
(unaudited)
1.BASIS OF PRESENTATION
The consolidated financial statements include the consolidated accounts of Johnson Controls International plc, a public limited company organized under the laws of Ireland, and its subsidiaries (Johnson Controls International plc and all its subsidiaries, hereinafter collectively referred to as the "Company" or "Johnson Controls"). In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (which include normal recurring adjustments) necessary to state fairly the financial position, results of operations and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC"). These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto 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. The results of operations for the three and nine month periods ended June 30, 2024 are not necessarily indicative of results for the Company’s 2024 fiscal year because of seasonal and other factors.
Nature of Operations
Johnson Controls International plc, headquartered in Cork, Ireland, is a global leader in smart, healthy and sustainable buildings, serving a wide range of customers in more than 150 countries. The Company’s products, services, systems and solutions advance the safety, comfort and intelligence of spaces to serve people, places and the planet. The Company 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.
Principles of Consolidation
The consolidated financial statements include the consolidated accounts of Johnson Controls International plc and its subsidiaries that are consolidated in conformity with U.S. GAAP. All significant intercompany transactions have been eliminated. The results of companies acquired or disposed of during the reporting period are included in the consolidated financial statements from the effective date of acquisition or up to the date of disposal. Investments in partially-owned affiliates are accounted for by the equity method when the Company exercises significant influence, which typically occurs when its ownership interest exceeds 20%, and the Company does not have a controlling interest.
The Company consolidates variable interest entities ("VIE") when it has the power to direct the significant activities of the entity and the obligation to absorb losses or receive benefits from the entity that may be significant. The Company did not have any material consolidated or nonconsolidated VIE's for the presented reporting periods.
2. NEW ACCOUNTING STANDARDS
Recently Adopted Accounting Pronouncements
In September 2022, the FASB issued ASU 2022-04, "Disclosure of Supplier Finance Program Obligations," which is intended to enhance the transparency surrounding the use of supplier finance programs. Supplier finance programs may
Johnson Controls International plc
Notes to Consolidated Financial Statements
June 30, 2024
(unaudited)
also be referred to as reverse factoring, payables finance, or structured payables arrangements. The amendments require a buyer that uses supplier finance programs to make annual disclosures about the program’s key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period, and associated rollforward information. Only the amount outstanding at the end of the period must be disclosed in interim periods. The Company adopted the new disclosures, other than the rollforward disclosure, as required at the beginning of fiscal 2024. The rollforward disclosure will be adopted as required at the beginning of fiscal 2025.
The Company maintains agreements with third-party financial institutions who offer voluntary supply chain financing ("SCF") programs to its suppliers. The SCF programs enable suppliers to sell their receivables to third-party financial institutions and receive payments earlier than the negotiated commercial terms between the suppliers and the Company, which generally range from 90 to 120 days. Suppliers sell receivables to third-party financial institutions on terms negotiated between the supplier and the respective third-party financial institution. The Company remains obligated to make payments under the terms of the original commercial arrangement regardless of whether the supplier receivable is sold, and does not pledge any assets as security or provide other forms of guarantees for the committed payment to the third-party financial institutions.
Amounts outstanding related to SCF programs are included in accounts payable in the consolidated statements of financial position. Accounts payable included in the SCF programs were approximately $669 million and $566 million as of June 30, 2024, and September 30, 2023, respectively.
Recently Issued Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," which is intended to enhance the transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments require that on an annual basis, entities disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. In addition, the amendments require that entities disclose additional information about income taxes paid as well as additional disclosures of pretax income and income tax expense, and remove the requirement to disclose certain items that are no longer considered cost beneficial or relevant. The Company expects to adopt the new annual disclosures as required for fiscal 2026.
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which is intended to improve reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment and contain other disclosure requirements. The Company expects to adopt the new annual disclosures as required for fiscal 2025 and the interim disclosures as required beginning with the first quarter of fiscal 2026.
Other recently issued accounting pronouncements are not expected to have a material impact on the Company's consolidated financial statements.
3.ACQUISITIONS AND DIVESTITURES
During the nine months ended June 30, 2023, the Company completed certain acquisitions for a combined purchase price, net of cash acquired, of $306 million, of which $260 million was paid as of June 30, 2023. In connection with the acquisitions, the Company recorded goodwill of $121 million within the Global Products segment, $51 million within the Building Solutions Asia Pacific segment and $12 million within the Building Solutions EMEA/LA segment.
4. ASSETS AND LIABILITIES HELD FOR SALE
During the third quarter of fiscal 2024, the Company entered into a definitive agreement to sell its Air Distribution Technologies ("ADTi") business included within the Global Products segment. As of June 30, 2024, ADTi met the criteria
Johnson Controls International plc
Notes to Consolidated Financial Statements
June 30, 2024
(unaudited)
to be classified as held for sale and the assets and liabilities of this business are separately presented in the consolidated statements of financial position.
The following table summarizes the asset and liabilities associated with ADTi classified as held for sale (in millions):
| | | | | | | | | |
| | | |
| | | June 30, 2024 |
| | | |
| | | |
Assets Held for Sale | | | |
Accounts receivable - net | | | $ | 91 | |
Inventories | | | 93 | |
Other current assets | | | 21 | |
Current assets held for sale | | | 205 | |
| | | |
Property, plant and equipment - net | | | 83 | |
Other intangible assets - net | | | 308 | |
| | | |
Other noncurrent assets | | | 131 | |
Impairment on assets held for sale | | | (35) | |
Noncurrent assets held for sale | | | 487 | |
Total Assets | | | $ | 692 | |
| | | |
| | | |
| | | |
Liabilities Held for Sale | | | |
Accounts payable | | | $ | 113 | |
Accrued compensation and benefits | | | 13 | |
| | | |
Other current liabilities | | | 23 | |
Current liabilities held for sale | | | 149 | |
| | | |
| | | |
| | | |
Pension and postretirement benefits | | | 5 | |
Other noncurrent liabilities | | | 198 | |
Noncurrent liabilities held for sale | | | 203 | |
Total Liabilities | | | $ | 352 | |
Based on the total consideration expected from the sale, net of costs to sell, the Company recorded non-cash impairment charges on the allocated goodwill of $21 million and the held for sale disposal group of $35 million within restructuring and impairment costs in the consolidated statements of income during the three months ended June 30, 2024.
The business did not meet the criteria to be classified as a discontinued operation as the divestiture does not represent a strategic shift that will have a major effect on the Company's operations and financial results. The transaction is expected to close in the fourth quarter of fiscal 2024.
No impairment charges were recorded during the three months ended June 30, 2023. During the nine months ended June 30, 2023, the Company recorded impairment charges for the Global Retail business of $438 million and the Building Solutions Asia Pacific segment of $60 million. The impairment charges were primarily due to reductions in the estimated fair values of the businesses to be disposed as a result of negotiations with potential buyers and were recorded within restructuring and impairment costs in the consolidated statements of income. During the third quarter of fiscal 2023, the Company concluded that its Global Retail business no longer met the criteria to be classified as held for sale, as it was no longer probable that it would be sold in the next 12 months. The net assets were reclassified to held and used at the lower of fair value or adjusted carrying value, and due to prior period impairment charges recorded, there was no impact to the consolidated statements of income as a result of this reclassification.
Johnson Controls International plc
Notes to Consolidated Financial Statements
June 30, 2024
(unaudited)
5. REVENUE RECOGNITION
Disaggregated Revenue
The following tables present the Company's revenues disaggregated by segment and by Products & Systems and Services revenue (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| | 2024 | | 2023 |
| | Products & Systems | | Services | | Total | | Products & Systems | | Services | | Total |
| | | | | | | | | | | | |
Building Solutions North America | | $ | 1,791 | | | $ | 1,108 | | | $ | 2,899 | | | $ | 1,636 | | | $ | 1,029 | | | $ | 2,665 | |
Building Solutions EMEA/LA | | 574 | | | 507 | | | 1,081 | | | 571 | | | 474 | | | 1,045 | |
Building Solutions Asia Pacific | | 381 | | | 194 | | | 575 | | | 537 | | | 199 | | | 736 | |
Global Products | | 2,676 | | | — | | | 2,676 | | | 2,687 | | | — | | | 2,687 | |
| | | | | | | | | | | | |
Total | | $ | 5,422 | | | $ | 1,809 | | | $ | 7,231 | | | $ | 5,431 | | | $ | 1,702 | | | $ | 7,133 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended June 30, |
| | 2024 | | 2023 |
| | Products & Systems | | Services | | Total | | Products & Systems | | Services | | Total |
| | | | | | | | | | | | |
Building Solutions North America | | $ | 5,009 | | | $ | 3,116 | | | $ | 8,125 | | | $ | 4,641 | | | $ | 2,911 | | | $ | 7,552 | |
Building Solutions EMEA/LA | | 1,718 | | | 1,465 | | | 3,183 | | | 1,705 | | | 1,346 | | | 3,051 | |
Building Solutions Asia Pacific | | 1,026 | | | 547 | | | 1,573 | | | 1,489 | | | 560 | | | 2,049 | |
Global Products | | 7,143 | | | — | | | 7,143 | | | 7,235 | | | — | | | 7,235 | |
| | | | | | | | | | | | |
Total | | $ | 14,896 | | | $ | 5,128 | | | $ | 20,024 | | | $ | 15,070 | | | $ | 4,817 | | | $ | 19,887 | |
The following table presents further disaggregation of Global Products segment revenues by product type (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Nine Months Ended June 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
HVAC | | $ | 1,971 | | | $ | 1,973 | | | $ | 5,072 | | | $ | 5,170 | |
Fire & Security | | 601 | | | 626 | | | 1,755 | | | 1,819 | |
Industrial Refrigeration | | 104 | | | 88 | | | 316 | | | 246 | |
Total | | $ | 2,676 | | | $ | 2,687 | | | $ | 7,143 | | | $ | 7,235 | |
| | | | | | | | |
Contract Balances
Contract assets relate to the Company’s right to consideration for performance obligations satisfied but not billed. Contract liabilities relate to customer payments received in advance of satisfaction of performance obligations under the contract. Contract balances are classified as assets or liabilities on a contract-by-contract basis at the end of each reporting period.
Johnson Controls International plc
Notes to Consolidated Financial Statements
June 30, 2024
(unaudited)
The following table presents the location and amount of contract balances in the Company's consolidated statements of financial position (in millions):
| | | | | | | | | | | | | | | | | | | | | | |
| | Location of contract balances | | June 30, 2024 | | September 30, 2023 | | |
Contract assets - current | | Accounts receivable - net | | $ | 1,961 | | | $ | 2,370 | | | |
Contract assets - noncurrent | | Other noncurrent assets | | 9 | | | 12 | | | |
Contract liabilities - current | | Deferred revenue | | 2,143 | | | 1,996 | | | |
Contract liabilities - noncurrent | | Other noncurrent liabilities | | 314 | | | 297 | | | |
| | | | | | | | |
For the three months ended June 30, 2024 and 2023, the Company recognized revenue of $269 million and $222 million, respectively, that was included in the contract liability balance at the end of the prior fiscal year. For the nine months ended June 30, 2024 and 2023, the Company recognized revenue of $1,530 million and $1,387 million, respectively, that was included in the contract liability balance at the end of the prior fiscal year.
Performance Obligations
A performance obligation is a distinct good, service, or a bundle of goods and services promised in a contract. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. When contracts with customers require significant and complex integration, contain goods or services which are highly interdependent or interrelated, or are goods or services which significantly modify or customize other promises in the contracts and, therefore, are not distinct, then the entire contract is accounted for as a single performance obligation. For any contracts with multiple performance obligations, the contract’s transaction price is allocated to each performance obligation based on the estimated relative standalone selling price of each distinct good or service in the contract. For product sales, each product sold to a customer typically represents a distinct performance obligation.
Performance obligations are satisfied at a point in time or over time. The timing of satisfying the performance obligation is typically stipulated by the terms of the contract. As of June 30, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $21.4 billion, of which approximately 67% is expected to be recognized as revenue over the next two years. The remaining performance obligations expected to be recognized in revenue beyond two years primarily relate to large, multi-purpose contracts to construct hospitals, schools and other governmental buildings, which include services to be performed over the building's lifetime, with initial contract terms of 25 to 35 years. Future contract modifications could affect both the timing and the amount of the remaining performance obligations. The Company excludes the value of remaining performance obligations for service contracts with an original expected duration of one year or less.
Costs to Obtain or Fulfill a Contract
The Company recognizes the incremental costs incurred to obtain or fulfill a contract with a customer as an asset when these costs are recoverable. These costs consist primarily of sales commissions and design costs that relate to a contract or an anticipated contract that the Company expects to recover. Costs to obtain or fulfill a contract are capitalized and amortized over the period of contract performance.
The following table presents the location and amount of costs to obtain or fulfill a contract recorded in the Company's consolidated statements of financial position (in millions):
| | | | | | | | | | | | | | | | |
| | June 30, 2024 | | September 30, 2023 | | |
Other current assets | | $ | 247 | | | $ | 156 | | | |
Other noncurrent assets | | 278 | | | 224 | | | |
Total | | $ | 525 | | | $ | 380 | | | |
Johnson Controls International plc
Notes to Consolidated Financial Statements
June 30, 2024
(unaudited)
During the three months ended June 30, 2024 and 2023, the Company recognized amortization expense of $84 million and $66 million, respectively, related to costs to obtain or fulfill a contract. During the nine months ended June 30, 2024 and 2023, the Company recognized amortization expense of $218 million and $188 million, respectively, related to costs to obtain or fulfill a contract. There were no impairment losses recognized in the three and nine months ended June 30, 2024 and 2023.
6. ACCOUNTS RECEIVABLE
The Company discontinued its receivable factoring program in March 2024. Accounts receivable sold totaled $702 million during the nine months ended June 30, 2024, $425 million during the three months ended June 30, 2023 and $1.3 billion during the nine months ended June 30, 2023. Previously sold receivables still outstanding were $31 million and $681 million as of June 30, 2024 and September 30, 2023, respectively.
7. INVENTORIES
Inventories consisted of the following (in millions):
| | | | | | | | | | | |
| June 30, 2024 | | September 30, 2023 |
| | | |
Raw materials and supplies | $ | 1,107 | | | $ | 1,203 | |
Work-in-process | 267 | | | 226 | |
Finished goods | 1,489 | | | 1,347 | |
Inventories | $ | 2,863 | | | $ | 2,776 | |
8. GOODWILL AND OTHER INTANGIBLE ASSETS
The following table summarizes changes in the carrying amount of goodwill in each of the Company’s reportable segments (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | Building Solutions North America | | Building Solutions EMEA/LA | | Building Solutions Asia Pacific | | Global Products | | Total |
Goodwill | | $ | 10,040 | | | $ | 1,932 | | | $ | 1,179 | | | $ | 5,750 | | | 18,901 | |
Accumulated impairment loss | | (659) | | | (47) | | | — | | | (259) | | | (965) | |
Balance at September 30, 2023 | | 9,381 | | | 1,885 | | | 1,179 | | | 5,491 | | | 17,936 | |
| | | | | | | | | | |
| | | | | | | | | | |
Impairments | | — | | | (230) | | | — | | | — | | | (230) | |
Foreign currency translation and other (1) | | 6 | | | 31 | | | (2) | | | (65) | | | (30) | |
Balance at June 30, 2024 | | $ | 9,387 | | | $ | 1,686 | | | $ | 1,177 | | | $ | 5,426 | | | $ | 17,676 | |
(1) Includes measurement period adjustments and the allocation of $21 million of goodwill from Global Products to the ADTi disposal group classified as held for sale. Refer to Note 4, "Assets and Liabilities Held for Sale" of the notes to the consolidated financial statements for further information.
The Company tests goodwill for impairment annually as of July 31 or more frequently if events or changes in circumstances indicate the asset might be impaired.
During the second quarter of fiscal 2024, the Company determined a triggering event had occurred for one of its reporting units due to year-to-date results and projections for the remainder of fiscal 2024 being lower than the forecast used in the previous annual goodwill impairment test, and a quantitative test of goodwill for possible impairment was necessary. As a result of the goodwill impairment test, the Company recorded a non-cash impairment charge of $230 million within restructuring and impairment costs in the consolidated statements of income, which was determined by comparing the carrying amount of the reporting unit to its fair value. The Company used a discounted cash flow model to estimate the fair value of the reporting unit. The primary assumptions used in the model were management's internal projections of future
Johnson Controls International plc
Notes to Consolidated Financial Statements
June 30, 2024
(unaudited)
cash flows, the weighted-average cost of capital and the long-term growth rate, which are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement." The reporting unit whose goodwill was impaired was previously disclosed as being at risk of impairment in the Company’s Annual Report on Form 10-K for the year-ended September 30, 2023. It is possible that future changes in circumstances, including an increase in the discount rate or a decrease in the revenue growth rates, could result in an additional non-cash impairment charge of the remaining $212 million of goodwill for this reporting unit.
There were no other triggering events requiring an impairment assessment be conducted in the nine months ended June 30, 2024.
Other intangible assets, primarily from business acquisitions, consisted of (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2024 | | September 30, 2023 |
| Gross Carrying Amount | | Accumulated Amortization | | Net | | Gross Carrying Amount | | Accumulated Amortization | | Net |
Definite-lived intangible assets | | | | | | | | | | | |
Technology | $ | 1,590 | | | $ | (919) | | | $ | 671 | | | $ | 1,575 | | | $ | (806) | | | $ | 769 | |
Customer relationships | 2,790 | | | (1,562) | | | 1,228 | | | 3,047 | | | (1,496) | | | 1,551 | |
Miscellaneous | 968 | | | (509) | | | 459 | | | 889 | | | (435) | | | 454 | |
| 5,348 | | | (2,990) | | | 2,358 | | | 5,511 | | | (2,737) | | | 2,774 | |
Indefinite-lived intangible assets | | | | | | | | | | | |
Trademarks/trade names | 1,957 | | | — | | | 1,957 | | | 2,114 | | | — | | | 2,114 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total intangible assets | $ | 7,305 | | | $ | (2,990) | | | $ | 4,315 | | | $ | 7,625 | | | $ | (2,737) | | | $ | 4,888 | |
Amortization of other intangible assets for the three months ended June 30, 2024 and 2023 was $119 million and $111 million, respectively. Amortization of other intangible assets for the nine months ended June 30, 2024 and 2023 was $366 million and $319 million, respectively.
9. LEASES
The following table presents supplemental consolidated statement of financial position information (in millions):
| | | | | | | | | | | | | | | | | |
| Location of lease balances | | June 30, 2024 | | September 30, 2023 |
Operating lease right-of-use assets | Other noncurrent assets | | $ | 1,226 | | $ | 1,389 | |
Operating lease liabilities - current | Other current liabilities | | 303 | | 318 | |
Operating lease liabilities - noncurrent | Other noncurrent liabilities | | 935 | | 1,086 | |
| | | | | |
| | | | | |
| | | | | |
The following table presents supplemental noncash operating lease activity (in millions):
| | | | | | | | | | | | | | | | | | | | | | |
| | | | Nine Months Ended June 30, | | |
| | | | | | 2024 | | 2023 | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Right-of-use assets obtained in exchange for operating lease liabilities | | | | | | $ | 248 | | | $ | 347 | | | |
Johnson Controls International plc
Notes to Consolidated Financial Statements
June 30, 2024
(unaudited)
10. DEBT AND FINANCING ARRANGEMENTS
Short-term debt consisted of the following (in millions):
| | | | | | | | | | | |
| June 30, | | September 30, |
| 2024 | | 2023 |
Commercial paper | $ | 941 | | | $ | 200 | |
Term loans | 581 | | | 159 | |
Bank borrowings | 1 | | | 26 | |
| $ | 1,523 | | | $ | 385 | |
Weighted average interest rate on short-term debt outstanding | 4.5 | % | | 5.1 | % |
As of June 30, 2024, the Company had syndicated committed revolving credit facilities of $2.5 billion which is scheduled to expire in December 2028 and $500 million which is scheduled to expire in December 2024. There were no draws on the facilities as of June 30, 2024.
In June 2024, the Company completed the debt tender offer to purchase $119 million of its 5.125% Notes due 2045.
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.
11. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company selectively uses derivative instruments to reduce market risk associated with changes in foreign currency, commodities and interest rates. Under Company policy, the use of derivatives is restricted to those intended for hedging purposes; the use of any derivative instrument for speculative purposes is strictly prohibited. A description of each type of derivative utilized by the Company to manage risk is included in the following paragraphs. In addition, refer to Note 12, "Fair Value Measurements," of the notes to the consolidated financial statements for information related to the fair value measurements and valuation methods utilized by the Company for each derivative type.
Cash Flow Hedges
The Company has global operations and participates in foreign exchange markets to minimize its risk of loss from fluctuations in foreign currency exchange rates. The Company selectively hedges anticipated transactions that are subject to foreign exchange rate risk primarily using foreign currency exchange forward contracts. The Company hedges 70% to 90% of the notional amount of each of its known foreign exchange transactional exposures.
The Company enters into forward-starting interest-rate swaps in conjunction with anticipated note issuances. Forward-starting interest-rate swaps are terminated when the anticipated notes are issued. Accumulated amounts recorded in accumulated other comprehensive income (loss) ("AOCI") as of the date of the note issuance are amortized to interest expense over the life of the related note to reflect the difference between the swap's reference rate and the fixed rate of the note.
During the second quarter of fiscal 2024, the Company terminated $600 million of forward-starting interest-rate swaps related to an anticipated note issuance that was no longer highly likely to occur. Accumulated amounts previously recorded in AOCI were not material and were recognized as net financing charges in the consolidated statements of income when the swaps were terminated.
The Company selectively hedges anticipated transactions that are subject to commodity price risk, primarily using commodity hedge contracts, to minimize overall price risk associated with the Company’s purchases of copper and aluminum in cases where commodity price risk cannot be naturally offset or hedged through supply base fixed price contracts. Commodity risks are systematically managed pursuant to policy guidelines. The maturities of the commodity hedge contracts coincide with the expected purchase of the commodities.
Johnson Controls International plc
Notes to Consolidated Financial Statements
June 30, 2024
(unaudited)
The Company had the following outstanding contracts to hedge forecasted commodity purchases (in metric tons):
| | | | | | | | | | | | | | |
| | Volume Outstanding as of |
Commodity | | June 30, 2024 | | September 30, 2023 |
| | | | |
Copper | | 2,790 | | | 2,812 | |
Aluminum | | 5,606 | | | 5,976 | |
Cash flow hedges under ASC 815, "Derivatives and Hedging," that hedge gains or losses due to changes in fair value are initially recorded as a component of AOCI and are subsequently reclassified into earnings when the hedged transactions occur and affect earnings. These contracts were highly effective in hedging the variability in future cash flows attributable to changes in currency exchange rates and commodity prices during the three and nine months ended June 30, 2024 and 2023.
Net Investment Hedges
The Company enters into cross-currency interest rate swaps and foreign currency denominated debt obligations to selectively hedge portions of its net investment in non-U.S. subsidiaries. The currency effects of the cross-currency interest rate swaps and debt obligations are reflected in the AOCI account within shareholders’ equity attributable to Johnson Controls ordinary shareholders where they offset gains and losses recorded on the Company’s net investments globally.
The following table summarizes net investment hedges (in billions):
| | | | | | | | | | | | | | |
| | June 30, | | September 30, |
| 2024 | | 2023 |
Euro-denominated bonds designated as net investment hedges in Europe | | € | 2.9 | | | € | 2.9 | |
Yen-denominated debt designated as a net investment hedge in Japan | | ¥ | 30 | | | ¥ | 30 | |
US dollar vs. Yen cross-currency interest rate swap designated as a net investment hedge in Japan | | ¥ | 14 | | | ¥ | 14 | |
Derivatives Not Designated as Hedging Instruments
The Company holds certain foreign currency forward contracts not designated as hedging instruments under ASC 815 to hedge foreign currency exposure resulting from monetary assets and liabilities denominated in nonfunctional currencies. The changes in fair value of these foreign currency forward exchange derivatives are recorded in the consolidated statements of income where they offset foreign currency transactional gains and losses on the nonfunctional currency denominated assets and liabilities being hedged.
Johnson Controls International plc
Notes to Consolidated Financial Statements
June 30, 2024
(unaudited)
Fair Value of Derivative Instruments
The following table presents the location and fair values of derivative instruments and hedging activities included in the Company’s consolidated statements of financial position (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Derivatives and Hedging Activities Designated as Hedging Instruments | | Derivatives and Hedging Activities Not Designated as Hedging Instruments |
| June 30, | | September 30, | | June 30, | | September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Other current assets | | | | | | | |
Foreign currency exchange derivatives | $ | 11 | | | $ | 16 | | | $ | 2 | | | $ | 13 | |
Interest rate swaps | — | | | 22 | | | — | | | — | |
Commodity derivatives | 3 | | | — | | | — | | | — | |
Other noncurrent assets | | | | | | | |
Cross-currency interest rate swap | 13 | | | 5 | | | — | | | — | |
Total assets | $ | 27 | | | $ | 43 | | | $ | 2 | | | $ | 13 | |
| | | | | | | |
Other current liabilities | | | | | | | |
Foreign currency exchange derivatives | $ | 10 | | | $ | 20 | | | $ | — | | | $ | 5 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Commodity derivatives | 1 | | | 2 | | — | | | — | |
Long-term debt | | | | | | | |
Foreign currency denominated debt | 3,264 | | | 3,253 | | | — | | | — | |
Total liabilities | $ | 3,275 | | | $ | 3,275 | | | $ | — | | | $ | 5 | |
Counterparty Credit Risk
The use of derivative financial instruments exposes the Company to counterparty credit risk. The Company has established policies and procedures to limit the potential for counterparty credit risk, including establishing limits for credit exposure and continually assessing the creditworthiness of counterparties. As a matter of practice, the Company deals with major banks worldwide having strong investment grade long-term credit ratings. To further reduce the risk of loss, the Company generally enters into International Swaps and Derivatives Association ("ISDA") master netting agreements with substantially all of its counterparties. The Company enters into ISDA master netting agreements with counterparties that permit the net settlement of amounts owed under the derivative contracts. The master netting agreements generally provide for net settlement of all outstanding contracts with a counterparty in the case of an event of default or a termination event. The Company has not elected to offset the fair value positions of the derivative contracts recorded in the consolidated statements of financial position.
The Company's derivative contracts do not contain any credit risk related contingent features and do not require collateral or other security to be furnished by the Company or the counterparties. The Company's exposure to credit risk associated with its derivative instruments is measured on an individual counterparty basis, as well as by groups of counterparties that share similar attributes. The Company does not anticipate any non-performance by any of its counterparties, and the concentration of risk with financial institutions does not present significant credit risk to the Company.
Johnson Controls International plc
Notes to Consolidated Financial Statements
June 30, 2024
(unaudited)
The gross and net amounts of derivative assets and liabilities were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value of Assets | | | | Fair Value of Liabilities | | |
| | June 30, | | September 30, | | | | June 30, | | September 30, | | |
| | 2024 | | 2023 | | | | 2024 | | 2023 | | |
Gross amount recognized | | $ | 29 | | | $ | 56 | | | | | $ | 3,275 | | | $ | 3,280 | | | |
Gross amount eligible for offsetting | | (9) | | | (19) | | | | | (9) | | | (19) | | | |
Net amount | | $ | 20 | | | $ | 37 | | | | | $ | 3,266 | | | $ | 3,261 | | | |
Derivatives Impact on the Statements of Income and Statements of Comprehensive Income
The following table presents the pre-tax gains (losses) recorded in other comprehensive income (loss) related to cash flow hedges (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives in Cash Flow Hedging Relationships | | Three Months Ended June 30, | | Nine Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Foreign currency exchange derivatives | | $ | 2 | | | $ | 3 | | | $ | 4 | | | $ | (9) | |
Commodity derivatives | | 4 | | | (6) | | | 5 | | | 1 | |
Interest rate swaps | | — | | | 1 | | | (21) | | | 6 | |
| | | | | | | | |
Total | | $ | 6 | | | $ | (2) | | | $ | (12) | | | $ | (2) | |
The following table presents the location and amount of the pre-tax gains (losses) on cash flow hedges reclassified from AOCI into the Company’s consolidated statements of income (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives in Cash Flow Hedging Relationships | | Location of Gain (Loss) Reclassified from AOCI into Income | | Three Months Ended June 30, | | Nine Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Foreign currency exchange derivatives | | Cost of sales | | $ | 4 | | | $ | (6) | | | $ | 1 | | | $ | (2) | |
Commodity derivatives | | Cost of sales | | — | | | 1 | | | (4) | | | (7) | |
| | | | | | | | | | |
Total | | | | $ | 4 | | | $ | (5) | | | $ | (3) | | | $ | (9) | |
The following table presents the location and amount of pre-tax gains (losses) on derivatives not designated as hedging instruments recognized in the Company’s consolidated statements of income (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
Derivatives Not Designated as Hedging Instruments | | Location of Gain (Loss) Recognized in Income on Derivative | | Three Months Ended June 30, | | Nine Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Foreign currency exchange derivatives | | Cost of sales | | $ | (4) | | | $ | (9) | | | $ | (7) | | | $ | (17) | |
| | | | | | | | | | |
Foreign currency exchange derivatives | | SG&A | | 2 | | | — | | | 2 | | | — | |
Foreign currency exchange derivatives | | Net financing charges | | 20 | | | (54) | | | 36 | | | (118) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Total | | | | $ | 18 | | | $ | (63) | | | $ | 31 | | | $ | (135) | |
Johnson Controls International plc
Notes to Consolidated Financial Statements
June 30, 2024
(unaudited)
The following table presents pre-tax gains (losses) on net investment hedges recorded as foreign currency translation adjustments ("CTA") within other comprehensive income (loss) (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
2024 | | 2023 | | 2024 | | 2023 |
Net investment hedges | $ | 44 | | | $ | 30 | | | $ | (3) | | | $ | (299) | |
| | | | | | | |
No gains or losses were reclassified from CTA into income during the three and nine months ended June 30, 2024 and 2023.
12. FAIR VALUE MEASUREMENTS
ASC 820, "Fair Value Measurement," defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:
Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2: Quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs where there is little or no market data, which requires the reporting entity to develop its own assumptions.
ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
Johnson Controls International plc
Notes to Consolidated Financial Statements
June 30, 2024
(unaudited)
Recurring Fair Value Measurements
The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements Using: |
| Total as of June 30, 2024 | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Other current assets | | | | | | | |
Foreign currency exchange derivatives | $ | 13 | | | $ | — | | | $ | 13 | | | $ | — | |
| | | | | | | |
Commodity derivatives | 3 | | | — | | | 3 | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other noncurrent assets | | | | | | | |
Cross-currency interest rate swap | 13 | | | — | | | 13 | | | — | |
Deferred compensation plan assets | 53 | | | 53 | | | — | | | — | |
Exchange traded funds (fixed income)(1) | 80 | | | 80 | | | — | | | — | |
Exchange traded funds (equity)(1) | 191 | | | 191 | | | — | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total assets | $ | 353 | | | $ | 324 | | | $ | 29 | | | $ | — | |
Other current liabilities | | | | | | | |
Foreign currency exchange derivatives | $ | 10 | | | $ | — | | | $ | 10 | | | $ | — | |
| | | | | | | |
Commodity derivatives | 1 | | | — | | | 1 | | | — | |
Contingent earn-out liabilities | 15 | | | — | | | — | | | 15 | |
Other noncurrent liabilities | | | | | | | |
Contingent earn-out liabilities | 20 | | | — | | | |