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MarketScreener Homepage  >  Equities  >  Nyse  >  Johnson Controls International Plc    JCI   IE00BY7QL619

JOHNSON CONTROLS INTERNATIONAL PLC

(JCI)
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JOHNSON CONTROLS INTERNATIONAL : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

11/16/2020 | 10:07am EST

General


The Company engineers, manufactures and commissions building products and
systems, including residential and commercial HVAC equipment, industrial
refrigeration systems, controls, security systems, fire detection systems and
fire suppression solutions. The Company further serves customers by providing
technical services, including maintenance, repair, retrofit and replacement of
equipment (in the HVAC, security and fire-protection space), energy-management
consulting and data-driven "smart building" services and solutions powered by
its digital platforms and capabilities.

This discussion summarizes the significant factors affecting the consolidated
operating results, financial condition and liquidity of the Company for the
fiscal year ended September 30, 2020. This discussion should be read in
conjunction with Item 8, the consolidated financial statements and the notes to
consolidated financial statements. A detailed discussion of the 2019 to 2018
year-over-year changes are not included herein and can be found in the
Management's Discussion and Analysis section in the Company's 2019 Annual Report
on Form 10-K filed November 21, 2019.

Impact of COVID-19 pandemic


The global outbreak of COVID-19 has severely restricted the level of economic
activity around the world and has caused a significant contraction in the global
economy. In response to this outbreak, the governments of many countries,
states, cities and other geographic regions have taken preventative or
protective actions, such as imposing restrictions on travel and business
operations.

The Company's affiliates, employees, suppliers, customers and others have been
and may continue to be restricted or prevented from conducting normal business
activities, including as a result of shutdowns, travel restrictions and other
actions that may be requested or mandated by governmental authorities. Such
actions have and may in the future prevent the Company from accessing the
facilities of its customers to deliver and install products, provide services
and complete maintenance. In addition, some of the Company's customers have
chosen to delay or abandon projects on which the Company provides products
and/or services as a result of such actions. Although some governments have
lifted shutdown orders and similar restrictions, a resurgence in the spread of
COVID-19 could cause the reinstitution of such preventive or protective
measures. While a substantial portion of the Company's businesses have been
classified as an essential business in jurisdictions in which facility closures
have been mandated, some of its facilities have nevertheless been ordered to
close, and we can give no assurance that there will not be additional closures
in the future or that our businesses will be classified as essential in each of
the jurisdictions in which we operate.

In response to the challenges presented by COVID-19, the Company has focused its
efforts on preserving the health and safety of its employees and customers, as
well as maintaining the continuity of its operations. The Company has modified
its business practices in response to the COVID-19 outbreak, including
restricting non-essential employee travel, implementation of remote work
protocols, and cancellation of physical participation in meetings, events and
conferences. The Company has also instituted preventive measures at its
facilities, including enhanced health and safety protocols, temperature
screening, requiring face coverings for all employees and encouraging employees
to follow similar protocols when away from work. The Company has adopted a
multifaceted framework to guide its decision making when evaluating the
readiness of its facilities to safely reopen and operate, and will continue to
monitor and audit its facilities to ensure that they are in compliance with the
Company's COVID-19 safety requirements.

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In the second quarter of fiscal 2020, the Company experienced a temporary
reduction of its manufacturing and operating capacity in China as a result of
government-mandated actions to control the spread of COVID-19. In the third
quarter of fiscal 2020, the Company experienced similar reductions as a result
of government-mandated actions in India and Mexico. During the fourth quarter of
fiscal 2020, the Company's facilities were generally able to operate at normal
levels, though its manufacturing capacity in India continues to be reduced as a
result of continued lockdowns in the region. The Company has experienced, and
may continue to experience, disruptions or delays in its supply chain as a
result of government-mandated actions, which has resulted in higher supply chain
costs to the Company in order to maintain the supply of materials and components
for its products.

In order to mitigate disruptions to its supply chain and manufacturing capacity,
the Company took actions including redistributing its manufacturing capacity to
facilities and regions unaffected by shutdown orders, accelerating the purchase
and shipment of components from suppliers in identified hot spots, diversifying
the Company's supplier base, conducting government outreach to support the
Company's and its suppliers' designations as essential businesses, and expanded
its existing supplier financing programs to support supplier viability and
business continuity. While these actions have generally been successful in
preserving the Company's supply chain and manufacturing capacity, the potential
resurgence of COVID-19 in various jurisdictions could lead to further
disruptions.

The Company experienced a decline in demand and volumes in its global businesses
as a result of the impact of efforts to contain the spread of COVID-19.
Specifically, the Company experienced lower demand due to restricted access to
customer sites to perform service and installation work as well as reduced
discretionary capital spending by the Company's customers. In response, the
Company quickly moved to execute temporary and permanent cost mitigation actions
to offset a portion of the impact of COVID-19 on the demand for its products and
services, such as deferring or reducing capital expenditures, implementing cost
structure changes, short-term furloughing of salaried employees and limiting
discretionary spending including corporate expense. These measures were in
addition to the Company's previously disclosed fiscal 2020 restructuring plan.
Although the Company intends that the temporary cost mitigation actions
initiated in fiscal 2020 will cease in fiscal 2021, the necessity of future cost
mitigation actions will depend on the continued impact of COVID-19, which is
highly uncertain.

The global pandemic has also provided the Company with the opportunity to help
its customers prepare to re-open by delivering solutions and support that
enhance the safety and increase the efficiency of their operations. The Company
has seen an increase in demand for its products and solutions that promote
building health and optimize customers' infrastructure, including thermal
cameras, indoor air quality, location-based services for contact tracing and
touchless access control.

During the second quarter of fiscal 2020, the Company determined that it had a
triggering event requiring assessment of impairment for certain of its
indefinite-lived intangible assets due to declines in revenue directly
attributable to the COVID-19 pandemic. As a result, the Company recorded an
impairment charge of $62 million related primarily to the Company's retail
business indefinite-lived intangible assets within restructuring and impairment
costs in the consolidated statements of income in the second quarter of fiscal
2020. During the third quarter of fiscal 2020, the Company determined that it
had a triggering event requiring assessment of impairment for certain of its
indefinite-lived intangible assets, long-lived assets and goodwill due to
declines in revenue and further declines in forecasted cash flows in its North
America Retail reporting unit directly attributable to the COVID-19 pandemic. As
a result, the Company recorded an impairment charge of $424 million related to
the Company's North America Retail reporting unit's goodwill within
restructuring and impairment costs in the consolidated statements of income in
the third quarter of fiscal 2020. There were no indefinite-lived intangibles or
goodwill impairments resulting from the fiscal 2020 annual impairment tests
performed in the fourth quarter of fiscal 2020. However, it is possible that
future changes in such circumstances, including a more prolonged and/or severe
COVID-19 pandemic, would require the Company to record additional non-cash
impairment charges.

The Company continues to actively monitor its liquidity position and working
capital needs. The Company believes that, following its implementation of
liquidity and cost mitigation actions in fiscal 2020, it remains in a solid
overall capital resources and liquidity position that is adequate to meet its
projected needs. As a result, following a review of its liquidity position, the
Company resumed its share repurchase program in July 2020, which had been
suspended in March 2020. In September 2020, the Company issued $1.8 billion of
senior notes. A portion of the proceeds, together with cash from operations,
were used to repay short-term debt obligations incurred by the Company at the
onset of the pandemic to preserve its near-term financial flexibility, as well
as repay or redeem other near term-indebtedness.

The extent to which the COVID-19 outbreak continues to impact the Company's
results of operations and financial condition will depend on future developments
that are highly uncertain and cannot be predicted, including new information
that may emerge concerning the severity and longevity of COVID-19, the
resurgence of COVID-19 in regions that have begun to recover from the initial
impact of the pandemic, the impact of COVID-19 on economic activity, and the
actions to contain its impact on
                                       29
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public health and the global economy. See Part I, Item 1A, Risk Factors, for an additional discussion of risks related to COVID-19.

FISCAL YEAR 2020 COMPARED TO FISCAL YEAR 2019

Net Sales
                         Year Ended
                       September 30,
(in millions)        2020          2019        Change
Net sales         $ 22,317$ 23,968         -7  %



The decrease in net sales was due to lower organic sales ($1,543 million), the
unfavorable impact of foreign currency translation ($150 million) and lower
sales due to business divestitures ($11 million), partially offset by
acquisitions ($53 million). Excluding the impact of foreign currency translation
and business acquisitions and divestitures, consolidated net sales decreased 6%
as compared to the prior year due to lower demand, primarily attributable to the
COVID-19 pandemic. Refer to the "Segment Analysis" below within Item 7 for a
discussion of net sales by segment.

Cost of Sales / Gross Profit

                          Year Ended
                        September 30,
(in millions)        2020           2019         Change
Cost of sales     $ 14,906$ 16,275          -8  %
Gross profit         7,411          7,693          -4  %
% of sales            33.2  %        32.1  %



Cost of sales and gross profit both decreased and gross profit as a percentage
of sales increased by 110 basis points. Gross profit decreased due to organic
sales declines primarily due to the unfavorable impact of the COVID-19 pandemic,
partially offset by cost mitigation actions. Net mark-to-market adjustments had
a net favorable year-over-year impact on cost of sales of $40 million ($88
million loss in fiscal 2020 compared to a $128 million loss in fiscal 2019)
primarily due to a more significant reduction in discount rates in the prior
year. Foreign currency translation had a favorable impact on cost of sales of
approximately $100 million. Refer to the "Segment Analysis" below within Item 7
for a discussion of segment earnings before interest, taxes and amortization
("EBITA") by segment.

Selling, General and Administrative Expenses

                                                       Year Ended
                                                     September 30,
(in millions)                                      2020          2019       

Change

Selling, general and administrative expenses $ 5,665$ 6,244

   -9  %
% of sales                                         25.4  %       26.1  %



Selling, general and administrative expenses ("SG&A") decreased by $579 million,
and SG&A as a percentage of sales decreased by 70 basis points. The decrease in
SG&A included the favorable impact of cost mitigation actions and reductions in
discretionary spend in the current year. The net mark-to-market adjustments had
a net favorable year-over-year impact on SG&A of $304 million ($186 million loss
in fiscal 2020 compared to a $490 million loss in fiscal 2019) primarily due to
a more significant reduction in discount rates in the prior year. Additional
favorable impacts included a prior year environmental charge ($140 million) and
foreign currency translation ($30 million). These items were partially offset by
a prior year tax indemnification reserve release ($226 million). Refer to the
"Segment Analysis" below within Item 7 for a discussion of segment EBITA by
segment.

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Restructuring and Impairment Costs

                                            Year Ended
                                           September 30,
(in millions)                             2020        2019       Change
Restructuring and impairment costs     $    783$ 235             *


* Measure not meaningful

Refer to Note 7, "Goodwill and Other Intangible Assets," Note 16, "Significant Restructuring and Impairment Costs," and Note 17, "Impairment of Long-Lived Assets," of the notes to consolidated financial statements for further disclosure related to the Company's restructuring plans and impairment costs.

Net Financing Charges

                             Year Ended
                            September 30,
(in millions)              2020        2019       Change

Net financing charges $ 231$ 350 -34 %

Refer to Note 9, "Debt and Financing Arrangements," of the notes to consolidated financial statements for further disclosure related to the Company's net financing charges.

Equity Income
                       Year Ended
                      September 30,
(in millions)        2020        2019       Change
Equity income     $    171$ 192        -11  %



The decrease in equity income was primarily due to lower income at certain
partially-owned affiliates of the Johnson Controls - Hitachi joint venture
primarily due to the unfavorable impact of the COVID-19 pandemic. Foreign
currency translation had an unfavorable impact on equity income of $3 million.
Refer to the "Segment Analysis" below within Item 7 for a discussion of segment
EBITA by segment.

Income Tax Provision
                                      Year Ended
                                     September 30,
(in millions)                      2020        2019        Change
Income tax provision (benefit)   $ 108$ (233)             *
Effective tax rate                  12  %       -22  %


* Measure not meaningful

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


For fiscal 2020, the effective tax rate for continuing operations was 12% and
was lower than the statutory tax rate primarily due to tax audit reserve
adjustments, the income tax effects of mark-to-market adjustments, valuation
allowance adjustments and the benefits of continuing global tax planning
initiatives, partially offset by a discrete tax charge related to the
remeasurement of deferred tax assets and liabilities as a result of Swiss tax
reform, the tax impact of an impairment charge and tax rate differentials.

For fiscal 2019, the effective rate for continuing operations was below the
statutory rate primarily due to tax audit reserve adjustments, the income tax
effects of mark-to-market adjustments, a tax indemnification reserve release,
the tax benefits of an asset held for sale impairment charge and continuing
global tax planning initiatives, partially offset by valuation allowance
adjustments as a result of tax law changes, a discrete tax charge related to
newly enacted regulations related to U.S. Tax Reform and tax rate differentials.

                                       31
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The fiscal 2020 effective tax rate increased as compared to fiscal 2019
primarily due to the discrete tax items. The fiscal year 2020 and 2019 global
tax planning initiatives related primarily to changes in entity tax status,
global financing structures and alignment of the Company's global business
functions in a tax efficient manner. Refer to Note 18, "Income Taxes," of the
notes to consolidated financial statements for further details.

Income From Discontinued Operations, Net of Tax

                                                         Year Ended
                                                        September 30,
(in millions)                                         2020         2019     

Change

Income from discontinued operations, net of tax $ - $ 4,598

         *


* Measure not meaningful

Refer to Note 3, "Discontinued Operations," of the notes to consolidated financial statements for further information.

Income Attributable to Noncontrolling Interests

                                                        Year Ended
                                                       September 30,
(in millions)                                         2020        2019      

Change

Income from continuing operations attributable
to noncontrolling interests                        $    164$ 189        -13  %
Income from discontinued operations attributable
to noncontrolling interests                               -         24             *


* Measure not meaningful

The decrease in income from continuing operations attributable to noncontrolling
interests was primarily due to lower net income primarily due to the COVID-19
pandemic at certain partially-owned affiliates within the Global Products
segment.

Refer to Note 3, "Discontinued Operations," of the notes to consolidated financial statements for further information regarding the Company's discontinued operations.

Net Income Attributable to Johnson Controls

                                                     Year Ended
                                                    September 30,
(in millions)                                     2020        2019        

Change

Net income attributable to Johnson Controls$ 631$ 5,674 -89 %




The decrease in net income attributable to Johnson Controls was primarily due to
the prior year income from discontinued operations, higher restructuring and
impairment charges, higher income tax provision and the unfavorable impact of
the COVID-19 pandemic, partially offset by lower SG&A and net financing charges.
Fiscal 2020 diluted earnings per share attributable to Johnson Controls was
$0.84 compared to $6.49 in fiscal 2019.

Comprehensive Income Attributable to Johnson Controls

                                            Year Ended
                                           September 30,
(in millions)                            2020        2019        Change
Comprehensive income attributable to
Johnson Controls                       $  650$ 5,350        -88  %



The decrease in comprehensive income attributable to Johnson Controls was due to
lower net income attributable to Johnson Controls ($5,043 million), partially
offset by an increase in other comprehensive income attributable to Johnson
Controls ($343 million) resulting primarily from foreign currency translation
adjustments. The favorable foreign currency translation adjustments were
primarily driven by weakening of the British pound and euro currencies against
the U.S. dollar in the prior year.

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SEGMENT ANALYSIS


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

                                           Net Sales                                                 Segment EBITA
                                      for the Year Ended                                          for the Year Ended
                                         September 30,                                               September 30,
(in millions)                       2020               2019               Change                 2020                2019              Change
Building Solutions North
America                         $    8,605$  9,031                   -5  %       $    1,157$ 1,153                    -  %
Building Solutions EMEA/LA           3,440             3,655                   -6  %              338                 368                   -8  %
Building Solutions Asia Pacific      2,403             2,658                  -10  %              319                 341                   -6  %
Global Products                      7,869             8,624                   -9  %            1,134               1,179                   -4  %
                                $   22,317$ 23,968                   -7  %       $    2,948$ 3,041                   -3  %




Net Sales:

•The decrease in Building Solutions North America was due to lower volumes ($414
million) and the unfavorable impact of foreign currency translation ($12
million). The decrease in volumes was primarily attributable to the unfavorable
impact of the COVID-19 pandemic.

•The decrease in Building Solutions EMEA/LA was primarily attributable to lower
volumes ($151 million), the unfavorable impact of foreign currency translation
($96 million) and business divestitures ($6 million), partially offset by
incremental sales related to business acquisitions ($38 million). The decrease
in volumes was primarily attributable to the unfavorable impact of the COVID-19
pandemic.

•The decrease in Building Solutions Asia Pacific was due to lower volumes ($232
million) and the unfavorable impact of foreign currency translation ($31
million), partially offset by incremental sales related to a business
acquisition ($8 million). The decrease in volumes was primarily attributable to
the unfavorable impact of the COVID-19 pandemic.

•The decrease in Global Products was due to lower volumes ($746 million), the
unfavorable impact of foreign currency translation ($11 million) and lower
volumes related to business divestitures ($5 million), partially offset by
incremental sales related to business acquisitions ($7 million). The decrease in
volumes was primarily attributable to the unfavorable impact of the COVID-19
pandemic.

Segment EBITA:

•The increase in Building Solutions North America was due to prior year
integration costs ($26 million), partially offset by current year integration
costs ($11 million), unfavorable volumes, net of productivity savings and cost
mitigation actions ($10 million), and the unfavorable impact of foreign currency
translation ($1 million).

•The decrease in Building Solutions EMEA/LA was due to the unfavorable impact of
foreign currency translation ($17 million), unfavorable volumes, net of
productivity savings and cost mitigation actions ($14 million), lower equity
income ($7 million), current year integration costs ($2 million) and lower
income due to business divestitures ($1 million), partially offset by higher
income due to business acquisitions ($7 million) and prior year integration
costs ($4 million).

•The decrease in Building Solutions Asia Pacific was due to unfavorable volumes,
net of productivity savings and cost mitigation actions ($18 million), and
current year integration costs ($7 million), partially offset by prior year
integration costs ($2 million) and higher income due to business acquisitions
($1 million).

•The decrease in Global Products was due to unfavorable volumes, net of
favorable price/cost, productivity savings and cost mitigation actions ($143
million), a compensation charge related to a noncontrolling interest acquisition
($39 million), current year integration costs ($13 million), lower equity income
driven primarily by the unfavorable impact
                                       33
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of COVID-19 ($12 million), the unfavorable impact of foreign currency
translation ($5 million), lower income due to business acquisitions ($2 million)
and lower income due to business divestitures ($1 million), partially offset by
a prior year environmental charge ($140 million) and prior year integration
costs ($30 million).

LIQUIDITY AND CAPITAL RESOURCES

Working Capital
                                            September 30,       September 30,
(in millions)                                    2020                2019           Change
Current assets                             $       10,053$       12,393
Current liabilities                                (8,248)             (9,070)
                                                    1,805               3,323        -46  %

Less: Cash                                         (1,951)             (2,805)
Add: Short-term debt                                   31                  10
Add: Current portion of long-term debt                262                 

501

Less: Assets held for sale                              -                 

(98)

Add: Liabilities held for sale                          -                  44
Working capital (as defined)               $          147      $          975        -85  %

Accounts receivable                        $        5,294$        5,770         -8  %
Inventories                                         1,773               1,814         -2  %
Accounts payable                                    3,120               3,582        -13  %



•The Company defines working capital as current assets less current liabilities,
excluding cash, short-term debt, the current portion of long-term debt, and the
current portions of assets and liabilities held for sale. Management believes
that this measure of working capital, which excludes financing-related items and
businesses to be divested, provides a more useful measurement of the Company's
operating performance.

•The decrease in working capital at September 30, 2020 as compared to
September 30, 2019, was primarily due to lower income tax assets, a decrease in
accounts receivable, and the establishment of an operating lease liability on
the balance sheet in the first quarter of fiscal 2020 as a result of the
adoption of Accounting Standards Codification ("ASC") 842, partially offset by a
decrease in accounts payable due to lower spending and a decrease in accrued
compensation and benefits liabilities.

•The Company's days sales in accounts receivable at September 30, 2020 were 63,
a decrease from 67 at September 30, 2019. There has been no significant adverse
change in the level of overdue receivables or significant changes in revenue
recognition methods.

•The Company's inventory turns for the year ended September 30, 2020 were higher
than the comparable period ended September 30, 2019 primarily due to changes in
inventory production levels.

•Days in accounts payable at September 30, 2020 were 69 days, a decrease from 72 days for the comparable period ended September 30, 2019.

Cash Flows From Continuing Operations

                                               Year Ended September 30,
(in millions)                                     2020                  

2019

Cash provided by operating activities   $       2,479                $  

1,743

Cash used by investing activities                (258)                   

(533)

Cash used by financing activities              (2,824)                (10,519)



                                       34
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•The increase in cash provided by operating activities was primarily due to the timing of income tax payments/refunds and favorable changes in accounts receivable, partially offset by unfavorable changes in accounts payable and accrued liabilities.


•The decrease in cash used by investing activities was primarily due to lower
capital expenditures and higher cash proceeds from business divestitures and the
sale of property, plant & equipment.

•The decrease in cash used by financing activities was primarily due to lower stock repurchases, higher long-term debt borrowings, net of repayments, and lower short-term debt repayments.

Capitalization
                                                   September 30,          September 30,
(in millions)                                           2020                   2019                   Change
Short-term debt                                   $          31          $          10
Current portion of long-term debt                           262                    501
Long-term debt                                            7,526                  6,708
Total debt                                        $       7,819$       7,219                        8  %
Less: cash and cash equivalents                           1,951             

2,805

Total net debt                                    $       5,868$       4,414                       33  %

Shareholders' equity attributable to Johnson
Controls ordinary
shareholders                                             17,447                 19,766                      -12  %
Total capitalization                              $      23,315$      24,180                       -4  %

Total net debt as a % of total capitalization              25.2  %          

18.3 %




•Net debt and net debt as a percentage of total capitalization are non-GAAP
financial measures. The Company believes the percentage of total net debt to
total capitalization is useful to understanding the Company's financial
condition as it provides a review of the extent to which the Company relies on
external debt financing for its funding and is a measure of risk to its
shareholders.

•The Company believes its capital resources and liquidity position at
September 30, 2020 are adequate to meet projected needs. The Company believes
requirements for working capital, capital expenditures, dividends, stock
repurchases, minimum pension contributions, debt maturities and any potential
acquisitions in fiscal 2021 will continue to be funded from operations,
supplemented by short- and long-term borrowings, if required. The Company
currently manages its short-term debt position in the U.S. and euro commercial
paper markets and bank loan markets. In the event the Company is unable to issue
commercial paper, it would have the ability to draw on its $2.5 billion
revolving credit facility which expires in December 2024 or its $0.5 billion
revolving credit facility which expires in December 2020. There were no draws on
the revolving credit facilities as of September 30, 2020 and 2019. The Company
also selectively makes use of short-term credit lines other than its revolving
credit facility. The Company, as of September 30, 2020, could borrow up to $3.0
billion based on committed credit lines. In addition, the Company held cash and
cash equivalents of $2.0 billion as of September 30, 2020. As such, the Company
believes it has sufficient financial resources to fund operations and meet its
obligations for the foreseeable future.

•In September 2020, the Company issued $1.8 billion of senior notes, which
includes $625 million of green bonds with an interest rate of 1.750% which are
due in 2030, €500 million with an interest rate of 0.375% which are due in 2027
and €500 million with an interest rate of 1.000% which are due in 2032. Portions
of the issuance proceeds were used to repay €750 million of notes which were due
in December 2020 and debt which was issued in April 2020, including $675 million
of European financing arrangements which were due in September 2020 and $275
million of bank term loans which were due in April 2021. In July 2020, the
Company repaid $300 million of a bank term loan that was issued in April 2020.
In March 2020, the Company retired $500 million in principal amount, plus
accrued interest, of its 5.0% fixed rate notes that expired in March 2020.

•Financial covenants in the Company's revolving credit facilities requires a
minimum consolidated shareholders' equity attributable to Johnson Controls of at
least $3.5 billion at all times. The revolving credit facility also limits the
amount of debt secured by liens that may be incurred to a maximum aggregated
amount of 10% of consolidated shareholders' equity attributable to Johnson
Controls for liens and pledges. For purposes of calculating these covenants,
consolidated
                                       35
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shareholders' equity attributable to Johnson Controls is calculated without
giving effect to (i) the application of ASC 715-60, "Defined Benefit Plans -
Other Postretirement," or (ii) the cumulative foreign currency translation
adjustment. As of September 30, 2020, the Company was in compliance with all
covenants and other requirements set forth in its credit agreements and the
indentures, governing its notes, and expect to remain in compliance for the
foreseeable future. None of the Company's debt agreements limit access to stated
borrowing levels or require accelerated repayment in the event of a decrease in
the Company's credit rating.

•The Company earns a significant amount of its income outside of the parent
company. Outside basis differences in these subsidiaries are deemed to be
permanently reinvested except in limited circumstances. However, in fiscal 2019,
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 subsidiaries as a result of the planned divestiture of the Power
Solutions business. Also, in fiscal 2018, due to U.S. Tax Reform, the Company
provided income tax related to the change in the Company's assertion over the
outside basis difference of certain non-U.S. subsidiaries owned directly or
indirectly by U.S. subsidiaries. Under U.S. Tax Reform, the U.S. has enacted a
tax system that provides an exemption for dividends received by U.S.
corporations from 10% or more owned non-U.S. corporations. However, certain
non-U.S., U.S. state and withholding taxes may still apply when closing an
outside basis difference via distribution or other transactions. 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. Except as noted, the Company's intent is to reduce basis differences
only when it would be tax efficient. The Company expects existing U.S. cash and
liquidity to continue to be sufficient to fund the Company's U.S. operating
activities and cash commitments for investing and financing activities for at
least the next twelve months and thereafter for the foreseeable future. In the
U.S., should the Company require more capital than is generated by its
operations, the Company could elect to raise capital in the U.S. through debt or
equity issuances. The Company has borrowed funds in the U.S. and continues to
have the ability to borrow funds in the U.S. at reasonable interest rates. In
addition, the Company expects existing non-U.S. cash, cash equivalents,
short-term investments and cash flows from operations to continue to be
sufficient to fund the Company's non-U.S. 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.
Should the Company require more capital at the 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. These alternatives could result in increased interest expense or
other dilution of the Company's earnings.

•To better align its resources with its growth strategies and reduce the cost
structure of its global operations in certain underlying markets, the Company
has committed to various restructuring plans. Restructuring plans generally
result in charges for workforce reductions, plant closures and asset impairments
which are reported as restructuring and impairment costs in the Company's
consolidated statements of income. The Company expects the restructuring actions
to reduce cost of sales and SG&A due to reduced employee-related costs,
depreciation and amortization expense.

-In fiscal 2020, the Company recorded $297 million of costs resulting from the
2020 restructuring plan. The Company currently estimates that upon completion of
the restructuring action, the fiscal 2020 restructuring plans will reduce annual
operating costs for continuing operations by approximately $430 million. The
Company expects the annual benefit of these actions will be substantially
realized in 2021. For fiscal 2020, the savings, net of execution costs, were
approximately 30% of the expected annual operating cost reduction. The
restructuring action is expected to be substantially complete in fiscal 2021.
The Company has outstanding restructuring reserves of $108 million at
September 30, 2020, all of which is expected to be paid in cash.

-In fiscal 2018, the Company recorded $255 million of costs resulting from the
2018 restructuring plan. The Company currently estimates that upon completion of
the restructuring action, the fiscal 2018 restructuring plan will reduce annual
operating costs for continuing operations by approximately $300 million. The
annual restructuring activities are substantially completed, and final payments
are expected to be made in fiscal 2021. The Company has outstanding
restructuring reserves of $30 million at September 30, 2020, all of which is
expected to be paid in cash.

-In fiscal 2017, the Company recorded $347 million of costs resulting from the
2017 restructuring plan. The Company currently estimates that upon completion of
the restructuring action, the fiscal 2017 restructuring plan will reduce annual
operating costs for continuing operations by approximately $260 million. The
annual restructuring activities are substantially completed, and final payments
are expected to be made in fiscal 2021. The Company has outstanding
restructuring reserves of $6 million at September 30, 2020, all of which is
expected to be paid in cash.

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•Refer to Note 9, "Debt and Financing Arrangements," of the notes to consolidated financial statements for additional information on items impacting capitalization.

Co-Issued Securities: Summarized Financial Information


The following information is provided in compliance with Rule 13-01 of
Regulation S-X under the Securities Exchange Act of 1934 with respect to the (i)
$625 million aggregate principal amount of 1.750% Senior Notes due 2030 (the
"2030 Notes"), (ii) €500 million aggregate principal amount of 0.375% Senior
Notes due 2027 (the "2027 Notes") and (iii) €500 million aggregate principal
amount of 1.000% Senior Notes due 2032 (the "2032 Notes" and together with the
2030 Notes and the 2027 Notes, the "Notes"), each issued by Johnson Controls
International plc ("Parent Company") and Tyco Fire & Security Finance S.C.A.
("TFSCA"), a corporate partnership limited by shares (société en commandite par
actions) incorporated and organized under the laws of the Grand Duchy of
Luxembourg ("Luxembourg"). Refer to Note 9, "Debt and Financing Arrangements,"
of the notes to consolidated financial statements for additional information.

TFSCA is a wholly-owned consolidated subsidiary of the Company that is 99.996%
owned directly by the Parent Company and 0.004% 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 Notes are the Parent Company's and TFSCA's unsecured,
unsubordinated obligations. The Parent Company is incorporated and organized
under the laws of Ireland and TFSCA is incorporated and organized under the laws
of Luxembourg. The bankruptcy, insolvency, administrative, debtor relief and
other laws of Luxembourg or Ireland, as applicable, may be materially different
from, or in conflict with, those of the United States, including in the areas of
rights of creditors, priority of governmental and other creditors, ability to
obtain post-petition interest and duration of the proceeding. The application of
these laws, or any conflict among them, could adversely affect noteholders'
ability to enforce their rights under the Notes in those jurisdictions or limit
any amounts that they may receive.

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

The following table presents summarized income statement information for the year ended September 30, 2020 (in millions):

                                                                 Year Ended
                                                             September 30, 2020
      Net sales                                             $                 -
      Gross profit                                                            -
      Loss from continuing operations                                     

(450)

      Net loss                                                            

(450)

      Income attributable to noncontrolling interests                      

-

      Net loss attributable to the entity                                 
(450)




                                       37
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Excluded from the table above are the intercompany transactions between the Obligor Group and Non-Obligor Subsidiaries as follows (in millions):

                                                                 Year Ended
                                                             September 30, 2020
      Net sales                                             $                 -
      Gross profit                                                            -
      Income from continuing operations                                     702
      Net income                                                            702
      Income attributable to noncontrolling interests                         -
      Net income attributable to the entity                                 702



The following table presents summarized balance sheet information as of September 30, 2020 (in millions):

                                                 September 30, 2020
                  Current assets                $               522
                  Noncurrent assets                             318
                  Current liabilities                         7,612
                  Noncurrent liabilities                      7,258
                  Noncontrolling interests                        -


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

                                                 September 30, 2020
                  Current assets                $               838
                  Noncurrent assets                           7,338
                  Current liabilities                         2,724
                  Noncurrent liabilities                      3,406
                  Noncontrolling interests                        -



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

Contractual Obligations

A summary of the Company's significant contractual obligations for continuing operations as of September 30, 2020 is as follows (in millions):

                                                                                                                       2026 and
                                        Total             2021             2022 - 2023           2024 - 2025            Beyond
Contractual Obligations
Long-term debt*                      $  7,822$    262          $  

1,505 $ 1,051$ 5,004 Interest on long-term debt*

             3,814               213                   412                   364               2,825
Operating leases**                      1,291               352                   470                   234                 235
Purchase obligations                    1,087               911                   102                    63                  11
Pension and postretirement
contributions                             388                49                    67                    70                 202

Total contractual cash obligations $ 14,402$ 1,787 $

2,556 $ 1,782$ 8,277

* Refer to Note 9, "Debt and Financing Arrangements," of the notes to consolidated financial statements for information related to the Company's long-term debt.

** Refer to Note 8, "Leases," of the notes to consolidated financial statements for information related to the Company's leases.

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CRITICAL ACCOUNTING ESTIMATES AND POLICIES


The Company prepares its consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America ("U.S.
GAAP"). This requires management to make estimates and assumptions that affect
reported amounts and related disclosures. Actual results could differ from those
estimates. The following policies are considered by management to be the most
critical in understanding the judgments that are involved in the preparation of
the Company's consolidated financial statements and the uncertainties that could
impact the Company's results of operations, financial position and cash flows.

Revenue Recognition


The Company recognizes revenue from certain long-term contracts to design,
manufacture and install building products and systems as well as unscheduled
repair or replacement services on an over time basis, with progress towards
completion measured using a cost-to-cost input method based on the relationship
between actual costs incurred and total estimated costs at completion. The
cost-to-cost input method is used as it best depicts the transfer of control to
the customer that occurs as the Company incurs costs. Changes to the original
estimates may be required during the life of the contract and such estimates are
reviewed monthly. If contract modifications result in additional goods or
services that are distinct from those transferred before the modification, they
are accounted for prospectively as if the Company entered into a new contract.
If the goods or services in the modification are not distinct from those in the
original contract, sales and gross profit are adjusted using the cumulative
catch-up method for revisions in estimated total contract costs and contract
values. Estimated losses are recorded when identified. The Company does not
adjust the promised amount of consideration for the effects of a significant
financing component as at contract inception the Company expects to receive the
payment within twelve months of transfer of goods or services.

The Company enters into extended warranties and long-term service and
maintenance agreements with certain customers. For these arrangements, revenue
is recognized over time on a straight-line basis over the respective contract
term.

The Company also sells certain HVAC and refrigeration products and services in
bundled arrangements with multiple performance obligations, such as equipment,
commissioning, service labor and extended warranties. Approximately four to
twelve months separate the timing of the first deliverable until the last piece
of equipment is delivered, and there may be extended warranty arrangements with
duration of one to five years commencing upon the end of the standard warranty
period. In addition, the Company sells security monitoring systems that may have
multiple performance obligations, including equipment, installation, monitoring
services and maintenance agreements. Revenues associated with the sale of
equipment and related installations are recognized over time on a cost-to-cost
input method, while the revenue for monitoring and maintenance services are
recognized over time as services are rendered. The transaction price is
allocated to each performance obligation based on the relative selling price
method. In order to estimate relative selling price, market data and transfer
price studies are utilized. If the standalone selling price is not directly
observable, the Company estimates the standalone selling price using an adjusted
market assessment approach or expected cost plus margin approach. For
transactions in which the Company retains ownership of the subscriber system
asset, fees for monitoring and maintenance services are recognized over time on
a straight-line basis over the contract term. Non-refundable fees received in
connection with the initiation of a monitoring contract, along with associated
direct and incremental selling costs, are deferred and amortized over the
estimated life of the contract.

In all other cases, the Company recognizes revenue at the point in time when control over the goods or services transfers to the customer.


The Company considers the contractual consideration payable by the customer and
assesses variable consideration that may affect the total transaction price,
including discounts, rebates, refunds, credits or other similar sources of
variable consideration, when determining the transaction price of each contract.
The Company includes variable consideration in the estimated transaction price
when it is probable that significant reversal of revenue recognized would not
occur when the uncertainty associated with variable consideration is
subsequently resolved. These estimates are based on the amount of consideration
that the Company expects to be entitled to.

Shipping and handling costs billed to customers are included in sales and the
related costs are included in cost of sales when control transfers to the
customer. The Company presents amounts collected from customers for sales and
other taxes net of the related amounts remitted. Refer to Note 4, "Revenue
Recognition," of the notes to consolidated financial statements for disclosure
of the Company's revenue recognition activity.

                                       39
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Goodwill and Indefinite-Lived Intangible Assets


Goodwill reflects the cost of an acquisition in excess of the fair values
assigned to identifiable net assets acquired. The Company reviews goodwill for
impairment during the fourth fiscal quarter or more frequently if events or
changes in circumstances indicate the asset might be impaired. The Company
performs impairment reviews for its reporting units, which have been determined
to be the Company's reportable segments or one level below the reportable
segments in certain instances, using a fair value method based on management's
judgments and assumptions or third party valuations. The fair value of a
reporting unit refers to the price that would be received to sell the unit as a
whole in an orderly transaction between market participants at the measurement
date. In estimating the fair value, the Company uses multiples of earnings based
on the average of published multiples of earnings of comparable entities with
similar operations and economic characteristics and applies to the Company's
average of historical and future financial results. In certain instances, the
Company uses discounted cash flow analyses or estimated sales price to further
support the fair value estimates. The inputs utilized in the analyses are
classified as Level 3 inputs within the fair value hierarchy as defined in ASC
820, "Fair Value Measurement." The estimated fair value is then compared with
the carrying amount of the reporting unit, including recorded goodwill. The
Company is subject to financial statement risk to the extent that the carrying
amount exceeds the estimated fair value. The assumptions included in the
impairment tests require judgment, and changes to these inputs could impact the
results of the calculations. The primary assumptions used in the impairment
tests were management's projections of future cash flows. Although the Company's
cash flow forecasts are based on assumptions that are considered reasonable by
management and consistent with the plans and estimates management is using to
operate the underlying businesses, there are significant judgments in
determining the expected future cash flows attributable to a reporting unit.
Refer to Note 7, "Goodwill and Other Intangible Assets," of the notes to
consolidated financial statements for information regarding the goodwill
impairment testing performed in fiscal years 2020, 2019 and 2018.

Indefinite-lived intangible assets are also subject to at least annual
impairment testing. Indefinite-lived intangible assets primarily consist of
trademarks and trade names and are tested for impairment using a
relief-from-royalty method. A considerable amount of management judgment and
assumptions are required in performing the impairment tests. The key assumptions
used in the impairment tests were long-term revenue growth projections, discount
rates and general industry, market and macro-economic conditions.

While the Company believes the judgments and assumptions used in the impairment
tests are reasonable, different assumptions could change the estimated fair
values and, therefore, future impairment charges could be required, which could
be material to the consolidated financial statements.

Impairment of Long-Lived Assets


The Company reviews long-lived assets, including tangible assets and other
intangible assets with definitive lives, for impairment whenever events or
changes in circumstances indicate that the asset's carrying amount may not be
recoverable. The Company conducts its long-lived asset impairment analyses in
accordance with ASC 360-10-15, "Impairment or Disposal of Long-Lived Assets,"
ASC 350-30, "General Intangibles Other than Goodwill" and ASC 985-20, "Costs of
Software to be Sold, Leased, or Marketed." ASC 360-10-15 requires the Company to
group assets and liabilities at the lowest level for which identifiable cash
flows are largely independent of the cash flows of other assets and liabilities
and evaluate the asset group against the sum of the undiscounted future cash
flows. If the undiscounted cash flows do not indicate the carrying amount of the
asset group is recoverable, an impairment charge is measured as the amount by
which the carrying amount of the asset group exceeds its fair value based on
discounted cash flow analysis or appraisals. ASC 350-30 requires intangible
assets acquired in a business combination that are used in research and
development activities be considered indefinite lived until the completion or
abandonment of the associated research and development efforts. During the
period that those assets are considered indefinite lived, they shall not be
amortized but shall be tested for impairment annually and more frequently if
events or changes in circumstances indicate that it is more likely than not that
the asset is impaired. If the carrying amount of an intangible asset exceeds its
fair value, an entity shall recognize an impairment loss in an amount equal to
that excess. ASC 985-20 requires the unamortized capitalized costs of a computer
software product be compared to the net realizable value of that product. The
amount by which the unamortized capitalized costs of a computer software product
exceed the net realizable value of that asset shall be written off. Refer to
Note 17, "Impairment of Long-Lived Assets," of the notes to consolidated
financial statements for information regarding the impairment testing performed
in fiscal years 2020, 2019 and 2018.

Employee Benefit Plans


The Company provides a range of benefits to its employees and retired employees,
including pensions and postretirement benefits. Plan assets and obligations are
measured annually, or more frequently if there is a significant remeasurement
event, based on the Company's measurement date utilizing various actuarial
assumptions such as discount rates, assumed rates of
                                       40
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return, compensation increases, turnover rates and health care cost trend rates as of that date. The Company reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when appropriate.


The Company utilizes a mark-to-market approach for recognizing pension and
postretirement benefit expenses, including measuring the market related value of
plan assets at fair value and recognizing actuarial gains and losses in the
fourth quarter of each fiscal year or at the date of a remeasurement event.
Refer to Note 15, "Retirement Plans," of the notes to consolidated financial
statements for disclosure of the Company's pension and postretirement benefit
plans.

U.S. GAAP requires that companies recognize in the statement of financial
position a liability for defined benefit pension and postretirement plans that
are underfunded or unfunded, or an asset for defined benefit pension and
postretirement plans that are over funded. U.S. GAAP also requires that
companies measure the benefit obligations and fair value of plan assets that
determine a benefit plan's funded status as of the date of the employer's fiscal
year end.

The Company considers the expected benefit payments on a plan-by-plan basis when
setting assumed discount rates. As a result, the Company uses different discount
rates for each plan depending on the plan jurisdiction, the demographics of
participants and the expected timing of benefit payments. For the U.S. pension
and postretirement plans, the Company uses a discount rate provided by an
independent third party calculated based on an appropriate mix of high quality
bonds. For the non-U.S. pension and postretirement plans, the Company
consistently uses the relevant country specific benchmark indices for
determining the various discount rates. The Company's weighted average discount
rate on U.S. pension plans was 2.25% and 2.95% at September 30, 2020 and 2019,
respectively. The Company's weighted average discount rate on postretirement
plans was 1.90% and 2.65% at September 30, 2020 and 2019, respectively. The
Company's weighted average discount rate on non-U.S. pension plans was 1.35% and
1.50% at September 30, 2020 and 2019, respectively.

In estimating the expected return on plan assets, the Company considers the
historical returns on plan assets, adjusted for forward-looking considerations,
inflation assumptions and the impact of the active management of the plans'
invested assets. Reflecting the relatively long-term nature of the plans'
obligations, approximately 27% of the plans' assets are invested in equity
securities and 63% in fixed income securities, with the remainder primarily
invested in alternative investments. For the years ending September 30, 2020 and
2019, the Company's expected long-term return on U.S. pension plan assets used
to determine net periodic benefit cost was 6.90% and 7.10%, respectively. The
actual rate of return on U.S. pension plans was above 6.90% in fiscal year 2020
and above 7.10% in fiscal year 2019. For the years ending September 30, 2020 and
2019, the Company's weighted average expected long-term return on non-U.S.
pension plan assets was 5.20% and 5.20%, respectively. The actual rate of return
on non-U.S. pension plans was below 5.20% in fiscal year 2020 and above 5.20% in
fiscal year 2019. For the years ending September 30, 2020 and 2019, the
Company's weighted average expected long-term return on postretirement plan
assets was 5.70% and 5.65%, respectively. The actual rate of return on
postretirement plan assets was below 5.70% in fiscal year 2020 and below 5.65%
in fiscal year 2019.

Beginning in fiscal 2021, the Company believes the long-term rate of return will
approximate 6.50%, 4.90% and 5.30% for U.S. pension, non-U.S. pension and
postretirement plans, respectively. Any differences between actual investment
results and the expected long-term asset returns will be reflected in net
periodic benefit costs in the fourth quarter of each fiscal year or at the date
of a significant remeasurement event. If the Company's actual returns on plan
assets are less than the Company's expectations, additional contributions may be
required.

In fiscal 2020, total employer contributions for continuing operations to the
defined benefit pension plans were $58 million, none of which were voluntary
contributions made by the Company. The Company expects to contribute
approximately $46 million in cash to its defined benefit pension plans in fiscal
2021. In fiscal 2020, total employer contributions for continuing operations to
the postretirement plans were $3 million. The Company expects to contribute
approximately $3 million in cash to its postretirement plans in fiscal 2021.

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

Loss Contingencies


Accruals are recorded for various contingencies including legal proceedings,
environmental matters, self-insurance and other claims that arise in the normal
course of business. The accruals are based on judgment, the probability of
losses and, where applicable, the consideration of opinions of internal and/or
external legal counsel and actuarially determined estimates. Additionally, the
Company records receivables from third party insurers when recovery has been
determined to be probable.
                                       41
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The Company is subject to laws and regulations relating to protecting the
environment. The Company provides for expenses associated with environmental
remediation obligations when such amounts are probable and can be reasonably
estimated. Refer to Note 22, "Commitments and Contingencies," of the notes to
consolidated financial statements.

The Company records liabilities for its workers' compensation, product, general
and auto liabilities. The determination of these liabilities and related
expenses is dependent on claims experience. For most of these liabilities,
claims incurred but not yet reported are estimated by utilizing actuarial
valuations based upon historical claims experience. The Company records
receivables from third party insurers when recovery has been determined to be
probable. The Company maintains captive insurance companies to manage its
insurable liabilities.

Asbestos-Related Contingencies and Insurance Receivables


The Company and certain of its subsidiaries along with numerous other companies
are named as defendants in personal injury lawsuits based on alleged exposure to
asbestos-containing materials. The Company's estimate of the liability and
corresponding insurance recovery for pending and future claims and defense costs
is based on the Company's historical claim experience, and estimates of the
number and resolution cost of potential future claims that may be filed and is
discounted to present value from 2068 (which is the Company's reasonable best
estimate of the actuarially determined time period through which
asbestos-related claims will be filed against Company affiliates).
Asbestos-related defense costs are included in the asbestos liability. The
Company's legal strategy for resolving claims also impacts these estimates. The
Company considers various trends and developments in evaluating the period of
time (the look-back period) over which historical claim and settlement
experience is used to estimate and value claims reasonably projected to be made
through 2068. Annually, the Company assesses the sufficiency of its estimated
liability for pending and future claims and defense costs by evaluating actual
experience regarding claims filed, settled and dismissed, and amounts paid in
settlements. In addition to claims and settlement experience, the Company
considers additional quantitative and qualitative factors such as changes in
legislation, the legal environment, and the Company's defense strategy. The
Company also evaluates the recoverability of its insurance receivable on an
annual basis. The Company evaluates all of these factors and determines whether
a change in the estimate of its liability for pending and future claims and
defense costs or insurance receivable is warranted.

In connection with the recognition of liabilities for asbestos-related matters,
the Company records asbestos-related insurance recoveries that are probable. The
Company's estimate of asbestos-related insurance recoveries represents estimated
amounts due to the Company for previously paid and settled claims and the
probable reimbursements relating to its estimated liability for pending and
future claims discounted to present value. In determining the amount of
insurance recoverable, the Company considers available insurance, allocation
methodologies, solvency and creditworthiness of the insurers. Refer to Note 22,
"Commitments and Contingencies," of the notes to consolidated financial
statements for a discussion on management's judgments applied in the recognition
and measurement of asbestos-related assets and liabilities.

Income Taxes


The Company accounts for income taxes in accordance with ASC 740, "Income
Taxes." Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and
operating loss and other loss carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The Company records a valuation allowance that primarily represents
non-U.S. operating and other loss carryforwards for which realization is
uncertain. Management judgment is required in determining the Company's
provision for income taxes, deferred tax assets and liabilities, and the
valuation allowance recorded against the Company's net deferred tax assets. In
calculating the provision for income taxes on an interim basis, the Company uses
an estimate of the annual effective tax rate based upon the facts and
circumstances known at each interim period. On a quarterly basis, the actual
effective tax rate is adjusted as appropriate based upon the actual results as
compared to those forecasted at the beginning of the fiscal year.

The Company reviews the realizability of its deferred tax asset valuation
allowances on a quarterly basis, or whenever events or changes in circumstances
indicate that a review is required. In determining the requirement for a
valuation allowance, the historical and projected financial results of the legal
entity or consolidated group recording the net deferred tax asset are
considered, along with any other positive or negative evidence. Since future
financial results may differ from previous estimates, periodic adjustments to
the Company's valuation allowances may be necessary. At September 30, 2020, the
Company had a valuation allowance of $5.5 billion for continuing operations, of
which $5.3 billion relates to net operating loss carryforwards primarily in
France, Germany, Ireland, Luxembourg, Spain, United Kingdom and the U.S. for
which sustainable taxable income has not been demonstrated; and $0.2 billion for
other deferred tax assets.
                                       42
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The Company's federal income tax returns and certain non-U.S. income tax returns
for various fiscal years remain under various stages of audit by the IRS and
respective non-U.S. tax authorities. Although the outcome of tax audits is
always uncertain, management believes that it has appropriate support for the
positions taken on its tax returns and that its annual tax provisions included
amounts sufficient to pay assessments, if any, which may be proposed by the
taxing authorities. At September 30, 2020, the Company had recorded a liability
of $2.5 billion for its best estimate of the probable loss on certain of its tax
positions, the majority of which is included in other noncurrent liabilities in
the consolidated statements of financial position. Nonetheless, the amounts
ultimately paid, if any, upon resolution of the issues raised by the taxing
authorities may differ materially from the amounts accrued for each year.

The Company does not generally provide additional U.S. or non-U.S. income taxes
on outside basis differences of consolidated subsidiaries included in
shareholders' equity attributable to Johnson Controls International plc, except
in limited circumstances including anticipated taxation on planned
divestitures.  The reduction of the outside basis differences via the sale or
liquidation of these subsidiaries and/or distributions could create taxable
income.  The Company's intent is to reduce the outside basis differences only
when it would be tax efficient.  Refer to "Capitalization" within the "Liquidity
and Capital Resources" section for discussion of U.S. and non-U.S. cash
projections.

Refer to Note 18, "Income Taxes," of the notes to consolidated financial statements for the Company's income tax disclosures.

NEW ACCOUNTING PRONOUNCEMENTS

Refer to the "New Accounting Pronouncements" section within Note 1, "Summary of Significant Accounting Policies," of the notes to consolidated financial statements.

RISK MANAGEMENT


The Company selectively uses derivative instruments to reduce market risk
associated with changes in foreign currency, commodities and stock-based
compensation. All hedging transactions are authorized and executed pursuant to
clearly defined policies and procedures, which strictly prohibit the use of
financial instruments for speculative purposes. At the inception of the hedge,
the Company assesses the effectiveness of the hedge instrument and designates
the hedge instrument as either (1) a hedge of a recognized asset or liability or
of a recognized firm commitment (a fair value hedge), (2) a hedge of a
forecasted transaction or of the variability of cash flows to be received or
paid related to an unrecognized asset or liability (a cash flow hedge) or (3) a
hedge of a net investment in a non-U.S. operation (a net investment hedge). The
Company performs hedge effectiveness testing on an ongoing basis depending on
the type of hedging instrument used. All other derivatives not designated as
hedging instruments under ASC 815, "Derivatives and Hedging," are revalued in
the consolidated statements of income.

For all foreign currency derivative instruments designated as cash flow hedges,
retrospective effectiveness is tested on a monthly basis using a cumulative
dollar offset test. The fair value of the hedged exposures and the fair value of
the hedge instruments are revalued, and the ratio of the cumulative sum of the
periodic changes in the value of the hedge instruments to the cumulative sum of
the periodic changes in the value of the hedge is calculated. The hedge is
deemed as highly effective if the ratio is between 80% and 125%. For commodity
derivative contracts designated as cash flow hedges, effectiveness is tested
using a regression calculation. Ineffectiveness is minimal as the Company aligns
most of the critical terms of its derivatives with the supply contracts.

For net investment hedges, the Company assesses its net investment positions in
the non-U.S. operations and compares it with the outstanding net investment
hedges on a quarterly basis. The hedge is deemed effective if the aggregate
outstanding principal of the hedge instruments designated as the net investment
hedge in a non-U.S. operation does not exceed the Company's net investment
positions in the respective non-U.S. operation.

Equity swaps and any other derivative instruments not designated as hedging instruments under ASC 815 require no assessment of effectiveness.

A discussion of the Company's accounting policies for derivative financial instruments is included in Note 1, "Summary of Significant Accounting Policies," of the notes to consolidated financial statements, and further disclosure relating to derivatives and hedging activities is included in Note 10, "Derivative Instruments and Hedging Activities," and Note 11, "Fair Value Measurements," of the notes to consolidated financial statements.

                                       43
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Foreign Exchange


The Company has manufacturing, sales and distribution facilities around the
world and thus makes investments and enters into transactions denominated in
various foreign currencies. In order to maintain strict control and achieve the
benefits of the Company's global diversification, foreign exchange exposures for
each currency are netted internally so that only its net foreign exchange
exposures are, as appropriate, hedged with financial instruments.

The Company hedges 70% to 90% of the nominal amount of each of its known foreign
exchange transactional exposures. The Company primarily enters into foreign
currency exchange contracts to reduce the earnings and cash flow impact of the
variation of non-functional currency denominated receivables and payables. Gains
and losses resulting from hedging instruments offset the foreign exchange gains
or losses on the underlying assets and liabilities being hedged. The maturities
of the forward exchange contracts generally coincide with the settlement dates
of the related transactions. Realized and unrealized gains and losses on these
contracts are recognized in the same period as gains and losses on the hedged
items. The Company also selectively hedges anticipated transactions that are
subject to foreign exchange exposure, primarily with foreign currency exchange
contracts, which are designated as cash flow hedges in accordance with ASC 815.

The Company has entered into foreign currency denominated debt obligations to
selectively hedge portions of its net investment in non-U.S. subsidiaries. The
currency effects of debt obligations are reflected in the accumulated other
comprehensive income ("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.

At September 30, 2020 and 2019, the Company estimates that an unfavorable 10% change in the exchange rates would have decreased net unrealized gains by approximately $363 million and $358 million, respectively.

Interest Rates


Substantially all of the Company's outstanding debt has fixed interest rates. A
10% increase in the average cost of the Company's variable rate debt would have
had an immaterial impact on pre-tax interest expense for the year ended
September 30, 2020 and 2019.

Commodities


The Company uses commodity hedge contracts in the financial derivatives market
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. As a cash flow hedge, gains and losses resulting
from the hedging instruments offset the gains or losses on purchases of the
underlying commodities that will be used in the business. The maturities of the
commodity hedge contracts coincide with the expected purchase of the
commodities.

ENVIRONMENTAL, HEALTH AND SAFETY AND OTHER MATTERS


The Company's global operations are governed by environmental laws and worker
safety laws. Under various circumstances, these laws impose civil and criminal
penalties and fines, as well as injunctive and remedial relief, for
noncompliance and require remediation at sites where Company-related substances
have been released into the environment.

The Company has expended substantial resources globally, both financial and
managerial, to comply with applicable environmental laws and worker safety laws
and to protect the environment and workers. The Company believes it is in
substantial compliance with such laws and maintains procedures designed to
foster and ensure compliance. However, the Company has been, and in the future
may become, the subject of formal or informal enforcement actions or proceedings
regarding noncompliance with such laws or the remediation of Company-related
substances released into the environment. Such matters typically are resolved
with regulatory authorities through commitments to compliance, abatement or
remediation programs and in some cases payment of penalties. Historically,
neither such commitments nor penalties imposed on the Company have been
material.

Refer to Note 22, "Commitments and Contingencies," of the notes to consolidated financial statements for additional information.

                                       44
--------------------------------------------------------------------------------

QUARTERLY FINANCIAL DATA
(in millions, except per share
data)                               First              Second             Third             Fourth             Full
(quarterly amounts unaudited)      Quarter            Quarter            Quarter            Quarter            Year

2020
Net sales                        $   5,576$   5,444$   5,343$  5,954$ 22,317
Gross profit                         1,803              1,801              1,832             1,975             7,411
Net income (loss) (1)                  191                236               (122)              490               795
Net income (loss) attributable
to
Johnson Controls                       159                213               (182)              441               631
Earnings (loss) per share (2)
Basic                                 0.21               0.28              (0.24)             0.60              0.84
Diluted                               0.21               0.28              (0.24)             0.60              0.84

2019
Net sales                        $   5,464$   5,779$   6,451$  6,274$ 23,968
Gross profit                         1,725              1,844              2,144             1,980             7,693
Net income (3)                         399                558              4,276               654             5,887
Net income attributable to
Johnson Controls                       355                515              4,192               612             5,674
Earnings per share (2)
Basic                                 0.39               0.57               4.81              0.78              6.52
Diluted                               0.38               0.57               4.79              0.77              6.49



(1)The fiscal 2020 first quarter net income includes $39 million of integration
costs, $10 million of mark-to-market gains, and $111 million of restructuring
and impairment costs. The fiscal 2020 second quarter net income includes $38
million of integration costs, $32 million of mark-to-market losses, and $62
million of restructuring and impairment costs. The fiscal 2020 third quarter net
income includes $30 million of integration costs, $132 million of mark-to-market
losses, and $610 million of restructuring and impairment costs. The fiscal 2020
fourth quarter net income includes $28 million of integration costs, $120
million of mark-to-market losses, and $39 million of a compensation charge
related to a noncontrolling interest acquisition. The preceding amounts are
stated on a pre-tax and pre-noncontrolling interest impact basis.

(2)Due to the use of the weighted-average shares outstanding for each quarter
for computing earnings per share, the sum of the quarterly per share amounts may
not equal the per share amount for the year.

(3)The fiscal 2019 first quarter net income includes $50 million of transaction
and integration costs and $21 million of mark-to-market losses. The fiscal 2019
second quarter net income includes $70 million of transaction and integration
costs and $20 million of mark-to-market gains. The fiscal 2019 third quarter net
income includes a $5.2 billion gain on sale of the Power Solutions business, net
of transaction and other costs, $235 million of restructuring and impairment
costs, $226 million of tax indemnification reserve release, $140 million of
environmental charge, $86 million of transaction and integration costs, $60
million of loss on debt extinguishment and $9 million of mark-to-market gains.
The fiscal 2019 fourth quarter net income includes $626 million of net
mark-to-market losses and $111 million of transaction and integration costs. The
preceding amounts are stated on a pre-tax and pre-noncontrolling interest impact
basis and include both continuing and discontinued operations activity.

© Edgar Online, source Glimpses

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