JOHNSON CONTROLS INTERNATIONAL PLC Cautionary Statements for Forward-Looking Information
Unless otherwise indicated, references to "
The Company has made statements in this document that are forward-looking and therefore are subject to risks and uncertainties. All statements in this document other than statements of historical fact are, or could be, "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In this document, statements regarding the Company's future financial position, sales, costs, earnings, cash flows, other measures of results of operations, synergies and integration opportunities, capital expenditures, debt levels and market outlook are forward-looking statements. Words such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "should," "forecast," "project" or "plan" and terms of similar meaning are also generally intended to identify forward-looking statements. However, the absence of these words does not mean that a statement is not forward-looking. The Company cautions that these statements are subject to numerous important risks, uncertainties, assumptions and other factors, some of which are beyond the Company's control, that could cause the Company's actual results to differ materially from those expressed or implied by such forward-looking statements, including, among others, risks related to: The Company's ability to manage general economic, business, capital market and geopolitical conditions, including global price inflation, shortages impacting the availability of raw materials and component products and the current conflict betweenRussia andUkraine ; the Company's ability to manage the impacts of natural disasters, climate change, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as the COVID-19 pandemic; the strength of theU.S. or other economies; changes or uncertainty in laws, regulations, rates, policies or interpretations that impact the Company's business operations or tax status; the ability to develop or acquire new products and technologies that achieve market acceptance and meet applicable regulatory requirements; changes to laws or policies governing foreign trade, including economic sanctions, increased tariffs or trade restrictions; maintaining the capacity, reliability and security of the Company's enterprise information technology infrastructure; the ability to manage the lifecycle cybersecurity risk in the development, deployment and operation of the Company's digital platforms and services; the risk of infringement or expiration of intellectual property rights; any delay or inability of the Company to realize the expected benefits and synergies of recent portfolio transactions; the outcome of litigation and governmental proceedings; the ability to hire and retain senior management and other key personnel; the tax treatment of recent portfolio transactions; significant transaction costs and/or unknown liabilities associated with such transactions; fluctuations in currency exchange rates; labor shortages, work stoppages, union negotiations, labor disputes and other matters associated with the labor force; and the cancellation of or changes to commercial arrangements. A detailed discussion of risks related toJohnson Controls' business is included in the section entitled "Risk Factors" inJohnson Controls' Annual Report on Form 10-K for the year endedSeptember 30, 2021 filed with theUnited States Securities and Exchange Commission ("SEC") onNovember 15, 2021 , which is available at www.sec.gov and www.johnsoncontrols.com under the "Investors" tab. The description of certain of these risks is supplemented in Item 1A of Part II of this Quarterly Report on Form 10-Q. The forward-looking statements included in this document are made only as of the date of this document, unless otherwise specified, and, except as required by law,Johnson Controls assumes no obligation, and disclaims any obligation, to update such statements to reflect events or circumstances occurring after the date of this document. OverviewJohnson Controls International plc , headquartered inCork, 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 and commissioning building products and systems, including residential and commercial HVAC equipment, industrial refrigeration systems, controls, security systems, fire-detection systems and fire-suppression solutions. The Company further serves customers by providing technical services, including maintenance, management, repair, retrofit and replacement of equipment (in the HVAC, industrial refrigeration, security and fire-protection space), energy-management consulting and data-driven "smart building" services and solutions powered by its OpenBlue software platform and related digital 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 44 --------------------------------------------------------------------------------
capabilities, to deliver outcome-based solutions across the lifecycle of a building that address customers' needs to improve energy efficiency and reduce greenhouse gas emissions.
The following information should be read in conjunction with theSeptember 30, 2021 consolidated financial statements and notes thereto, along with management's discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year endedSeptember 30, 2021 filed with theSEC onNovember 15, 2021 . References in the following discussion and analysis to "Three Months" (or similar language) refer to the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 , while "Year-to-Date" refers to the nine months endedJune 30, 2022 compared to the nine months endedJune 30, 2021 .
Macroeconomic Trends
Much of the demand for installation of the Company's products and solutions is driven by commercial and residential construction and industrial facility expansion and maintenance projects. Commercial and residential construction projects are heavily dependent on general economic conditions, localized demand for commercial and residential real estate and availability of credit. Positive or negative fluctuations in commercial and residential construction, industrial facility expansion and maintenance projects and other capital investments in buildings could have a corresponding impact on the Company's financial condition, results of operations and cash flows. As a result of the Company's global presence, a significant portion of its revenues and expenses is denominated in currencies other than theU.S. dollar. The Company is therefore subject to non-U.S. currency risks and non-U.S. exchange exposure. While the Company employs financial instruments to hedge some of its transactional foreign exchange exposure, these activities do not insulate it completely from those exposures. Exchange rates can be volatile and a substantial weakening or strengthening of foreign currencies against theU.S. dollar could increase or reduce the Company's profit margin in various locations outside of theU.S. and impact the comparability of results from period to period. The Company continues to observe trends demonstrating increased interest and demand for safe, efficient and sustainable buildings, and seeks to capitalize on these trends to drive growth by developing and delivering technologies and solutions to create smart and healthy buildings. The Company launched its OpenBlue software platform, enabling enterprises to manage all aspects of their physical spaces delivering sustainability, new occupant experiences, and safety and security by combining the Company's building expertise with cutting-edge technology, including AI-powered service solutions such as remote diagnostics, predictive maintenance, compliance monitoring and advanced risk assessments. The Company continues to leverage its install base, together with data-driven products and services to offer outcome-based solutions to customers with a focus on generating accelerated growth in services and recurring revenue for the Company. The Company has committed to investing in new product research and development in climate-related innovation to develop sustainable products and services. The Company has experienced, and expects to continue to experience, increased input material cost inflation and component shortages, as well as disruptions and delays in its supply chain, as a result of global macroeconomic trends, including increased global demand, the conflict betweenRussia andUkraine , government-mandated actions in response to COVID-19, particularly inChina , and labor shortages. Actions taken by the Company to mitigate supply chain disruptions and inflation, including expanding and redistributing its supplier network, supplier financing, price increases and productivity improvements, have generally been successful in offsetting some, but not all, of the impact of these trends. The collective impact of these trends has been to positively impact revenue due to increased demand and price increases to offset inflation, while negatively impacting margins due to supply chain disruptions and cost pressures. The Company has also experienced delays in converting its backlog due to continued supply chain disruptions, negatively impacting both revenues and margins. The Company expects that these trends will continue to impact the Company's results for the remainder of fiscal 2022 and possibly into fiscal 2023. Therefore, the Company could experience further disruptions, shortages and cost increases in the future, the effect of which will depend on the Company's ability to successfully mitigate and offset the impact of these events. During the second quarter of fiscal 2022, the Company suspended its operations inRussia in response to the conflict betweenRussia andUkraine . Although this decision has not had and is not expected to have a material impact on the Company's operating results, the broader consequences of this conflict, including heightened supply chain disruption, inflation, economic instability and other factors have and could continue to adversely impact the Company's results of operations. 45 --------------------------------------------------------------------------------
Impact of COVID-19 pandemic
The COVID-19 pandemic continues to impact aspects of the Company's operations and results. 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. During the first nine months of fiscal 2022, the Company's facilities generally operated at normal levels, however the Company has experienced some disruptions to its business inChina due to government-mandated lockdowns in several major cities. The Company continues to focus 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 experienced increases in both demand and volumes as governments have distributed vaccines and lifted COVID-19-related restrictions, leading to increases in retrofit activity and commercial building construction. The global pandemic has also provided the Company with the opportunity to help its customers by delivering solutions and support that enhance the safety and increase the efficiency of their operations. As a result of the pandemic, the Company has seen an increase in demand for its products and solutions that promote building health and optimize customers' infrastructure. However, the Company continues to be influenced by COVID-19-related trends impacting site access and the labor force, which have and may continue to negatively impact the Company's revenues and margins. Challenges in reaching sufficient vaccination levels and the introduction of new variants of COVID-19 have caused some governments to extend or reinstitute lockdowns and similar restrictive measures, which, in some cases, have limited the Company's ability to access customer sites to install and maintain its products and deliver services. In addition, the Company has experienced and continues to experience labor shortages at certain facilities as the Company expands its production capacity to meet increased customer demand. Although the Company is mitigating these shortages through focused recruitment efforts and competitive compensation packages, the Company could continue to experience such shortages in the future. The extent to which the COVID-19 pandemic 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 the resurgence of COVID-19 and its variants in regions recovering from the impacts of the pandemic, the effectiveness of COVID-19 vaccines and the speed at which populations are vaccinated around the globe, the impact of COVID-19 on economic activity, and regulatory actions taken to contain its impact on public health and the global economy. See Item 1A of Part II of this Quarterly Report on Form 10-Q for additional discussion of risks related to COVID-19.
Restructuring and Cost Optimization Initiatives
To better align its resources with its growth strategies and reduce the cost structure of its global operations in certain underlying markets, the Company has committed to various restructuring plans. In fiscal 2021, the Company announced its plans to optimize its cost structure through broad-based SG&A actions focused on simplification, standardization and centralization, with the intent to deliver annualized savings of$300 million by fiscal 2023. Additionally, the Company announced cost of sales actions to drive$250 million in annual run rate savings by fiscal 2023. The Company believes it is on track to deliver the productivity savings by fiscal 2023. For more information on the Company's restructuring plans, see "Liquidity and Capital Resources-Restructuring." 46 --------------------------------------------------------------------------------
Net Sales Three Months Ended Nine Months Ended June 30, June 30, (in millions) 2022 2021 Change 2022 2021 Change Net sales$ 6,614 $ 6,341 4 %$ 18,574 $ 17,276 8 % The increase in consolidated net sales for the three months endedJune 30, 2022 was due to higher organic sales ($465 million ) and incremental sales from acquisitions ($73 million ), partially offset by the unfavorable impact of foreign currency translation ($258 million ), and lower sales due to business divestitures ($7 million ). Excluding the impact of foreign currency translation and business acquisitions and divestitures, consolidated net sales increased 7% as compared to the prior year, attributable to higher volumes and increased pricing in response to inflation pressures. Refer to the "Segment Analysis" below within this Item 2 for a discussion of net sales by segment. The increase in consolidated net sales for the nine months endedJune 30, 2022 was due to higher organic sales ($1,409 million ) and incremental sales from acquisitions ($319 million ), partially offset by the unfavorable impact of foreign currency translation ($413 million ), and lower sales due to business divestitures ($17 million ). Excluding the impact of foreign currency translation and business acquisitions and divestitures, consolidated net sales increased 8% as compared to the prior year, attributable to higher volumes and increased pricing in response to inflation pressures. Refer to the "Segment Analysis" below within this Item 2 for a discussion of net sales by segment.
Cost of Sales / Gross Profit
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2022 2021 Change 2022 2021 Change
Cost of sales $ 4,414 $ 4,144 7 % $ 12,526 $ 11,408 10 %
Gross profit 2,200 2,197 - % 6,048 5,868 3 %
% of sales 33.3 % 34.6 % 32.6 % 34.0 %
Cost of sales and gross profit increased for the three-month period ended
June 30, 2022 , and gross profit as a percentage of sales decreased by 130 basis
points. Gross profit increased due to organic sales growth and business
acquisitions, partially offset by unfavorable foreign currency translation ($84
million ), supply chain inefficiencies, price/cost pressures and the unfavorable
year-over-year impact of net mark-to-market adjustments on pension plans ($33
million ). Gross profit as a percentage of sales decreased as the benefit of
volume leverage was more than offset by supply chain inefficiencies and
price/cost pressures. Refer to the "Segment Analysis" below within this Item 2
for a discussion of segment earnings before interest, taxes and amortization
("EBITA").
Cost of sales and gross profit increased for the nine-month period ended
June 30, 2022 , and gross profit as a percentage of sales decreased by 140 basis
points. Gross profit increased due to organic sales growth and business
acquisitions, partially offset by unfavorable foreign currency translation ($128
million ), supply chain inefficiencies, price/cost pressures and the unfavorable
year-over-year impact of net mark-to-market adjustments on pension plans ($90
million ). Gross profit as a percentage of sales decreased as the benefit of
volume leverage was more than offset by supply chain inefficiencies and
price/cost pressures. Refer to the "Segment Analysis" below within this Item 2
for a discussion of segment earnings before interest, taxes and amortization
("EBITA").
47
--------------------------------------------------------------------------------Selling, General and Administrative Expenses
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2022 2021 Change 2022 2021 Change
Selling, general and
administrative expenses $ 1,589 $ 1,367 16 % $ 4,412 $ 3,914 13 %
% of sales 24.0 % 21.6 % 23.8 % 22.7 %
Selling, general and administrative expenses ("SG&A") for the three-month period
ended June 30, 2022 increased $222 million , and SG&A as a percentage of sales
increased by 240 basis points. The increase in SG&A was primarily due to the
unfavorable year-over-year impact of net mark-to-market adjustments on pension
plans ($105 million ), the unfavorable year-over-year impact of net
mark-to-market adjustments on restricted asbestos investments ($54 million ) and
current year business acquisitions, partially offset by favorable foreign
currency translation ($48 million ). Refer to the "Segment Analysis" below within
this Item 2 for a discussion of segment EBITA.
Selling, general and administrative expenses ("SG&A") for the nine-month period
ended June 30, 2022 increased $498 million , and SG&A as a percentage of sales
increased by 110 basis points. The increase in SG&A was primarily due to the
unfavorable year-over-year impact of net mark-to-market adjustments on pension
plans ($281 million ), the absence of certain one-time cost mitigation actions,
current year business acquisitions and the unfavorable year-over-year impact of
net mark-to-market adjustments on restricted asbestos investments ($83 million ),
partially offset by a favorable earn-out liability adjustment ($43 million ) and
favorable foreign currency translation ($82 million ). Refer to the "Segment
Analysis" below within this Item 2 for a discussion of segment EBITA.
Restructuring and Impairment Costs
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2022 2021 Change 2022 2021 Change
Restructuring and impairment
costs $ 121 $ 79 53 % $ 554 $ 175 *
* Measure not meaningful
Refer to Note 8, "Goodwill and Other Intangible Assets," Note 17, "Significant
Restructuring and Impairment Costs," and Note 18, "Impairment of Long-Lived
Assets," of the notes to the consolidated financial statements and
"Restructuring" below within this Item 2 for further disclosure related to the
Company's restructuring plans and impairment costs.
Net Financing Charges
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2022 2021 Change 2022 2021 Change
Net financing charges $ 49 $ 56 -13 % $ 153 $ 159 -4 %
Refer to Note 10, "Debt and Financing Arrangements," of the notes to the consolidated financial statements for further disclosure related to the Company's net financing charges.
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Equity Income
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2022 2021 Change 2022 2021 Change
Equity income $ 63 $ 74 -15 % $ 175 $ 188 -7 %
The decrease in equity income for the three months ended June 30, 2022 was
primarily due to lower income at certain partially-owned affiliates of the
Johnson Controls within Building Solutions North America segment and at certain
partially-owned affiliates of the Johnson Controls - Hitachi joint venture.
Foreign currency translation had an unfavorable impact on equity income of $1
million for the three months ended June 30, 2022 . Refer to the "Segment
Analysis" below within this Item 2 for a discussion of segment EBITA.
The decrease in equity income for the nine months ended June 30, 2022 was
primarily due to lower income at certain partially-owned affiliates of the
Johnson Controls - Hitachi joint venture and at certain partially-owned
affiliates of the Johnson Controls within Building Solutions North America
segment. Foreign currency translation had an unfavorable impact on equity income
of $1 million for the nine months ended June 30, 2022 . Refer to the "Segment
Analysis" below within this Item 2 for a discussion of segment EBITA.
Income Tax Provision
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2022 2021 Change 2022 2021 Change
Income tax provision $ 61 $ 108 -44 % $ 190 $ 378 -50 %
Effective tax rate 12.1 % 14.0 % 17.2 % 20.9 %
In calculating the provision for income taxes, 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 changed facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter. The statutory tax rate inIreland is being used as a comparison since the Company is domiciled inIreland . For the three months endedJune 30, 2022 , the Company's effective tax rate for continuing operations was 12.1% and was lower than the statutory tax rate of 12.5% primarily due to the income tax effects of mark-to-market adjustments and the benefits of continuing global tax planning initiatives, partially offset by the establishment of a deferred tax liability on the outside basis difference of the Company's investment in certain subsidiaries as a result of the planned divestitures and tax rate differentials. For the nine months endedJune 30, 2022 , the Company's effective tax rate for continuing operations was 17.2% and was higher than the statutory tax rate of 12.5% primarily due to the tax impact of an impairment charge, the establishment of a deferred tax liability on the outside basis difference of the Company's investment in certain subsidiaries as a result of the planned divestitures, and tax rate differentials, partially offset by the income tax effects of mark-to-market adjustments and the benefits of continuing global tax planning initiatives. For the three months endedJune 30, 2021 , the Company's effective tax rate for continuing operations was 14.0% and was higher than the statutory tax rate of 12.5% primarily due to the income tax effects of mark-to-market adjustments and tax rate differentials, partially offset by the benefits of continuing global tax planning initiatives. For the nine months endedJune 30, 2021 , the Company's effective tax rate for continuing operations was 20.9% and was higher than the statutory tax rate of 12.5% primarily due to valuation allowance adjustments, the income tax effects of mark-to-market adjustments and tax rate differentials, partially offset by the benefits of continuing global tax planning initiatives. The effective tax rate for the nine months endedJune 30, 2022 decreased as compared to the nine months endedJune 30, 2021 primarily due to the discrete tax items. Refer to Note 19, "Income Taxes," of the notes to the consolidated financial statements for further detail. 49 --------------------------------------------------------------------------------
Income From Discontinued Operations, Net of Tax
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2022 2021 Change 2022 2021 Change
Income from discontinued
operations, net of tax $ - $ - * $ - $ 124 *
* Measure not meaningful
Refer to Note 4, "Discontinued Operations & Assets and Liabilities Held for Sale," of the notes to the consolidated financial statements for further information regarding the Company's discontinued operations.
Income Attributable to Noncontrolling Interests
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2022 2021 Change 2022 2021 Change
Income from continuing
operations attributable to
noncontrolling interests $ 64 $ 87 -26 % $ 143 $ 186 -23 %
The decrease in income from continuing operations attributable to noncontrolling
interests for the three and nine months ended June 30, 2022 was primarily due to
lower net income at certain partially-owned affiliates within the Global
Products segment.
Net Income Attributable to
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2022 2021 Change 2022 2021 Change
Net income attributable to
Johnson Controls $ 379 $ 574 -34 % $ 771 $ 1,368 -44 %
The decrease in net income attributable to Johnson Controls for the three months
ended June 30, 2022 was primarily due to higher SG&A and higher restructuring
and impairment costs, partially offset by lower income tax provision. The
decrease in net income attributable to Johnson Controls for the nine months
ended June 30, 2022 was primarily due to higher SG&A, higher restructuring and
impairment costs and non-recurrence of prior year income from discontinued
operations, partially offset by higher gross profit and lower income tax
provision.
Diluted earnings per share attributable to Johnson Controls for the three months
ended June 30, 2022 was $0.55 compared to $0.80 for the three months ended
June 30, 2021 . Diluted earnings per share attributable to Johnson Controls for
the nine months ended June 30, 2022 was $1.10 compared to $1.89 for the nine
months ended June 30, 2021 .
Comprehensive Income Attributable to
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2022 2021 Change 2022 2021 Change
Comprehensive income
attributable to Johnson
Controls $ 62 $ 633 -90 % $ 543 $ 1,793 -70 %
The decrease in comprehensive income attributable to Johnson Controls for the
three months ended June 30, 2022 was due to a decrease in other comprehensive
income attributable to Johnson Controls ($376 million ) resulting primarily from
currency translation adjustments and lower net income attributable to Johnson
Controls ($195 million ). The year-over-year unfavorable
50
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foreign currency translation adjustments were primarily driven by the weakening
of the Brazilian real, British pound and euro against the U.S. dollar in the
current quarter.
The decrease in comprehensive income attributable to Johnson Controls for the
nine months ended June 30, 2022 was due to a decrease in other comprehensive
income attributable to Johnson Controls ($653 million ) resulting primarily from
currency translation adjustments and lower net income attributable to Johnson
Controls ($597 million ). The year-over-year unfavorable foreign currency
translation adjustments were primarily driven by the weakening of the British
pound and euro in the nine months ended June 30, 2022 compared to strengthening
of the Brazilian real, British pound, Canadian dollar and Mexican peso against
the U.S. dollar in the nine months ended June 30, 2021 .
Segment Analysis
Management evaluates the performance of its business units based primarily on segment EBITA, which represents income from continuing operations before income taxes and noncontrolling interests, excluding general corporate expenses, intangible asset amortization, net financing charges, restructuring and impairment costs, and net mark-to-market adjustments related to pension and postretirement plans and restricted asbestos investments. EffectiveOctober 1, 2021 , the Company's marine businesses previously included inBuilding Solutions Asia Pacific and Global Products reportable segments are now part ofBuilding Solutions EMEA/LA reportable segment. Historical information has been re-cast to present the comparative periods on a consistent basis. This change was not material to the segment presentation. Refer to Note 20, "Segment Information," of the notes to the consolidated financial statements for further information. Beginning onOctober 1, 2021 , the Company began reporting certain retrofit projects inBuilding Solutions EMEA/LA andBuilding Solutions Asia Pacific as products and systems revenue on a prospective basis as they have evolved to be more aligned with other install offerings.Net Sales Three Months Ended Nine Months Ended June 30, June 30, (in millions) 2022 2021 Change 2022 2021 ChangeBuilding Solutions North America$ 2,426 $ 2,212 10 %$ 6,805 $ 6,338 7 % Building Solutions EMEA/LA 952 1,001 -5 % 2,869 2,883 - %Building Solutions Asia Pacific 665 703 -5 % 1,963 1,901 3 % Global Products 2,571 2,425 6 % 6,937 6,154 13 %$ 6,614 $ 6,341 4 %$ 18,574 $ 17,276 8 % Three Months: •The increase inBuilding Solutions North America was due to higher prices ($217 million ) and incremental sales related to business acquisitions ($6 million ), partially offset by the unfavorable impact of foreign currency translation ($9 million ). The sales increase was led by low double-digit growth in service and strong growth in the HVAC & Controls platform. •The decrease inBuilding Solutions EMEA/LA was due to the unfavorable impact of foreign currency translation ($88 million ) and business divestitures ($7 million ), partially offset by the net impact of higher prices and lower volumes ($37 million ) and incremental sales related to business acquisitions ($9 million ). Excluding the impacts of foreign currency translation and business acquisitions and divestitures, sales increased, driven by high single-digit growth in service and strong performance in the Fire & Security platforms. By region, strong growth inEurope was partially offset by a decline inLatin America . •The decrease inBuilding Solutions Asia Pacific was due to the unfavorable impact of foreign currency translation ($39 million ) and the net impact of lower volumes and higher prices ($7 million ), partially offset by incremental sales related to business acquisitions ($8 million ). The decrease in sales was due to the COVID-19 lockdowns inChina . Strong demand for Industrial Refrigeration equipment continued in the third quarter of fiscal 2022. 51 -------------------------------------------------------------------------------- •The increase in Global Products was due to the net impact of higher prices and lower volumes ($218 million ) and incremental sales related to business acquisitions ($50 million ), partially offset by the unfavorable impact of foreign currency translation ($122 million ). Sales growth was driven by strong pricing and broad-based demand for Commercial and Residential HVAC and Fire Detection products, partially offset by lower volumes due to the supply chain constraints and the COVID-19 lockdowns inChina .
Year-to-Date:
•The increase inBuilding Solutions North America was due to higher volumes and prices ($455 million ) and incremental sales related to business acquisitions ($15 million ), partially offset by the unfavorable impact of foreign currency translation ($3 million ). The sales increase was led by strong growth in service and the HVAC & Controls platform. •The decrease inBuilding Solutions EMEA/LA was due to the unfavorable impact of foreign currency translation ($155 million ) and business divestitures ($16 million ), partially offset by higher volumes and prices ($133 million ) and incremental sales related to business acquisitions ($24 million ). Excluding the impacts of foreign currency translation and business acquisitions and divestitures, sales increased, driven by growth in service and strong performance in the Fire & Security platforms. By region, strong growth inEurope andLatin America was partially offset by continued weakness in theMiddle East . •The increase inBuilding Solutions Asia Pacific was due to the net impact of higher prices and lower volumes ($99 million ) and incremental sales related to business acquisitions ($26 million ), partially offset by the unfavorable impact of foreign currency translation ($62 million ) and business divestitures ($1 million ). The increase in sales was led by strong demand for Commercial Applied HVAC & Controls, partially offset by the COVID-19 lockdowns inChina during the third quarter of fiscal 2022. •The increase in Global Products was due to higher volumes and prices ($722 million ) and incremental sales related to business acquisitions ($254 million ), partially offset by the unfavorable impact of foreign currency translation ($193 million ). Sales growth was driven by broad-based demand for Commercial and Residential HVAC and Fire & Security products and strong pricing. Segment EBITA Three Months Ended Nine Months Ended June 30, June 30, (in millions) 2022 2021 Change 2022 2021 ChangeBuilding Solutions North America$ 260 $ 326 -20 %$ 745 $ 847 -12 % Building Solutions EMEA/LA 83 105 -21 % 266 291 -9 %Building Solutions Asia Pacific 85 84 1 % 227 234 -3 % Global Products 570 505 13 % 1,283 1,001 28 %$ 998 $ 1,020 -2 %$ 2,521 $ 2,373 6 % Three Months: •The decrease inBuilding Solutions North America was primarily due to lower absorption related to supply chain disruptions and labor constraints and the unfavorable impact of foreign currency translation ($2 million ), partially offset by productivity savings.
•The decrease in
•The increase inBuilding Solutions Asia Pacific was primarily due to favorable price/cost and productivity savings, partially offset by lower volume leverage resulting from the COVID-19 lockdowns inChina and the unfavorable impact of foreign currency translation ($6 million ). 52 --------------------------------------------------------------------------------
•The increase in Global Products was primarily due to favorable price/cost,
favorable mix and productivity savings, partially offset by supply chain
disruptions and the unfavorable impact of foreign currency translation (
Year-to-Date:
•The decrease inBuilding Solutions North America was primarily due to lower absorption related to supply chain disruptions and labor constraints, partially offset by productivity savings.
•The decrease in
•The decrease inBuilding Solutions Asia Pacific was primarily due to supply chain disruptions and the unfavorable impact of foreign currency translation ($12 million ), partially offset by favorable price/cost and productivity savings. •The increase in Global Products was primarily due to favorable volumes and mix, productivity savings and a favorable earn-out liability adjustment ($43 million ), partially offset by the unfavorable impact of foreign currency translation ($19 million ) and lower equity income driven primarily by certain partially-owned affiliates of theJohnson Controls - Hitachi joint venture ($9 million ). Backlog The Company's backlog is applicable to its sales of systems and services. AtJune 30, 2022 , the backlog was$11.7 billion , of which$11.1 billion was attributable to the field business. The backlog amount outstanding at any given time is not necessarily indicative of the amount of revenue to be earned in the upcoming fiscal year. AtJune 30, 2022 , remaining performance obligations were$17.5 billion , which is$5.8 billion higher than the Company's backlog of$11.7 billion . Differences between the Company's remaining performance obligations and backlog are primarily due to: •Remaining performance obligations include large, multi-purpose contracts to construct hospitals, schools and other governmental buildings, which are services to be performed over the building's lifetime with initial contract terms of 25 to 35 years for the entire term of the contract versus backlog which includes only the lifecycle period of these contracts which approximates five years; •The Company excludes from remaining performance obligations certain contracts with customers with a term of one year or less or contracts that are cancellable without substantial penalty while these contracts are included within backlog; and •Remaining performance obligations include the full remaining term of service contracts with substantial termination penalties versus backlog which includes only one year for all outstanding service contracts.
The Company reports backlog as it believes it is a useful measure of evaluating the Company's operational performance and relationship to total orders.
53
--------------------------------------------------------------------------------Liquidity and Capital Resources
Working Capital
June 30, September 30,
(in millions) 2022 2021 Change
Current assets $ 11,559 $ 9,998
Current liabilities (11,883) (9,098)
(324) 900 *
Less: Cash and cash equivalents (1,506) (1,336)
Add: Short-term debt 2,081 8
Add: Current portion of long-term debt 217 226
Less: Current assets held for sale (404) -
Add: Current liabilities held for sale 261 -
Working capital (as defined) $ 325 $ (202) *
Accounts receivable - net $ 5,850 $ 5,613 4 %
Inventories 2,574 2,057 25 %
Accounts payable 4,125 3,746 10 %
* Measure not meaningful
•The Company defines working capital as current assets less current liabilities,
excluding cash, short-term debt, the current portion of long-term debt, and
current 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 increase in working capital at
•The Company's days sales in accounts receivable atJune 30, 2022 andSeptember 30, 2021 were 57 days and 58 days, respectively. There has been no significant adverse changes in the level of overdue receivables or significant changes in revenue recognition methods.
•The Company's inventory turns for the three months ended
•Days in accounts payable at
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