##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
   Form 10-Q
   (Mark One)þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    March 31, 2009ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File
    Number: 1-5097
   JOHNSON CONTROLS,
    INC.
 (Exact name of registrant as
    specified in its charter)
   Wisconsin

39-0380010(State or Other Jurisdiction
    of
    Incorporation or Organization)

(I.R.S. Employer
    Identification No.)5757 North Green Bay Avenue
    Milwaukee, Wisconsin(Address of principal executive offices)

53209(Zip
    Code)    (414) 524-1200
 (Registrants telephone
    number, including area code)
   Not
    Applicable (Former
    name, former address and former fiscal year, if changed since
    last report)
   þ o
  o o
  Rule 12b-2
  Large
    accelerated
    filer þ
    Accelerated
    filer o
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ
    Class

Shares Outstanding at March 31, 2009Common Stock:
    $0.017/18
    par value per share


594,263,055




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##### 



JOHNSON CONTROLS, INC.
 Form 10-Q
 Report Index
 PagePart I. Financial InformationItem 1. Financial Statements (unaudited)Condensed Consolidated Statements of Financial Position at
March 31, 2009, September 30, 2008 and March 31, 2008
    
    
    3Consolidated Statements of Income for the
Three and Six Month Periods Ended March 31, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the
Three and Six Month Periods Ended March 31, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Report of Independent Registered Public Accounting Firm
    
    
    28Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    29Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    44Item 4. Controls and Procedures
    
    
    44Part II. Other InformationItem 1. Legal Proceedings
    
    
    45Item 1A. Risk Factors
    
    
    46Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    46Item 6. Exhibits
    
    
    47Signatures
    
    
    48EX-15EX-31.1EX-31.2EX-32
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 Johnson Controls, Inc.
 
 Condensed Consolidated Statements of Financial Position
  March 31,
    
    
    September 30,
    
    
    March 31,2009
    
    
    2008
    
    
    2008AssetsCash and cash equivalents
    
    $
    311
    
    
    $
    384
    
    
    $
    233Accounts receivable  net
    
    
    4,745
    
    
    
    6,472
    
    
    
    6,451Inventories
    
    
    1,648
    
    
    
    2,099
    
    
    
    2,209Other current assets
    
    
    1,748
    
    
    
    1,721
    
    
    
    1,716Current assets
    
    
    8,452
    
    
    
    10,676
    
    
    
    10,609Property, plant and equipment  net
    
    
    3,949
    
    
    
    4,389
    
    
    
    4,324Goodwill
    
    
    6,320
    
    
    
    6,513
    
    
    
    6,401Other intangible assets  net
    
    
    749
    
    
    
    769
    
    
    
    793Investments in partially-owned affiliates
    
    
    668
    
    
    
    863
    
    
    
    854Other noncurrent assets
    
    
    1,586
    
    
    
    1,777
    
    
    
    1,638Total assets
    
    $
    21,724
    
    
    $
    24,987
    
    
    $
    24,619Liabilities and Shareholders EquityShort-term debt
    
    $
    621
    
    
    $
    456
    
    
    $
    574Current portion of long-term debt
    
    
    176
    
    
    
    287
    
    
    
    443Accounts payable
    
    
    3,540
    
    
    
    5,225
    
    
    
    5,238Accrued compensation and benefits
    
    
    830
    
    
    
    1,024
    
    
    
    914Accrued income taxes
    
    
    
    
    
    
    117
    
    
    
    90Other current liabilities
    
    
    2,520
    
    
    
    2,701
    
    
    
    2,254Current liabilities
    
    
    7,687
    
    
    
    9,810
    
    
    
    9,513Long-term debt
    
    
    3,994
    
    
    
    3,201
    
    
    
    3,301Postretirement health and other benefits
    
    
    222
    
    
    
    236
    
    
    
    260Other noncurrent liabilities
    
    
    1,722
    
    
    
    2,080
    
    
    
    1,800Long-term liabilities
    
    
    5,938
    
    
    
    5,517
    
    
    
    5,361Commitments and contingencies (Note 19)Minority interests in equity of subsidiaries
    
    
    199
    
    
    
    236
    
    
    
    150Shareholders equity
    
    
    7,900
    
    
    
    9,424
    
    
    
    9,595Total liabilities and shareholders equity
    
    $
    21,724
    
    
    $
    24,987
    
    
    $
    24,619
  3




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##### Table of Contents



Johnson Controls, Inc.
 
 Consolidated Statements of Income
  Three Months
    
    
    Six MonthsEnded March 31,
    
    
    Ended March 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Net salesProducts and systems*
    
    $
    4,717
    
    
    $
    7,593
    
    
    $
    10,364
    
    
    $
    15,302Services*
    
    
    1,598
    
    
    
    1,813
    
    
    
    3,287
    
    
    
    3,5886,315
    
    
    
    9,406
    
    
    
    13,651
    
    
    
    18,890Cost of salesProducts and systems
    
    
    4,362
    
    
    
    6,646
    
    
    
    9,635
    
    
    
    13,388Services
    
    
    1,271
    
    
    
    1,450
    
    
    
    2,649
    
    
    
    2,8855,633
    
    
    
    8,096
    
    
    
    12,284
    
    
    
    16,273Gross profit
    
    
    682
    
    
    
    1,310
    
    
    
    1,367
    
    
    
    2,617Selling, general and administrative expenses
    
    
    (803
    )
    
    
    (888
    )
    
    
    (1,662
    )
    
    
    (1,838
    )Restructuring costs
    
    
    (230
    )
    
    
    
    
    
    
    (230
    )
    
    
    Net financing charges
    
    
    (46
    )
    
    
    (66
    )
    
    
    (102
    )
    
    
    (135
    )Equity income (loss)
    
    
    2
    
    
    
    31
    
    
    
    (134
    )
    
    
    48Income (loss) before
income taxes and minority interests
    
    
    (395
    )
    
    
    387
    
    
    
    (761
    )
    
    
    692Provision for income taxes
    
    
    (183
    )
    
    
    81
    
    
    
    59
    
    
    
    145Minority interests in net earnings (loss) of subsidiaries
    
    
    (19
    )
    
    
    17
    
    
    
    (19
    )
    
    
    23Net income (loss)
    
    $
    (193
    )
    
    $
    289
    
    
    $
    (801
    )
    
    $
    524Earnings (loss) per shareBasic
    
    $
    (0.33
    )
    
    $
    0.49
    
    
    $
    (1.35
    )
    
    $
    0.88Diluted
    
    $
    (0.33
    )
    
    $
    0.48
    
    
    $
    (1.35
    )
    
    $
    0.87
 
 *
    
    Products and systems consist of automotive experience and power solutions products
and systems and building efficiency installed systems. Services are building efficiency
technical and global workplace solutions.  4




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##### Table of Contents



Johnson Controls, Inc.
 
 Condensed Consolidated Statements of Cash Flows
  Three Months
    
    
    Six MonthsEnded March 31,
    
    
    Ended March 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Operating ActivitiesNet income (loss)
    
    $
    (193
    )
    
    $
    289
    
    
    $
    (801
    )
    
    $
    524Adjustments to reconcile net income to
cash provided by operating activities:Depreciation
    
    
    182
    
    
    
    185
    
    
    
    363
    
    
    
    366Amortization of intangibles
    
    
    9
    
    
    
    9
    
    
    
    18
    
    
    
    19Equity in earnings of partially-owned affiliates,
net of dividends received
    
    
    27
    
    
    
    (22
    )
    
    
    211
    
    
    
    Minority interests in net earnings (loss) of
subsidiaries
    
    
    (19
    )
    
    
    17
    
    
    
    (19
    )
    
    
    23Deferred income taxes
    
    
    (78
    )
    
    
    (29
    )
    
    
    222
    
    
    
    (20
    )Impairment charges
    
    
    46
    
    
    
    
    
    
    
    156
    
    
    
    Equity-based compensation
    
    
    8
    
    
    
    13
    
    
    
    28
    
    
    
    33Other
    
    
    (1
    )
    
    
    
    
    
    
    14
    
    
    
    19Changes in working capital, excluding acquisitions
and divestitures of businesses:Accounts receivable
    
    
    196
    
    
    
    (57
    )
    
    
    1,324
    
    
    
    429Inventories
    
    
    263
    
    
    
    (68
    )
    
    
    341
    
    
    
    (150
    )Other current assets
    
    
    (92
    )
    
    
    (57
    )
    
    
    (7
    )
    
    
    39Restructuring reserves
    
    
    83
    
    
    
    (18
    )
    
    
    31
    
    
    
    (32
    )Accounts payable and accrued liabilities
    
    
    (97
    )
    
    
    75
    
    
    
    (1,753
    )
    
    
    (760
    )Accrued income taxes
    
    
    (152
    )
    
    
    (39
    )
    
    
    (263
    )
    
    
    (14
    )Cash provided (used) by operating activities
    
    
    182
    
    
    
    298
    
    
    
    (135
    )
    
    
    476Investing ActivitiesCapital expenditures
    
    
    (158
    )
    
    
    (174
    )
    
    
    (426
    )
    
    
    (361
    )Sale of property, plant and equipment
    
    
    
    
    
    
    17
    
    
    
    3
    
    
    
    32Acquisition of businesses, net of cash acquired
    
    
    (10
    )
    
    
    (43
    )
    
    
    (32
    )
    
    
    (69
    )Recoverable customer engineering expenditures
    
    
    (26
    )
    
    
    19
    
    
    
    (48
    )
    
    
    15Settlement of cross-currency interest rate swaps
    
    
    31
    
    
    
    (61
    )
    
    
    31
    
    
    
    (93
    )Changes in long-term investments
    
    
    (15
    )
    
    
    
    
    
    
    (63
    )
    
    
    (12
    )Cash used by investing activities
    
    
    (178
    )
    
    
    (242
    )
    
    
    (535
    )
    
    
    (488
    )Financing ActivitiesIncrease (decrease) in short-term debt  net
    
    
    (362
    )
    
    
    370
    
    
    
    187
    
    
    
    283Increase in long-term debt  net
    
    
    878
    
    
    
    232
    
    
    
    878
    
    
    
    233Repayment of long-term debt
    
    
    (322
    )
    
    
    (691
    )
    
    
    (331
    )
    
    
    (712
    )Payment of cash dividends
    
    
    (77
    )
    
    
    (78
    )
    
    
    (154
    )
    
    
    (143
    )Stock repurchases
    
    
    
    
    
    
    (38
    )
    
    
    
    
    
    
    (73
    )Other
    
    
    (12
    )
    
    
    (25
    )
    
    
    17
    
    
    
    (17
    )Cash provided (used) by financing activities
    
    
    105
    
    
    
    (230
    )
    
    
    597
    
    
    
    (429
    )Increase (decrease) in cash and cash equivalents
    
    $
    109
    
    
    $
    (174
    )
    
    $
    (73
    )
    
    $
    (441
    )
  5




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##### Table of Contents



Johnson Controls, Inc.
 
 Notes to Condensed Consolidated Financial Statements
 March 31, 2008
 (unaudited)
 1.
    
    Financial StatementsIn the opinion of management, the accompanying unaudited condensed consolidated financial
statements contain all adjustments (which include normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows for the periods
presented. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted in the United
States of America (U.S. GAAP) have been condensed or omitted pursuant to the rules and
regulations of the United States Securities and Exchange Commission (SEC). These condensed
consolidated financial statements should be read in conjunction with the audited financial
statements and notes thereto included in the Johnson Controls, Inc. (the Company) Annual
Report on Form 10-K for the year ended September 30, 2008. The results of operations for the
three and six month periods ended March 31, 2009 are not necessarily indicative of results for
the Companys 2009 fiscal year because of seasonal and other factors.The consolidated financial statements include the accounts of Johnson Controls, Inc. and its
domestic and non-U.S. subsidiaries that are consolidated in conformity with U.S. GAAP. All
significant intercompany transactions have been eliminated. Investments in partially-owned
affiliates are accounted for by the equity method when the Companys interest exceeds 20% and
the Company does not have a controlling interest.Certain prior period amounts have been revised to conform to the current years presentation.
Prior year net sales and cost of sales amounts between Products and systems and Services have
been reclassified. In addition, the financial results for the three and six month periods
ended March 31, 2009, include out of period adjustments of $29 million and $62 million,
respectively, made to correct an error related to the power solutions segment that reduce
segment income. The errors primarily originated in 2007 and 2008 and resulted in the
overstatement of inventory and understatement of cost of sales in prior periods.Under certain criteria as provided for in Financial Accounting Standards Board (FASB)
Interpretation No. (FIN) 46(R), Consolidation of Variable Interest Entities  an
Interpretation of ARB No. 51, the Company may consolidate a partially-owned affiliate when it
has less than a 50% ownership. In order to determine whether to consolidate a partially-owned
affiliate when the Company has less than a 50% ownership, we first determine if the entity is a
variable interest entity (VIE). An entity is considered to be a VIE if it has one of the
following characteristics: 1) the entity is thinly capitalized; 2) residual equity holders do
not control the entity; 3) equity holders are shielded from economic losses or do not
participate fully in the entitys residual economics; or 4) the entity was established with
non-substantive voting. If the entity meets one of these characteristics, we then determine if
the Company is the primary beneficiary of the VIE. Under FIN 46(R), the party exposed to the
majority of the risks and rewards associated with the VIE is the VIEs primary beneficiary and
must consolidate the entity.Based upon the criteria set forth in FIN 46(R), the Company has determined that at March 31,
2009 it was the primary beneficiary in two VIEs in which it holds less than 50% ownership as
the Company funds the entities short-term liquidity needs. Both entities are consolidated
within the automotive experience North America segment. The carrying amounts and classification
of assets and liabilities included in our consolidated statements of financial position are as
follows (in millions):
 March 31,2009
    
    
    2008Current assets
    
    $
    88
    
    
    $
    118Noncurrent assets
    
    
    111
    
    
    
    130Total assets
    
    $
    199
    
    
    $
    248Current liabilities
    
    $
    79
    
    
    $
    125Noncurrent liabilities
    
    
    
    
    
    
    Total liabilities
    
    $
    79
    
    
    $
    125
 As of March 31, 2009, the Company did not have a significant variable interest in any
unconsolidated VIEs.
 6




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##### Table of Contents



Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 2.
    
    New Accounting StandardsIn April 2009, the FASB issued Staff Position (FSP) Financial Accounting Standards (FAS) 107-1
and Accounting Principles Board (APB) 28-1, Interim Disclosures about Fair Value of Financial
Instruments. This FSP requires disclosure about fair value of financial instruments for
interim reporting periods of publicly traded companies as well as in annual financial
statements. This statement is effective for the Company beginning in the third quarter of
fiscal 2009 (April 1, 2009) with early adoption permitted. The Company adopted this FSP
effective January 1, 2009 and has determined that the impact of adoption is not material to
its consolidated financial condition and results of operation. See Note 15, Derivative
Instruments and Hedging Activities, and Note 16, Fair Value Measurements, for disclosure of
the Companys fair value of financial instruments as of March 31, 2009.In May 2008, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 162, The
Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the accounting principles to be used in
the preparation of the financial statement presented in conformity with U.S. GAAP. This
statement is effective sixty days after approval by the SEC of the Public Company Accounting
Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles. SFAS No. 162 is now effective for the Company. The
adoption of this statement did not have a material impact on the Companys financial position
or results of operations.In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133. SFAS No. 161 enhances required
disclosures regarding derivatives and hedging activities, including how an entity uses
derivative instruments, how derivative instruments and related hedged items are accounted for
under SFAS No. 133 and how derivative instruments and related hedged items affect an entitys
financial position, financial performance and cash flows. SFAS No. 161 was effective for the
Company beginning in the second quarter of fiscal 2009 (January 1, 2009). See Note 15,
Derivative Instruments and Hedging Activities, for more information regarding the impact of
the Companys adoption of SFAS No. 161.In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations. SFAS
No. 141(R) changes the accounting for business combinations in a number of areas including the
treatment of contingent consideration, preacquisition contingencies, transaction costs,
in-process research and development and restructuring costs. In addition, under SFAS No.
141(R), changes in an acquired entitys deferred tax assets and uncertain tax positions after
the measurement period will impact income tax expense. SFAS No. 141(R) will be effective for
the Company beginning in the first quarter of fiscal 2010 (October 1, 2009). This standard,
when adopted, will change the Companys accounting treatment for business combinations on a
prospective basis.In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51. SFAS No. 160 changes the accounting and
reporting for minority interests, which will be recharacterized as noncontrolling interests and
classified as a component of equity. This new consolidation method changes the accounting for
transactions with minority interest holders. SFAS No. 160 is effective for fiscal years
beginning after December 15, 2008. SFAS No. 160 will be effective for the Company beginning in
the first quarter of fiscal 2010 (October 1, 2009). The Company is assessing the potential
impact that the adoption of SFAS No. 160 will have on its consolidated financial condition and
results of operations.In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities  including an amendment to FASB Statement No. 115. SFAS No. 159
permits entities to measure certain financial instruments and certain other items at fair value
that are not currently required to be measured at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and liabilities
differently without having to apply complex hedge accounting provisions. The Company adopted
this statement effective October 1, 2008 and has not elected to measure any financial assets
and financial liabilities at fair value which were not
 7




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Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 previously required to be measured at
fair value. The adoption of this standard has had no impact on the Companys consolidated
financial condition and results of operations.In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157
defines fair value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements. SFAS No. 157 also establishes a fair value hierarchy that
prioritizes information used in developing assumptions when pricing an asset or liability. The
Company adopted this statement effective October 1, 2008. The adoption of this standard has
had no material impact on the Companys consolidated financial condition and results of
operation. See Note 16, Fair Value Measurements, for more information regarding the impact of
the Companys adoption of SFAS No. 157. In February 2008, the FASB issued FSP FAS 157-2,
Effective Date of FASB Statement No. 157, which delays the effective date of SFAS No. 157 for
nonfinancial assets and nonfinancial liabilities that are recognized or disclosed in the
financial statements on a nonrecurring basis to fiscal years beginning after November 15, 2008.
The Company has not applied the provisions of SFAS No. 157 to its nonfinancial assets and
nonfinancial liabilities in accordance with FSP FAS 157-2 as of March 31, 2009. The provisions
of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities will be effective for the
Company beginning in the first quarter of fiscal 2010 (October 1, 2009).3.
    
    Acquisition of BusinessesDuring fiscal 2009 the Company completed two acquisitions for a combined purchase price of $37
million, of which $32 million was paid in the six months ended March 31, 2009. Neither of the
acquisitions was material to the Companys consolidated financial statements. In connection
with these acquisitions, the Company recorded goodwill of $24 million. The purchase price
allocation may be subsequently adjusted to reflect final valuation studies.In the first quarter of fiscal 2008, the Company completed three acquisitions for a combined
purchase price of $75 million, of which $69 million was paid in the six months ended March 31,
2008. None of the acquisitions was material to the Companys consolidated financial
statements. In connection with these acquisitions, the Company recorded goodwill of $36
million.4.
    
    Percentage-of-Completion ContractsThe building efficiency business records certain long term contracts under the
percentage-of-completion method of accounting. Under this method, sales and gross profit are
recognized as work is performed based on the relationship between actual costs incurred and
total estimated costs at completion. The Company records costs and earnings in excess of
billings on uncompleted contracts within accounts receivable  net and billings in excess of
costs and earnings on uncompleted contracts within other current liabilities in the condensed
consolidated statements of financial position. Amounts included within accounts receivable 
net related to these contracts were $512 million, $670 million and $618 million at March 31,
2009, September 30, 2008, and March 31, 2008, respectively. Amounts included within other
current liabilities were $609 million, $654 million and $544 million at March 31, 2009,
September 30, 2008, and March 31, 2008, respectively.5.
    
    InventoriesInventories consisted of the following (in millions):
 March 31,
    
    
    September 30,
    
    
    March 31,2009
    
    
    2008
    
    
    2008Raw materials and supplies
    
    $
    731
    
    
    $
    902
    
    
    $
    923Work-in-process
    
    
    228
    
    
    
    324
    
    
    
    359Finished goods
    
    
    801
    
    
    
    985
    
    
    
    989FIFO inventories
    
    
    1,760
    
    
    
    2,211
    
    
    
    2,271LIFO reserve
    
    
    (112
    )
    
    
    (112
    )
    
    
    (62
    )Inventories
    
    $
    1,648
    
    
    $
    2,099
    
    
    $
    2,209
 8




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##### Table of Contents



Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 6.
    
    Goodwill and Other Intangible AssetsThe changes in the carrying amount of goodwill in each of the Companys reporting segments for
the six month period ended September 30, 2008 and the six month period ended March 31, 2009
were as follows (in millions):
 CurrencyMarch 31,
    
    
    Business
    
    
    Translation
    
    
    September 30,2008
    
    
    Acquisitions
    
    
    and Other
    
    
    2008Building efficiencyNorth America systems
    
    $
    506
    
    
    $
    10
    
    
    $
    (1
    )
    
    $
    515North America service
    
    
    653
    
    
    
    7
    
    
    
    (3
    )
    
    
    657North America unitary products
    
    
    481
    
    
    
    
    
    
    
    
    
    
    
    481Global workplace solutions
    
    
    181
    
    
    
    6
    
    
    
    (9
    )
    
    
    178Europe
    
    
    411
    
    
    
    
    
    
    
    17
    
    
    
    428Rest of world
    
    
    587
    
    
    
    
    
    
    
    (13
    )
    
    
    574Automotive experienceNorth America
    
    
    1,177
    
    
    
    178
    
    
    
    1
    
    
    
    1,356Europe
    
    
    1,269
    
    
    
    7
    
    
    
    (57
    )
    
    
    1,219Asia
    
    
    217
    
    
    
    
    
    
    
    (17
    )
    
    
    200Power solutions
    
    
    919
    
    
    
    
    
    
    
    (14
    )
    
    
    905Total
    
    $
    6,401
    
    
    $
    208
    
    
    $
    (96
    )
    
    $
    6,513CurrencySeptember 30,
    
    
    Business
    
    
    Translation
    
    
    March 31,2008
    
    
    Acquisitions
    
    
    and Other
    
    
    2009Building efficiencyNorth America systems
    
    $
    515
    
    
    $
    
    
    
    $
    (2
    )
    
    $
    513North America service
    
    
    657
    
    
    
    
    
    
    
    (1
    )
    
    
    656North America unitary products
    
    
    481
    
    
    
    
    
    
    
    
    
    
    
    481Global workplace solutions
    
    
    178
    
    
    
    
    
    
    
    (18
    )
    
    
    160Europe
    
    
    428
    
    
    
    
    
    
    
    (20
    )
    
    
    408Rest of world
    
    
    574
    
    
    
    24
    
    
    
    (49
    )
    
    
    549Automotive experienceNorth America
    
    
    1,356
    
    
    
    
    
    
    
    (2
    )
    
    
    1,354Europe
    
    
    1,219
    
    
    
    
    
    
    
    (97
    )
    
    
    1,122Asia
    
    
    200
    
    
    
    
    
    
    
    (5
    )
    
    
    195Power solutions
    
    
    905
    
    
    
    
    
    
    
    (23
    )
    
    
    882Total
    
    $
    6,513
    
    
    $
    24
    
    
    $
    (217
    )
    
    $
    6,320
 9




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##### Table of Contents



Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
  March 31, 2009
    
    September 30, 2008
    
    March 31, 2008Gross
    
    
    
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    Accumulated
    
    
    
    
    
    Carrying
    
    Accumulated
    
    
    
    
    
    Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Net
    
    Amount
    
    Amortization
    
    Net
    
    Amount
    
    Amortization
    
    NetAmortized intangible assetsPatented technology
    
    $
    297
    
    
    $
    (173
    )
    
    $
    124
    
    
    $
    302
    
    
    $
    (168
    )
    
    $
    134
    
    
    $
    309
    
    
    $
    (161
    )
    
    $
    148Unpatented technology
    
    
    23
    
    
    
    (11
    )
    
    
    12
    
    
    
    25
    
    
    
    (11
    )
    
    
    14
    
    
    
    25
    
    
    
    (10
    )
    
    
    15Customer relationships
    
    
    341
    
    
    
    (48
    )
    
    
    293
    
    
    
    344
    
    
    
    (42
    )
    
    
    302
    
    
    
    347
    
    
    
    (36
    )
    
    
    311Miscellaneous
    
    
    36
    
    
    
    (13
    )
    
    
    23
    
    
    
    35
    
    
    
    (13
    )
    
    
    22
    
    
    
    35
    
    
    
    (13
    )
    
    
    22Total amortized
intangible assets
    
    
    697
    
    
    
    (245
    )
    
    
    452
    
    
    
    706
    
    
    
    (234
    )
    
    
    472
    
    
    
    716
    
    
    
    (220
    )
    
    
    496Unamortized intangible assetsTrademarks
    
    
    297
    
    
    
    
    
    
    
    297
    
    
    
    297
    
    
    
    
    
    
    
    297
    
    
    
    297
    
    
    
    
    
    
    
    297Total intangible assets
    
    $
    994
    
    
    $
    (245
    )
    
    $
    749
    
    
    $
    1,003
    
    
    $
    (234
    )
    
    $
    769
    
    
    $
    1,013
    
    
    $
    (220
    )
    
    $
    793
 Amortization of other intangible assets for the six month periods ended March 31, 2009 and 2008
was $18 million and $19 million, respectively. Excluding the impact of any future
acquisitions, the Company anticipates amortization of other intangible assets will average
approximately $33 million per year over the next five years.7.
    
    Product WarrantiesThe Company offers warranties to its customers depending upon the specific product and terms of
the customer purchase agreement. A typical warranty program requires that the Company replace
defective products within a specified time period from the date of sale. The Company records an
estimate for future warranty-related costs based on actual historical return rates. Based on
analysis of return rates and other factors, the adequacy of the Companys warranty provisions
are adjusted as necessary. While the Companys warranty costs have historically been within its
calculated estimates, it is possible that future warranty costs could exceed those estimates.
The Companys product warranty liability is included in other current liabilities in the
condensed consolidated statements of financial position.The changes in the carrying amount of the Companys total product warranty liability for the
six months ended March 31, 2009 and 2008 were as follows (in millions):
 2009
    
    
    2008Balance as of September 30
    
    $
    204
    
    
    $
    186Accruals for warranties issued during the period
    
    
    97
    
    
    
    79Accruals from acquisitions
    
    
    
    
    
    
    1Accruals related to pre-existing warranties (including
changes in estimates)
    
    
    
    
    
    
    Settlements made (in cash or in kind) during the period
    
    
    (110
    )
    
    
    (80
    )Currency translation
    
    
    (7
    )
    
    
    5Balance as of March 31
    
    $
    184
    
    
    $
    191
 8. Restructuring Costs
  10




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##### Table of Contents



Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 actions in building efficiency are primarily in Europe where the Company is centralizing
certain functions and rebalancing its resources to target the geographic markets with the
greatest potential growth. Power solutions actions are focused on optimizing its manufacturing
capacity as a result of lower overall demand for original equipment batteries resulting from
lower vehicle production levels.The 2009 Plan includes workforce reductions of approximately 6,700 employees (2,900 for
automotive experience  North America, 1,900 for automotive experience  Europe, 900 for
automotive experience  Asia, 200 for building efficiency  North America, 400 for building
efficiency  Europe, 100 for building efficiency  rest of world, and 300 for power
solutions). Restructuring charges associated with employee severance and termination benefits
are to be paid over the severance period granted to each employee and on a lump sum basis when
required in accordance with individual severance agreements. As of March 31, 2009,
approximately 1,800 employees have been separated from the Company pursuant to the 2009 Plan.
In addition, the 2009 Plan includes 9 plant closures (3 for automotive experience  North
America, 1 for automotive experience  Europe, 3 for automotive experience  Asia, 1 for
building efficiency  rest of world, and 1 for power solutions). As of March 31, 2009, none
of the plants have been closed. The portion of the restructuring charge for the impairment of
long-lived assets associated with the plant closures was determined using fair value based on
a discounted cash flow analysis.The following table summarizes the changes in the Companys 2009 Plan reserve, included within
other current liabilities in the consolidated statements of financial position (in millions):
 EmployeeSeverance andTermination
    
    
    Fixed AssetBenefits
    
    
    Impairment
    
    
    Other
    
    
    TotalOriginal Reserve
    
    $
    182
    
    
    $
    46
    
    
    $
    2
    
    
    $
    230Utilized  Cash
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    (15
    )Utilized  Noncash
    
    
    
    
    
    
    (46
    )
    
    
    
    
    
    
    (46
    )Balance at March 31, 2009
    
    $
    167
    
    
    $
    
    
    
    $
    2
    
    
    $
    169
 Included within the other category are exit costs for terminating supply contracts
associated with changes in the Companys manufacturing footprint and strategies, lease
termination costs and other direct costs.To better align the Companys resources with its growth strategies while reducing the
cost structure of its global operations, the Company committed to a restructuring plan (2008
Plan) in the fourth quarter of fiscal 2008 and recorded a $495 million restructuring charge.
The restructuring charge relates to cost reduction initiatives in its automotive experience,
building efficiency and power solutions businesses and includes workforce reductions and plant
consolidations. The Company expects to substantially complete the 2008 Plan by early 2010. The
automotive-related restructuring is in response to the changing fundamentals of the European
and North American automotive markets. The actions target reductions in the Companys cost
base by decreasing excess manufacturing capacity due to lower industry production and the
continued movement of vehicle production to low-cost countries, especially in Europe. The
restructuring actions in building efficiency are primarily in Europe where the Company is
centralizing certain functions and rebalancing its resources to target the geographic markets
with the greatest potential growth. Power solutions actions are focused on optimizing its
regional manufacturing capacity.The 2008 Plan includes workforce reductions of approximately 9,400 employees (3,700 for
automotive experience  North America, 3,400 for automotive experience  Europe, 400 for
building efficiency  North America, 1,000 for building efficiency  Europe, 400 for
building efficiency  rest of world and 500 for power solutions). Restructuring charges
associated with employee severance and termination benefits are paid over
the severance period granted to each employee and on a lump sum basis when required in
accordance with individual severance agreements. As of March 31, 2009, approximately 6,600
employees have been separated from the Company pursuant to the 2008 Plan. In addition, the
2008 Plan includes 21 plant closures (9 for automotive experience  North America, 9 for
automotive experience  Europe, 1 for building
 11




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##### Table of Contents



Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited
 efficiency  North America, and 2 for power
solutions). As of March 31, 2009, 9 of the 21 plants have been closed. The portion of the
restructuring charge for the impairment of long-lived assets associated with the plant
closures was determined using fair value based on a discounted cash flow analysis.The following table summarizes the changes in the Companys 2008 Plan reserve, included within
other current liabilities in the consolidated statements of financial position (in millions):
 EmployeeSeverance andTermination
    
    
    
    
    
    
    CurrencyBenefits
    
    
    Other
    
    
    Translation
    
    
    TotalBalance at September 30, 2008
    
    $
    435
    
    
    $
    9
    
    
    $
    
    
    
    $
    444Utilized  Cash
    
    
    (47
    )
    
    
    
    
    
    
    
    
    
    
    (47
    )Utilized  Noncash
    
    
    
    
    
    
    
    
    
    
    (17
    )
    
    
    (17
    )Balance at December 31, 2008
    
    $
    388
    
    
    $
    9
    
    
    $
    (17
    )
    
    $
    380Utilized  Cash
    
    
    (86
    )
    
    
    
    
    
    
    
    
    
    
    (86
    )Utilized  Noncash
    
    
    
    
    
    
    
    
    
    
    (22
    )
    
    
    (22
    )Balance at March 31, 2009
    
    $
    302
    
    
    $
    9
    
    
    $
    (39
    )
    
    $
    272
 Included within the other category are exit costs for terminating supply contracts
associated with changes in the Companys manufacturing footprint and strategies, lease
termination costs and other direct costs.Company management closely monitors its overall cost structure and continually analyzes each
of its businesses for opportunities to consolidate current operations, improve operating
efficiencies and locate facilities in low cost countries in close proximity to customers. This
ongoing analysis includes a review of its manufacturing, engineering and purchasing
operations, as well as the overall global footprint for all its businesses. Because of the
importance of new vehicle sales by major automotive manufacturers to operations, the Company
is affected by the general business conditions in this industry. Future adverse developments
in the automotive industry could impact the Companys liquidity position, lead to impairment
charges and/or require additional restructuring of the Companys operations.9.
    
    Research and DevelopmentExpenditures for research activities relating to product development and improvement are
charged against income as incurred and included within selling, general and administrative
expenses in the consolidated statement of income. A portion of the costs associated with these
activities is reimbursed by customers. Such expenditures amounted to $85 million and $104
million for the three months ended March 31, 2009 and 2008, respectively, and $190 million and
$227 million for the six months ended March 31, 2009 and 2008. These expenditures are net of
customer reimbursements of $79 million and $99 million for the three months ended March 31,
2009 and 2008, respectively, and $166 million and $176 million for the six months ended March
31, 2009 and 2008, respectively.
 12




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##### Table of Contents



Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 10.
    
    Income TaxesThe more significant components of the Companys income tax provision from continuing
operations are as follows (in millions):
 Three Months
    
    
    Six MonthsEnded March 31,
    
    
    Ended March 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Federal, state and foreign income tax
expense at annual effective rate
    
    $
    (122
    )
    
    $
    81
    
    
    $
    (235
    )
    
    $
    145Effective tax rate adjustment
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    Valuation allowance adjustment
    
    
    (45
    )
    
    
    
    
    
    
    255
    
    
    
    Restructuring charges
    
    
    27
    
    
    
    
    
    
    
    27
    
    
    
    Impairment charges
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    Change in tax status of foreign subsidiary
    
    
    (30
    )
    
    
    
    
    
    
    (30
    )
    
    
    Interest refund
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )
    
    
    Provision for income taxes
    
    $
    (183
    )
    
    $
    81
    
    
    $
    59
    
    
    $
    145
 Effective Tax RateIn 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 annual 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. For the three and six months ended March 31,
2009, the Company increased its estimated annual effective income tax rate from continuing
operations from 24% to 31%, primarily due to recognized geographical shift in income. This
created a tax benefit of $7 million in the current quarter after applying the new effective
rate to the first quarter provision. The estimated annual effective income tax rate from
continuing operations for the three months and six months ended March 31, 2008 was 21%.Valuation AllowanceThe Company reviews its deferred tax asset valuation allowances on a quarterly basis. In
determining the potential need 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.In the second quarter of fiscal 2009, the Company performed an analysis of its worldwide
deferred tax assets. As a result, and after considering tax planning initiatives and other
positive and negative evidence, the Company determined that it was more likely than not that
the deferred tax asset associated with a capital loss would be utilized. Therefore, the
Company released $45 million of valuation allowances against the income tax provision in the
three month period ended March 31, 2009.In the first quarter of fiscal 2009, the Company performed an analysis of its worldwide
deferred tax assets. As a result of the rapid deterioration in the economic environment,
several jurisdictions incurred unexpected losses in the first quarter that resulted in
cumulative losses over the prior three years. As a result, and after considering tax planning
initiatives and other positive and negative evidence, the Company determined that it was more
likely than not that the deferred tax assets would not be utilized in several jurisdictions
including France, Mexico, Spain and the United Kingdom. Therefore, the Company recorded $300
million of valuation allowances as income tax expense. To the extent the Company improves its
underlying operating results in these jurisdictions, these valuation allowances, or a portion
thereof, could be reversed in future periods.
 13




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##### Table of Contents



Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 Restructuring ChargeIn the second quarter of fiscal 2009, the Company recorded a $27 million discrete period tax
adjustment related to the second quarter 2009 restructuring costs using a blended statutory tax
rate of 19.2%.Impairment ChargesIn the first quarter of fiscal 2009, the Company recorded a $30 million discrete period tax
adjustment related to first quarter 2009 impairment costs using a blended statutory tax rate of
12.6%. Due to the effective tax rate change in the second quarter of fiscal 2009, the discrete
period tax adjustment increased by $18 million for a total tax adjustment for the six months
ended March 31, 2009 of $48 million.Uncertain Tax PositionsIn June 2006, FASB issued FIN 48, Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109. FIN 48 prescribes a comprehensive model for how a
company should recognize, measure, present, and disclose in its financial statements uncertain
tax positions that a company has taken or expects to take on a tax return. The Company adopted
FIN 48 as of October 1, 2007.Upon adoption, the Company increased its existing reserves for uncertain tax positions by $93
million. The increase was recorded as a cumulative effect adjustment to shareholders equity
of $68 million and an increase to goodwill of $25 million related to prior year business
combinations. As of the adoption date, the Company had gross tax affected unrecognized tax
benefits of $616 million of which $475 million, if recognized, would affect the effective tax
rate. Also as of the adoption date, the Company had accrued interest expense and penalties
related to the unrecognized tax benefits of $75 million (net of tax benefit). The net change
in interest and penalties during the six months ended March 31, 2009 and 2008 was not
material. The Company recognizes interest and penalties related to unrecognized tax benefits
as a component of income tax expense or goodwill, when applicable.The Company is subject to income taxes in the United States and numerous foreign
jurisdictions. Judgment is required in determining its worldwide provision for income taxes
and recording the related assets and liabilities. In the ordinary course of the Companys
business, there are many transactions and calculations where the ultimate tax determination is
uncertain. The Company is regularly under audit by tax authorities, including the major
jurisdictions noted below:
 Tax
    
    Statute ofJurisdiction
    
    LimitationsAustria
    
    5 yearsBelgium
    
    3 yearsCanada
    
    5 yearsChina
    
    3 to 5 yearsCzech Republic
    
    3 yearsFrance
    
    3 yearsGermany
    
    4 to 5 yearsItaly
    
    4 yearsJapan
    
    5 to 7 yearsMexico
    
    5 yearsSpain
    
    4 yearsUnited Kingdom
    
    6 yearsU.S.  Federal
    
    3 yearsU.S.  State
    
    3 to 5 years
 In the United States, the 2004 through 2006 fiscal years are currently under exam by the
Internal Revenue Service (IRS) and the fiscal years 1999 to 2003 are currently under IRS
Appeals. Additionally, the Company is currently under exam in the following major foreign
jurisdictions:
 14




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##### Table of Contents



Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 Tax Jurisdiction
    
    Tax Years CoveredAustria
    
    2003  2005Belgium
    
    2006  2007Brazil
    
    2008Canada
    
    2004  2006France
    
    2005  2008Germany
    
    2001  2003Italy
    
    2004  2006Japan
    
    2006  2008Mexico
    
    2003  2004Spain
    
    2003  2005
 It is reasonably possible that certain tax examinations, appellate proceedings and/or tax
litigation will conclude within the next 12 months, which may result in favorable tax reserve
adjustments in an amount not to exceed $100 million.Change in Tax Status of non-U.S. SubsidiaryFor the three and six months ended March 31, 2009, the tax provision decreased as a result of
a $30 million tax benefit realized by a change in tax status of a French subsidiary.The change in tax status resulted from a voluntary tax election that produced a deemed
liquidation for U.S. federal income tax purposes. The Company received a tax benefit in the
U.S. for the loss from the decrease in value from the original tax basis of its investment.
This election changed the tax status from a controlled foreign corporation (i.e., taxable
entity) to a branch (i.e., flow through entity similar to a partnership) for U.S. federal
income tax purposes and is thereby reported as a discrete period tax benefit in accordance
with the provision of SFAS No. 109.Interest Refund ClaimThe Company filed a claim for refund in the period ended March 31, 2009, with the Internal
Revenue Service related to interest computations of prior tax payments and refunds. The
refund claim resulted in a tax provision decrease of $6 million.Impacts of Tax LegislationIn February 2009, Wisconsin enacted numerous changes to Wisconsin income tax law as part of
the Budget Stimulus and Repair Bill, Wisconsin Act 2. These changes will become effective in
the Companys tax year ended September 30, 2010. The major changes included an adoption of
corporate unitary combined reporting and an expansion of the related entity expense add back
provisions. These Wisconsin tax law changes will not have a material impact on the Companys
consolidated financial condition, results of operations or cash flows.Various other tax legislation was adopted in the three months ended March 31, 2009. None of
these changes will have a material impact on the Companys consolidated financial condition,
results of operations or cash flows.11.
    
    Retirement PlansThe components of the Companys net periodic benefit costs associated with its defined benefit
pension plans and other postretirement health and other benefits are shown in the tables below
in accordance with SFAS No. 132 (revised 2003), Employers Disclosures about Pensions and
Other Postretirement Benefits  an amendment of FASB Statements No. 87, 88 and 106 (in
millions):
 15




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##### Table of Contents



Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 U.S. Pension PlansThree Months
    
    
    Six MonthsEnded March 31,
    
    
    Ended March 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Service cost
    
    $
    16
    
    
    $
    20
    
    
    $
    33
    
    
    $
    40Interest cost
    
    
    39
    
    
    
    35
    
    
    
    79
    
    
    
    70Expected return on plan assets
    
    
    (44
    )
    
    
    (41
    )
    
    
    (89
    )
    
    
    (83
    )Amortization of net actuarial loss
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    3Amortization of prior service cost
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1Net periodic benefit cost
    
    $
    13
    
    
    $
    16
    
    
    $
    26
    
    
    $
    31
 Non-U.S. Pension PlansThree Months
    
    
    Six MonthsEnded March 31,
    
    
    Ended March 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Service cost
    
    $
    7
    
    
    $
    9
    
    
    $
    15
    
    
    $
    19Interest cost
    
    
    16
    
    
    
    18
    
    
    
    32
    
    
    
    36Expected return on plan assets
    
    
    (13
    )
    
    
    (16
    )
    
    
    (26
    )
    
    
    (33
    )Amortization of net actuarial loss
    
    
    1
    
    
    
    2
    
    
    
    2
    
    
    
    4Net periodic benefit cost
    
    $
    11
    
    
    $
    13
    
    
    $
    23
    
    
    $
    26
 Postretirement Health and Other BenefitsThree Months
    
    
    Six MonthsEnded March 31,
    
    
    Ended March 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Service cost
    
    $
    1
    
    
    $
    1
    
    
    $
    2
    
    
    $
    2Interest cost
    
    
    4
    
    
    
    5
    
    
    
    9
    
    
    
    9Amortization of net actuarial gain
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    (1
    )Amortization of prior service cost
    
    
    (1
    )
    
    
    (2
    )
    
    
    (3
    )
    
    
    (4
    )Net periodic benefit cost
    
    $
    4
    
    
    $
    3
    
    
    $
    7
    
    
    $
    6
 12.
    
    Debt and Financing ArrangementsOn March 16, 2009, the Company issued nine million Equity Units (Units) with an aggregate
principal amount of $450 million in a public offering. The Company received approximately $436
million in net proceeds from the sale of the Units after underwriting discounts and other
expenses. The proceeds were used to repay short-term indebtedness incurred within the second
quarter to fund working capital requirements. Each Unit has a stated amount of $50 and
consists of (a) a purchase contract which obligates the holder to purchase, and obligates the
Company to sell, no later than March 31, 2012, a variable number of shares of the Companys
common stock for $50 and (b) a one-twentieth, or 5%, undivided beneficial ownership interest
in a subordinated note issued by the Company due March 31, 2042 with a principal amount of
$1,000. The subordinated notes are pledged by the holders to secure their obligations under
the purchase contract, and at the time of the offering, the estimated fair value of the
purchase contract was zero. The Company will make quarterly interest payments at the annual
rate of 11.5% on the subordinated notes, and the first interest payment will be made on June
30, 2009. Prior to March 31, 2012, the Company may defer payment of interest on the
subordinated notes for one or more consecutive interest periods provided that each deferred
interest payment may only be deferred until the earlier of (a) the third anniversary of the
interest payment date on which the interest payment was originally scheduled to be paid or (b)
March 31, 2014. The subordinated notes will be remarketed between January 1, 2012 and March
31, 2012 whereby the interest rate on the notes will be reset and certain other terms of the
notes may be modified in order to generate sufficient remarketing proceeds to satisfy the Unit
holders obligations under the purchase contract. If the subordinated notes are not
successfully remarketed, then a put right of holders of the notes will be automatically
exercised unless such
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Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 holders (a)
notify the Company of their intent to settle their obligations under the purchase contracts in
cash, and (b) deliver $50 in cash per purchase contract, by the applicable dates specified by
the purchase contracts. Following such exercise and settlement, the Unit holders obligations
to purchase shares of common stock under the purchase contracts will be satisfied in full, and
the Company will deliver the shares of common stock to such holders.In connection with this transaction, approximately $14 million of issuance costs were
incurred. Of the total issuance costs, approximately $12 million was charged to Capital in
excess of par value with the remainder deferred and amortized over three years.The number of shares issued under the purchase contract is contingent based on, among other
things, the share price of the Companys common stock on the stock purchase date and
anti-dilution adjustments. The minimum and maximum number of shares to be issued under the
purchase contract is approximately 43.7 million and 50.3 million, respectively, subject to
anti-dilution adjustments. Before the issuance of common stock upon settlement of the purchase
contracts, the purchase contracts will be reflected in diluted earnings per share using the
if-converted method. Under this method, if dilutive, the common stock is assumed issued and
included in calculating diluted earnings per share. The number of shares of common stock used
in calculating diluted earnings per share is based on the nine million Units issued at $50 per
Unit divided by the beginning stock price for the reporting period. In addition, if dilutive,
interest expense, net of tax, related to the subordinated notes will be added back to the
numerator in calculating diluted earnings per share. The impact of the Units was not included
in the computation of diluted net loss per common share for the three and six months ended
March 31, 2009 since to do so would have been antidilutive and decrease the loss per share.
Refer to Note 13, Earnings Per Share, for the calculation of diluted net loss per common
share.On March 16, 2009, the Company closed an offering of $402.5 million aggregate principal amount
of 6.5% convertible senior notes due September 30, 2012. The notes are convertible into shares
of the Companys common stock at a conversion rate of 89.3855 shares of common stock per
$1,000 principal amount of notes, which is equal to a conversion price of approximately $11.19
per share, subject to anti-dilution adjustments. The net proceeds from the sale of the
convertible notes were approximately $392 million after underwriting discounts and other
expenses and were used to repay short-term indebtedness incurred within the second quarter to
fund working capital requirements.In February 2009, the Company entered into a $50 million, three year, floating rate bilateral
loan agreement. The Company drew the entire amount under the loan agreement during the course
of the second quarter of fiscal 2009. Also during the second quarter of fiscal 2009, the
Company retired approximately $54 million in principal amount of its $800 million fixed rate
bonds that mature in January 2011. The Company used proceeds from the $50 million floating
rate loan agreement to retire the bonds.On January 17, 2009, the Company retired its 24 billion yen, three year, floating rate loan
agreement that matured. The Company used proceeds from commercial paper issuances to repay
amounts due under the loan agreement.13.
    
    Earnings Per ShareThe following table reconciles the numerators and denominators used to calculate basic and
diluted earnings per share (in millions):
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Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 Three Months
    
    
    Six MonthsEnded March 31,
    
    
    Ended March 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Income Available to Common ShareholdersBasic and diluted income (loss) available to common
shareholders
    
    $
    (193
    )
    
    $
    289
    
    
    $
    (801
    )
    
    $
    524Weighted Average Shares OutstandingBasic weighted average shares outstanding
    
    
    593.6
    
    
    
    592.8
    
    
    
    593.5
    
    
    
    593.0Effect of dilutive securities:Stock options
    
    
    
    
    
    
    7.9
    
    
    
    
    
    
    
    9.1Diluted weighted average shares outstanding
    
    
    593.6
    
    
    
    600.7
    
    
    
    593.5
    
    
    
    602.1Antidilutive SecuritiesOptions to purchase common shares
    
    
    
    
    
    
    1.0
    
    
    
    
    
    
    
    0.8
 For the three and six months ended March 31, 2009, the total number of potential dilutive shares due to stock options, Equity Units and the convertible senior notes was 86.9 million and
87.4 million, respectively. However, these items were not included in the computation of
diluted net loss per common share for the three and six months ended March 31, 2009, since to
do so would decrease the loss per share.On January 21, 2009, the Company declared a quarterly dividend of $0.13 per common share
payable April 2, 2009, to shareholders of record on March 13, 2009. On January 23, 2008, the
Company declared a quarterly dividend of $0.13 per common share payable April 2, 2008, to
shareholders of record on March 14, 2008.14.
    
    Comprehensive IncomeA summary of comprehensive income is shown below (in millions):
 Three Months
    
    
    Six MonthsEnded March 31,
    
    
    Ended March 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    (193
    )
    
    $
    289
    
    
    $
    (801
    )
    
    $
    524Realized and unrealized gains (losses)
on derivatives
    
    
    40
    
    
    
    (1
    )
    
    
    2
    
    
    
    (52
    )Foreign currency translation adjustments
    
    
    (178
    )
    
    
    324
    
    
    
    (576
    )
    
    
    448Other comprehensive income (loss)
    
    
    (138
    )
    
    
    323
    
    
    
    (574
    )
    
    
    396Comprehensive income (loss)
    
    $
    (331
    )
    
    $
    612
    
    
    $
    (1,375
    )
    
    $
    920
 The Company selectively hedges anticipated transactions that are subject to foreign exchange
exposure or commodity price exposure, primarily using foreign currency exchange contracts and
commodity contracts, respectively. These instruments are designated as cash flow hedges in
accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended by SFAS No. 137, No. 138 and No. 149 and are recorded in the condensed consolidated
statement of financial position at fair value. The effective portion of the contracts gains or
losses due to changes in fair value are initially recorded as unrealized gains/losses on
derivatives, a component of accumulated other comprehensive income, and are subsequently
reclassified into earnings when the hedged transactions, typically sales or costs related to
sales, occur and affect earnings.The unfavorable foreign currency translation adjustments (CTA) for the three and six months
ended March 31, 2009 were primarily due to the weakening of the euro and other foreign
currencies against the U.S. dollar.The Company has foreign currency-denominated debt obligations which are designated as hedges
of net investments in foreign subsidiaries. Gains and losses, net of tax, attributable to
these hedges are deferred as
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Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 CTA within the accumulated other comprehensive income account
until the sale or liquidation of the related foreign subsidiary.Refer to Note 15, Derivative Instruments and Hedging Activities, and Note 16, Fair Value
Measurements, for further discussion of the Companys derivative instruments and related
hedged items.15.
    
    Derivative Instruments and Hedging ActivitiesIn March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133. SFAS No. 161 enhances required
disclosures
regarding derivatives and hedging activities, including how an entity uses derivative
instruments, how derivative instruments and related hedged items are accounted for under SFAS
No. 133 and how derivative instruments and related hedged items affect an entitys financial
position, financial performance and cash flows. SFAS No. 161 is effective for the Company
beginning in the second quarter of fiscal 2009.The Company selectively uses derivative instruments to reduce market risk associated with
changes in foreign currency, commodities and compensation expense. Under Company policy, the
use of derivatives is restricted to those intended for hedging purposes; the use of any
derivative instrument for speculative purposes is strictly prohibited. A description of each
type of derivative utilized by the Company to manage risk is included in the following
paragraphs. In addition, refer to Note 16, Fair Value Measurements, for information related
to the fair value measurements and valuation methods utilized by the Company for each
derivative type.The Company has global operations and participates in the foreign exchange markets to minimize
its risk of loss from fluctuations in foreign currency exchange rates. The Company primarily
uses foreign currency exchange contracts to hedge certain of its foreign exchange rate
exposures. The Company hedges 70% to 90% of the nominal amount of each of its known foreign
exchange transactional exposures.The Company has entered into foreign currency denominated debt obligations to selectively hedge
portions of its net investment in Japan. The currency effects of the debt obligations are
reflected in the accumulated other comprehensive income (AOCI) account within shareholders
equity where they offset gains and losses recorded on the Companys net investment in Japan. As
of March 31, 2009, the Company had 37 billion yen of foreign denominated debt outstanding
designated as net investment hedges in the Companys net investment in Japan.The Company uses commodity 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 cash
flow hedges, the effective portion of the hedge gains or losses due to changes in fair value
are initially recorded as a component of AOCI and are subsequently reclassified into earnings
when the hedged transactions, typically sales or costs related to sales, occur and affect
earnings. Any ineffective portion of the hedge is reflected in the consolidated statement of
income. The maturities of the commodity contracts coincide with the expected purchase of the
commodities. As of March 31, 2009, the Company had the following outstanding commodity hedge
contracts that hedge forecasted purchases (in thousands):
 Volume OutstandingCommodity
    
    Units
    
    As of March 31, 2009Lead
    
    Metric tons
    
    
    7Copper
    
    Pounds
    
    
    17,850Polypropylene
    
    Pounds
    
    
    12,600
 In addition, the Company selectively uses equity swaps to reduce market risk associated with
certain of its stock-based compensation plans, such as its deferred compensation plans. These
equity compensation liabilities increase as the Companys stock price increases and decrease
as the Companys stock price decreases. In contrast, the value of the swap agreement moves in
the opposite direction of these liabilities,
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Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 allowing the Company to fix a portion of the
liabilities at a stated amount. As of March 31, 2009, the Company had hedged approximately 1.5
million shares of its common stock.The following table presents the location and fair values of derivative instruments and
hedging activities included in the Companys condensed
consolidated statement of financial position at March 31, 2009
(in millions):
 March 31, 2009Derivatives and
    
    
    Derivatives andHedging Activities
    
    
    Hedging Activities NotDesignated as Hedging
    
    
    Designated as HedgingInstruments under
    
    
    Instruments underSFAS No. 133
    
    
    SFAS No. 133Other current assetsForeign currency exchange derivatives
    
    $
    44
    
    
    $
    27Equity swap
    
    
    
    
    
    
    18Other noncurrent assetsForeign currency exchange derivatives
    
    
    2
    
    
    
    2Total assets
    
    $
    46
    
    
    $
    47Current portion of long-term debtNet investment hedge
    
    $
    123
    
    
    $
    Other current liabilitiesForeign currency exchange derivatives
    
    
    62
    
    
    
    18Commodity derivatives
    
    
    37
    
    
    
    Long-term debtNet investment hedges
    
    
    256
    
    
    
    Other noncurrent liabilitiesForeign currency exchange derivatives
    
    
    3
    
    
    
    2Total liabilities
    
    $
    481
    
    
    $
    20
 The following table presents the location and amount of gains and losses on derivative
instruments and related hedge items included in the Companys
consolidated statement of income for the three
months ended March 31, 2009 and gains and losses initially recognized in other comprehensive
income (OCI) net of tax or cumulative translation adjustment
(CTA) net of tax in the condensed consolidated statement
of financial position at March 31, 2009 (in millions):
 As of March 31, 2009
    
    
    For the three months ended March 31, 2009
    
    
    For the three months ended March 31, 2009Location of GainAmount of Gain
    
    
    Location of Gain (Loss)
    
    Amount of Gain (Loss)
    
    
    (Loss) Recognized in
    
    Amount of Gain(Loss) Recognized in
    
    
    Reclassified from AOCI
    
    Reclassified from
    
    
    Income on
    
    (Loss) Recognized inDerivatives in SFAS No. 133 Cash
    
    OCI on Derivative
    
    
    into Income (Effective
    
    AOCI into Income
    
    
    Derivative
    
    Income on DerivativeFlow Hedging Relationships
    
    (Effective Portion)
    
    
    Portion)
    
    (Effective Portion)
    
    
    (Ineffective Portion)
    
    (Ineffective Portion)Foreign currency
exchange derivatives
    
    $
    (10
    )
    
    Sales
    
    $
    (7
    )
    
    
    
    $
    Commodity derivatives
    
    
    (31
    )
    
    Cost of sales
    
    
    (46
    )
    
    Cost of sales
    
    
    (4
    )Total
    
    $
    (41
    )
    
    
    
    $
    (53
    )
    
    
    
    $
    (4
    )
 As of March 31, 2009
    
    
    For the three months ended March 31, 2009
    
    
    For the three months ended March 31, 2009Location of GainAmount of Gain
    
    
    Location of Gain (Loss)
    
    
    Amount of Gain (Loss)
    
    
    (Loss) Recognized in
    
    
    Amount of Gain(Loss) Recognized in
    
    
    Reclassified from AOCI
    
    
    Reclassified from
    
    
    Income on
    
    
    (Loss) Recognized inHedging Activities in SFAS No. 133
    
    CTA on Derivative
    
    
    into Income (Effective
    
    
    AOCI into Income
    
    
    Derivative
    
    
    Income on DerivativeNet Investment Hedging Relationships
    
    (Effective Portion)
    
    
    Portion)
    
    
    (Effective Portion)
    
    
    (Ineffective Portion)
    
    
    (Ineffective Portion)Net investment hedges
    
    $
    (8
    )
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Total
    
    $
    (8
    )
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
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Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 For the three months ended March 31, 2009Amount of Gain (Loss)Derivatives Not Designated as Hedging
    
    Location of Gain (Loss) Recognized in Income
    
    Recognized in Income onInstruments under SFAS No. 133
    
    on Derivative
    
    DerivativeForeign currency exchange derivatives
    
    Cost of sales
    
    $
    (76
    )Foreign currency exchange derivatives
    
    Net financing
    
    
    79Equity swap
    
    Selling, general and administrative expenses
    
    
    4Commodity derivatives
    
    Cost of sales
    
    
    (3
    )Total
    
    
    
    $
    4
 Refer to Note 14, Comprehensive Income, for further discussion of realized and unrealized
gains and losses on derivatives recorded in other comprehensive income. In addition, the
Company does not hold any derivative instruments which contain credit-risk-related contingent
features.16.
    
    Fair Value MeasurementsIn September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157
defines fair value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements. In February 2008, the FASB issued FSP FAS 157-2, Effective
Date of FASB Statement No. 157, which delays the effective date of SFAS No. 157 for
nonfinancial assets and nonfinancial liabilities that are recognized or disclosed in the
financial statements on a nonrecurring basis to fiscal years beginning after November 15,
2008. The Company has not applied the provisions of SFAS No. 157 to its nonfinancial assets
and nonfinancial liabilities in accordance with FSP FAS 157-2 as of March 31, 2009.SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the
measurement date. SFAS No. 157 also establishes a three-level fair value hierarchy that
prioritizes information used in developing assumptions when pricing an asset or liability as
follows:
 Level 1:
 Level 2:
 Level 3:
 SFAS No. 157 requires the use of observable market data, when available, in making fair value
measurements. When inputs used to measure fair value fall within different levels of the
hierarchy, the level within which the fair value measurement is categorized is based on the
lowest level input that is significant to the fair value measurement.Recurring Fair Value MeasurementsThe following table presents the Companys fair value hierarchy for those assets and
liabilities measured at fair value on a quarterly basis as of March 31, 2009 (in millions):
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Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 Fair Value Measurements Using:Quoted Prices in
    
    
    Significant Other
    
    
    SignificantTotal as of
    
    
    Active Markets
    
    
    Observable Inputs
    
    
    Unobservable InputsMarch 31, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsCross-currency interest rate swap
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Equity swap
    
    
    18
    
    
    
    18
    
    
    
    
    
    
    
    Foreign currency exchange derivatives
    
    
    75
    
    
    
    75
    
    
    
    
    
    
    
    Total
    
    $
    93
    
    
    $
    93
    
    
    $
    
    
    
    $
    LiabilitiesForeign currency exchange derivatives
    
    $
    85
    
    
    $
    85
    
    
    $
    
    
    
    $
    Commodity derivatives
    
    
    37
    
    
    
    
    
    
    
    37
    
    
    
    Interest rate swaps and related debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign currency denominated debt
    
    
    379
    
    
    
    379
    
    
    
    
    
    
    
    Total
    
    $
    501
    
    
    $
    464
    
    
    $
    37
    
    
    $
    
 Valuation MethodsCross-currency interest rate swap  The Company selectively uses cross-currency interest rate
swaps to hedge the foreign currency rate risk associated with certain of its foreign currency
denominated debt obligations. The cross-currency interest rate swap is valued using market
assumptions. The currency effects of the swap and related debt obligation are reflected in the
consolidated statement of income and the change in value of the swap and debt obligation
offset. The Company settled its cross-currency interest rate swap in the second quarter of
fiscal 2009.Equity swap  The Company selectively uses equity swaps to reduce market risk associated with
certain of its stock-based compensation plans, such as its deferred compensation plans. The
equity swaps are valued under a market approach as the fair value of the swaps is equal to the
Companys stock price at the reporting period date. Changes in fair value on the equity swaps
are reflected in the consolidated statement of income. The Company settled the equity swap at
the beginning of the second quarter of fiscal 2009. The Company reinstituted the equity swap at
the end of the second quarter with a reduced number of shares.Foreign currency exchange derivatives  The Company selectively hedges anticipated
transactions that are subject to foreign exchange rate risk primarily using foreign currency
exchange hedge contracts. The foreign currency exchange derivatives are valued under a market
approach using publicized spot and forward prices. As cash flow hedges, the effective portion
of the hedge gains or losses due to changes in fair value are initially recorded as a component
of accumulated other comprehensive income and are subsequently reclassified into earnings when
the hedged transactions occur and affect earnings. Any ineffective portion of the hedge is
reflected in the consolidated statement of income. These contracts are highly effective in
hedging the variability in future cash flows attributable to changes in currency exchange rates
at March 31, 2009.Commodity derivatives  The Company selectively hedges anticipated transactions that are
subject to commodity price risk, primarily using commodity hedge contracts, to minimize overall
price risk associated with the Companys purchases of lead, copper and polypropylene. The
commodity derivatives are valued under a market approach using publicized prices, where
available, or dealer quotes. As cash flow hedges, the effective portion of the hedge gains or
losses due to changes in fair value are initially recorded as a component of accumulated other
comprehensive income and are subsequently reclassified into earnings when the hedged
transactions, typically sales or cost related to sales, occur and affect earnings. Any
ineffective portion of the hedge is reflected in the consolidated statement of income. These
contracts are highly effective in hedging the variability in future cash flows attributable to
changes in commodity price changes at March 31, 2009.Interest rate swaps and related debt  The Company selectively uses interest rate swaps to
reduce market risk associated with changes in interest rates for its fixed-rate bonds. As fair
value hedges, the interest rate swaps and related debt balances are valued under a market
approach using publicized swap curves. Changes in the fair value of the swap and hedged
portion of the debt are recorded in the consolidated statement of income. The Company settled
all of its interest rate swaps in the second quarter of fiscal 2009.
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Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 Foreign currency denominated debt  The Company has entered into certain foreign currency
denominated debt obligations to selectively hedge portions of its net investment in Japan. As
net investment hedges, the currency effects of the debt obligations are reflected in the
foreign currency translation adjustments component of accumulated other comprehensive income
where they offset gains and losses recorded on the Companys net investment in Japan. The
Companys foreign denominated debt obligations are valued under a market approach using
publicized spot prices. On January 15, 2008, the Company had entered into a 18 billion yen,
three year, floating rate loan agreement. The Company did not elect to designate the debt as
part of the hedge of the net investment in Japan and hedged the exposure of the change in
value of the yen with a 18 billion yen cross- currency swap. The currency effect of the 18
billion yen loan was reflected in the consolidated statement of
income. On January 17, 2009, the Company retired its 24 billion yen, three year, floating rate
loan agreement that matured, leaving unhedged a significant portion of the net investment in
Japan. On that date, the Company unwound the cross-currency swap that hedged the 18 billion
yen loan and elected to designate the latter as part of its net investment hedge in Japan.17.
    
    Impairment of Long-Lived AssetsThe Company reviews long-lived assets 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 SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 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.In the second quarter of fiscal 2009, the Company concluded it had a triggering event requiring
assessment of impairment of its long-lived assets in conjunction with its restructuring plan
announced in March 2009. As a result, the Company reviewed its long-lived assets associated
with the plant closures for impairment and recorded a $46 million impairment charge in the
second quarter of fiscal 2009, of which $25 million related to the North America automotive
experience segment, $16 million related to the Asia automotive experience segment and $5
million related to the Europe automotive experience segment. Refer to Note 8, Restructuring
Costs, for further information regarding the 2009 restructuring plan. Additionally, at March
31, 2009, in conjunction with the preparation of its financial statements, the Company
concluded it had a triggering event requiring assessment of its other long-lived assets within
the European automotive experience segment due to significant declines in European automotive
sales volumes. As a result, the Company reviewed its other long-lived assets within the Europe
automotive experience segment for impairment and determined no additional impairment existed.At December 31, 2008, in conjunction with the preparation of its financial statements, the
Company concluded it had a triggering event requiring assessment of impairment of its
long-lived assets due to the significant declines in North American and European automotive
sales volumes. As a result, the Company reviewed its long-lived assets for impairment and
recorded a $110 million impairment charge in the first quarter of fiscal 2009, of which $77
million related to the North America automotive experience segment and $33 million related to
the Europe automotive experience segment.The Company reviews its equity investments for impairment whenever there is a loss in value of
an investment which is other than a temporary decline. The Company conducts its equity
investment impairment analyses in accordance with APB Opinion No. 18, The Equity Method of
Accounting for Investments in Common Stock. APB Opinion No. 18 requires the Company to record
an impairment charge for a decrease in value of an investment when the decline in the
investment is considered to be other than temporary.At December 31, 2008, in conjunction with the preparation of its financial statements, the
Company concluded it had a triggering event requiring assessment of impairment of its equity
investment in a 48%-owned joint venture with U.S. Airconditioning Distributors, Inc. (U.S. Air)
due to the significant decline in North American residential housing construction starts, which
has significantly impacted the financial results of the equity investment. The Company reviewed
its equity investment in U.S. Air for impairment and as a result,
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Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 recorded a $152 million
impairment charge within its North America unitary products segment in the first quarter of
fiscal 2009.The Company concluded there were no other impairments as of March 31, 2009. The Company will
continue to monitor developments in the automotive and North American residential heating,
ventilating and air conditioning (HVAC) industries as future adverse developments in these
industries could lead to additional impairment charges.18.
    
    Segment InformationSFAS No. 131, Disclosures about Segments of an Enterprise and Related Information,
establishes the standards for reporting information about segments in financial statements. In
applying the criteria set forth in SFAS No. 131, the Company has determined that it has ten
reportable segments for financial reporting purposes. Certain segments are aggregated or
combined based on materiality within building efficiency  rest of world and power solutions in
accordance with the standard. The Companys ten reportable segments are presented in the
context of its three primary businesses  building efficiency, automotive experience and power
solutions.Building efficiencyBuilding efficiency designs, produces, markets and installs HVAC and control systems that
monitor, automate and integrate critical building segment equipment and conditions including
HVAC, fire-safety and security in commercial buildings and in various industrial applications.
 
    
    North America systems designs, produces, markets and installs mechanical equipment
that provides heating and cooling in North American non-residential buildings and
industrial applications as well as control systems that integrate the operation of
this equipment with other critical building systems.
    
    North America service provides technical services including inspection, scheduled
maintenance, repair and replacement of mechanical and control systems in North
America, as well as the retrofit and service components of performance contracts and
other solutions.
    
    North America unitary products designs and produces heating and air conditioning
solutions for residential and light commercial applications and markets products to
the replacement and new construction markets.
    
    Global workplace solutions provides on-site staff for complete real estate
services, facility operation and management to improve the comfort, productivity,
energy efficiency and cost effectiveness of building systems around the globe.
    
    Europe provides HVAC and refrigeration systems and technical services to the
European marketplace.
    
    Rest of world provides HVAC and refrigeration systems and technical services to
markets in Asia, the Middle East and Latin America.
 Automotive experience
 Automotive experience designs and manufactures interior systems and products for passenger
cars and light trucks, including vans, pick-up trucks and sport utility/crossover vehicles in
North America, Europe and Asia. Automotive experience systems and products include complete
seating systems and components; cockpit systems, including instrument panels and clusters,
information displays and body controllers; overhead systems, including headliners and
electronic convenience features; floor consoles; and door systems.
 24




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Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 Power solutionsPower solutions services both automotive original equipment manufacturers and the battery
aftermarket by providing advanced battery technology, coupled with systems engineering,
marketing and service expertise.Management evaluates the performance of the segments based primarily on segment income, which
represents income from continuing operations before income taxes and minority interests
excluding net financing charges and restructuring costs. General Corporate and other overhead
expenses are allocated to business segments in
determining segment income. Financial information relating to the Companys reportable segments
is as follows (in millions):
 Net SalesThree Months
    
    
    Six MonthsEnded March 31,
    
    
    Ended March 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Building efficiencyNorth America systems
    
    $
    571
    
    
    $
    563
    
    
    $
    1,108
    
    
    $
    1,075North America service
    
    
    526
    
    
    
    582
    
    
    
    1,058
    
    
    
    1,123North America unitary products
    
    
    117
    
    
    
    153
    
    
    
    250
    
    
    
    315Global workplace solutions
    
    
    659
    
    
    
    781
    
    
    
    1,387
    
    
    
    1,562Europe
    
    
    498
    
    
    
    616
    
    
    
    1,070
    
    
    
    1,281Rest of world
    
    
    594
    
    
    
    604
    
    
    
    1,179
    
    
    
    1,1872,965
    
    
    
    3,299
    
    
    
    6,052
    
    
    
    6,543Automotive experienceNorth America
    
    
    888
    
    
    
    1,699
    
    
    
    2,291
    
    
    
    3,518Europe
    
    
    1,333
    
    
    
    2,551
    
    
    
    2,772
    
    
    
    4,952Asia
    
    
    224
    
    
    
    400
    
    
    
    513
    
    
    
    7692,445
    
    
    
    4,650
    
    
    
    5,576
    
    
    
    9,239Power solutions
    
    
    905
    
    
    
    1,457
    
    
    
    2,023
    
    
    
    3,108Total net sales
    
    $
    6,315
    
    
    $
    9,406
    
    
    $
    13,651
    
    
    $
    18,890
 25




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Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 Segment IncomeThree Months
    
    
    Six MonthsEnded March 31,
    
    
    Ended March 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Building efficiencyNorth America systems
    
    $
    55
    
    
    $
    63
    
    
    $
    110
    
    
    $
    112North America service
    
    
    37
    
    
    
    42
    
    
    
    71
    
    
    
    68North America unitary products
    
    
    (49
    )
    
    
    (14
    )
    
    
    (225
    )
    
    
    (23
    )Global workplace solutions
    
    
    8
    
    
    
    11
    
    
    
    14
    
    
    
    29Europe
    
    
    12
    
    
    
    14
    
    
    
    24
    
    
    
    40Rest of world
    
    
    27
    
    
    
    61
    
    
    
    75
    
    
    
    11490
    
    
    
    177
    
    
    
    69
    
    
    
    340Automotive experienceNorth America
    
    
    (166
    )
    
    
    25
    
    
    
    (336
    )
    
    
    35Europe
    
    
    (94
    )
    
    
    120
    
    
    
    (241
    )
    
    
    195Asia
    
    
    (15
    )
    
    
    10
    
    
    
    (27
    )
    
    
    3(275
    )
    
    
    155
    
    
    
    (604
    )
    
    
    233Power solutions
    
    
    66
    
    
    
    121
    
    
    
    106
    
    
    
    254Total segment income (loss)
    
    $
    (119
    )
    
    $
    453
    
    
    $
    (429
    )
    
    $
    827Net financing charges
    
    
    (46
    )
    
    
    (66
    )
    
    
    (102
    )
    
    
    (135
    )Restructuring costs
    
    
    (230
    )
    
    
    
    
    
    
    (230
    )
    
    
    Income (loss) before
income taxes and minority interests
    
    $
    (395
    )
    
    $
    387
    
    
    $
    (761
    )
    
    $
    692
 19.
    
    Commitments and ContingenciesThe Company accrues for potential environmental losses in a manner consistent with accounting
principles generally accepted in the United States; that is, when it is probable a loss has
been incurred and the amount of the loss is reasonably estimable. The Company reviews the
status of its environmental sites on a quarterly basis and adjusts its reserves accordingly.
Such potential liabilities accrued by the Company do not take into consideration possible
recoveries of future insurance proceeds. They do, however, take into account the likely share
other parties will bear at remediation sites. It is difficult to estimate the Companys
ultimate level of liability at many remediation sites due to the large number of other parties
that may be involved, the complexity of determining the relative liability among those parties,
the uncertainty as to the nature and scope of the investigations and remediation to be
conducted, the uncertainty in the application of law and risk assessment, the various choices
and costs associated with diverse technologies that may be used in corrective actions at the
sites, and the often quite lengthy periods over which eventual remediation may occur.
Nevertheless, the Company has no reason to believe at the present time that any claims,
penalties or costs in connection with known environmental matters will have a material adverse
effect on the Companys financial position, results of operations or cash flows.The Company is involved in a number of product liability and various other suits incident to
the operation of its businesses. Insurance coverages are maintained and estimated costs are
recorded for claims and suits of this nature. It is managements opinion that none of these
will have a material adverse effect on the Companys financial position, results of operations
or cash flows. Costs related to such matters were not material to the periods presented.A significant portion of the Companys sales are to customers in the automotive industry.
Continued adverse developments in the North American or European automotive industries could
impact the Companys liquidity position and/or require additional restructuring of the
Companys operations or impairment charges. In addition, a prolonged downturn in the automotive
market may likely impact certain vendors financial solvency, including the ability to meet
restrictive debt covenants, resulting in potential liabilities or additional costs to the
Company to ensure uninterrupted supply to its customers.
 26




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##### Table of Contents



Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 20.
    
    Subsequent EventOn April 30, 2009, Chrysler LLC (Chrysler) filed for bankruptcy protection after they were unable to reach an
agreement with lenders to restructure their debt. Under the initial bankruptcy plan, Chrysler announced that
they will temporarily idle all of their U.S. production facilities as of May 4, 2009, and that they intend to
resume normal production schedules, under their new organizational structure upon emergence from
bankruptcy, which they expect will be within 30 to 60 days. Chrysler has announced that eight plants are
scheduled to close permanently, three of which have already closed as of the bankruptcy filing date. Because
Chrysler contemplates that the bankruptcy filing will only result in a temporary shut down for the majority of
its facilities, limited plant closings have been announced and no automotive platforms that are significant to
the Company have been discontinued at this time, the Company believes no significant inventory obsolescence
or fixed asset impairments exist at March 31, 2009. As a participant in the U.S. Treasury Departments Auto
Supplier Support Program (the Program), the Company is guaranteed payment on its eligible sales defined
under this program, less a nominal fee on those sales, for participation in the Program. Additionally, a federal
bankruptcy judge gave Chrysler interim approval to utilize approximately $1.7 billion to begin settling
obligations to its suppliers. Therefore, the Company believes its
outstanding accounts receivable balance with Chrysler at March 31, 2009, is fully collectible.
 27




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
      
 28




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Cautionary Statements for Forward-Looking Information
   Overview
      29




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Outlook
      30




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Liquidity and Capital Resources
    Segment Analysis
  31




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##### Table of Contents



Summary
 Three Months Ended
    
    
    
    
    
    Six Months EndedMarch 31,
    
    
    
    
    
    March 31,(in millions)
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeNet sales
    
    $
    6,315
    
    
    $
    9,406
    
    
    
    -33
    %
    
    $
    13,651
    
    
    $
    18,890
    
    
    
    -28
    %Segment income
    
    
    (119
    )
    
    
    453
    
    
    
    *
    
    
    
    (429
    )
    
    
    827
    
    
    
    *
 
 *
    
    Measure not meaningful Three Months:
 
    
    The $3.1 billion decrease in consolidated net sales was primarily due to lower sales in
the automotive experience business ($1.8 billion) as a result of significantly reduced
industry production levels by all our major original equipment manufacturers (OEMs)
primarily in North America and Europe, the unfavorable impact of foreign currency
translation ($712 million), the impact of lower lead costs on pricing and lower sales
volumes in the power solutions business ($458 million) and lower net sales in the building
efficiency business ($82 million) primarily due to a depressed U.S. residential market and
lower technical services demand.
    
    The $572 million decrease in segment income was primarily due to lower volumes primarily
in the automotive experience and power solutions businesses, inventory and related charges
in the building efficiency business, and the unfavorable effects of foreign currency
translation ($42 million).
 Year-to-Date:
 
    
    The $5.2 billion decrease in consolidated net sales was primarily due to lower sales in
the automotive experience business ($3.0 billion) as a result of significantly reduced
industry production levels by all our major OEMs primarily in North America and Europe,
the unfavorable impact of foreign currency translation ($1.2 billion), and in the power
solutions business, primarily the impact of lower lead costs on pricing and lower sales
volumes ($947 million).
    
    The $1.3 billion decrease in segment income was primarily due to lower volumes mainly in
the automotive experience business as a result of significantly reduced industry production
volumes, lead costs not recovered by pricing, first quarter impairment charges recorded on
an equity investment ($152 million) in the building efficiency North American unitary
products segment and certain fixed asset impairment charges recorded in the automotive
experience North America and Europe segments ($77 million and $33 million, respectively)
and the unfavorable impact of foreign currency translation ($75 million).
 Building Efficiency  Net Sales
 Net Sales
    
    
    
    
    
    
    Net SalesThree Months
    
    
    
    
    
    
    Six MonthsEnded March 31,
    
    
    
    
    
    
    Ended March 31,(in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeNorth America systems
    
    $
    571
    
    
    $
    563
    
    
    
    1
    %
    
    $
    1,108
    
    
    $
    1,075
    
    
    
    3
    %North America service
    
    
    526
    
    
    
    582
    
    
    
    -10
    %
    
    
    1,058
    
    
    
    1,123
    
    
    
    -6
    %North America
unitary products
    
    
    117
    
    
    
    153
    
    
    
    -24
    %
    
    
    250
    
    
    
    315
    
    
    
    -21
    %Global workplace solutions
    
    
    659
    
    
    
    781
    
    
    
    -16
    %
    
    
    1,387
    
    
    
    1,562
    
    
    
    -11
    %Europe
    
    
    498
    
    
    
    616
    
    
    
    -19
    %
    
    
    1,070
    
    
    
    1,281
    
    
    
    -16
    %Rest of world
    
    
    594
    
    
    
    604
    
    
    
    -2
    %
    
    
    1,179
    
    
    
    1,187
    
    
    
    -1
    %$
    2,965
    
    
    $
    3,299
    
    
    
    -10
    %
    
    $
    6,052
    
    
    $
    6,543
    
    
    
    -8
    %
 Three Months:
 
    
    The increase in North America systems was primarily due to higher control systems and
product commercial volumes in the construction and replacement markets ($11 million) and
the impact of prior
 32




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##### Table of Contents



year acquisitions ($5 million), partially offset by the unfavorable impact from foreign
currency translation ($8 million).
 
    
    The decrease in North America service was primarily due to lower truck-based business
($67 million) and the unfavorable impact of foreign currency translation ($9 million),
partially offset by higher volumes in energy solutions ($20 million).
    
    The decrease in North America unitary products was primarily due to a depressed U.S.
residential market, which impacts the demand for HVAC equipment in new construction housing
starts.
    
    The decrease in global workplace solutions was primarily due to the unfavorable impact
of foreign currency translation ($110 million), and lower volume of pass through contracts
in Europe and Asia ($27 million), partially offset by higher volumes in North America ($15
million).
    
    The decrease in Europe reflects the unfavorable impact of foreign currency translation
($111 million) and lower control systems and product demand in emerging markets.
    
    The decrease in rest of world was due to volume decreases in Latin America ($21 million)
and the unfavorable impact of foreign currency translation ($14 million), partially offset
by higher volumes in the Middle East ($25 million).
 Year-to-Date:
 
    
    The increase in North America systems was primarily due to higher control systems and
product commercial volumes in the construction and replacement markets ($38 million) and
the impact of prior year acquisitions ($10 million), partially offset by the unfavorable
impact of foreign currency translation ($15 million).
    
    The decrease in North America service was primarily due to lower truck-based business
($82 million) and the unfavorable impact of foreign currency translation ($17 million),
partially offset by increased volume of energy solutions ($34 million).
    
    The decrease in North America unitary products was primarily due to a depressed U.S.
residential market, which impacts the demand for HVAC equipment in new construction housing
starts.
    
    The decrease in global workplace solutions primarily reflects the unfavorable impact of
foreign currency translation ($199 million) and lower volume of pass through contracts in
Europe and Asia, partially offset by higher volumes in North America.
    
    The decrease in Europe reflects the unfavorable impact of foreign currency translation
($198 million) and a reduction in control systems and products in emerging markets and
specialty volumes ($13 million).
    
    The decrease in rest of world is due to volume decreases in Latin America ($24 million)
and the unfavorable impact of foreign currency translation ($14 million), partially offset
by higher volumes in the Middle East and other regions ($30 million).
 Building Efficiency  Segment Income
 Segment Income
    
    
    
    
    
    
    Segment IncomeThree Months
    
    
    
    
    
    
    Six MonthsEnded March 31,
    
    
    
    
    
    
    Ended March 31,(in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeNorth America systems
    
    $
    55
    
    
    $
    63
    
    
    
    -13
    %
    
    $
    110
    
    
    $
    112
    
    
    
    -2
    %North America service
    
    
    37
    
    
    
    42
    
    
    
    -12
    %
    
    
    71
    
    
    
    68
    
    
    
    4
    %North America unitary
products
    
    
    (49
    )
    
    
    (14
    )
    
    
    *
    
    
    
    (225
    )
    
    
    (23
    )
    
    
    *Global workplace solutions
    
    
    8
    
    
    
    11
    
    
    
    -27
    %
    
    
    14
    
    
    
    29
    
    
    
    -52
    %Europe
    
    
    12
    
    
    
    14
    
    
    
    -14
    %
    
    
    24
    
    
    
    40
    
    
    
    -40
    %Rest of world
    
    
    27
    
    
    
    61
    
    
    
    -56
    %
    
    
    75
    
    
    
    114
    
    
    
    -34
    %$
    90
    
    
    $
    177
    
    
    
    -49
    %
    
    $
    69
    
    
    $
    340
    
    
    
    -80
    %
 
 *
    
    Measure not meaningful 33




---



##### Table of Contents



Three Months:
 
    
    The decrease in North America systems was primarily due to a mix of a higher volume of
lower margin commercial products ($12 million), partially offset by lower SG&A expenses ($2
million) and improved volumes ($2 million).
    
    The decrease in North America service was primarily due to lower volumes in truck-based
services ($14 million) offset by lower SG&A expenses ($9 million).
    
    The decrease in North America unitary products was primarily due to the decline in sales
volumes and inventory and related charges ($20 million).
    
    The decrease in global workplace solutions is primarily due to the unfavorable impact of
foreign currency translation ($3 million).
    
    The decrease in Europe was primarily due to lower margin rates on lower sales volumes
($14 million) and the unfavorable impact of foreign currency translation ($3 million),
partially offset by lower SG&A costs ($15 million) due in part to the benefits of
restructuring activities.
    
    The decrease in rest of world was primarily due to lower overall sales volumes, the
impact of foreign currency on imported products sold in Latin America and higher SG&A
expenses for investments in other regions.
 Year-to-Date:
 
    
    The decrease in North America systems was primarily due to a mix of a higher volume of
lower margin commercial products, partially offset by lower SG&A expenses and higher
volumes.
    
    The increase in North America service was primarily due to lower SG&A expenses,
partially offset by lower volumes.
    
    The decrease in North America unitary products was primarily due to an equity investment
impairment charge ($152 million), the decline in sales volumes and inventory and related
charges ($20 million).
    
    The decrease in global workplace solutions was primarily due to higher bad debt expense
due to a customer bankruptcy ($4 million), unfavorable mix in North America ($5 million),
and the unfavorable impact of foreign currency translation ($6 million).
    
    The decrease in Europe was primarily due to lower volumes ($21 million), the unfavorable
impact of foreign currency translation ($10 million), partially offset by lower SG&A
expenses ($15 million) due in part to the benefits of restructuring activities.
    
    The decrease in rest of world was primarily due to lower volumes, a gain on the sale of
a business in the prior year ($6 million), the impact of foreign currency on imported
products sold in Latin America and higher SG&A expense for investments in other regions.
 Automotive Experience  Net Sales
 Net Sales
    
    
    
    
    
    
    Net SalesThree Months
    
    
    
    
    
    
    Six MonthsEnded March 31,
    
    
    
    
    
    
    Ended March 31,(in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeNorth America
    
    $
    888
    
    
    $
    1,699
    
    
    
    -48
    %
    
    $
    2,291
    
    
    $
    3,518
    
    
    
    -35
    %Europe
    
    
    1,333
    
    
    
    2,551
    
    
    
    -48
    %
    
    
    2,772
    
    
    
    4,952
    
    
    
    -44
    %Asia
    
    
    224
    
    
    
    400
    
    
    
    -44
    %
    
    
    513
    
    
    
    769
    
    
    
    -33
    %$
    2,445
    
    
    $
    4,650
    
    
    
    -47
    %
    
    $
    5,576
    
    
    $
    9,239
    
    
    
    -40
    %
 Three Months:
 
    
    The decrease in North America was primarily due to the significantly reduced industry
production volumes by all our major OEMs.
 34




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##### Table of Contents




    
    The decrease in Europe was primarily due to lower production volumes across all
customers ($878 million), the unfavorable impact of foreign currency translation ($329
million) and lower pricing ($11 million).
    
    The decrease in Asia was primarily due to lower volumes in Korea and Japan ($139
million) and the unfavorable impact of foreign currency translation ($37 million).
 Year-to-Date:
 
    
    The decrease in North America was primarily due to the significantly reduced industry
production volumes by all our major OEMs ($1.3 billion), partially offset by the
acquisition of the interior product assets of Plastech Engineered Products, Inc. in July
2008, which had a favorable impact of $87 million.
    
    The decrease in Europe was primarily due to lower industry production volumes across all
customers ($1.6 billion), the unfavorable impact of foreign currency translation ($576
million) and lower pricing ($11 million).
    
    The decrease in Asia was primarily due to lower sales volumes mainly in Korea and Japan
($176 million) and the unfavorable impact of foreign currency translation ($80 million).
 Automotive Experience  Segment Income
 Segment Income
    
    
    
    
    
    
    Segment IncomeThree Months
    
    
    
    
    
    
    Six MonthsEnded March 31,
    
    
    
    
    
    
    Ended March 31,(in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeNorth America
    
    $
    (166
    )
    
    $
    25
    
    
    
    *
    
    
    $
    (336
    )
    
    $
    35
    
    
    
    *Europe
    
    
    (94
    )
    
    
    120
    
    
    
    *
    
    
    
    (241
    )
    
    
    195
    
    
    
    *Asia
    
    
    (15
    )
    
    
    10
    
    
    
    *
    
    
    
    (27
    )
    
    
    3
    
    
    
    *$
    (275
    )
    
    $
    155
    
    
    
    *
    
    
    $
    (604
    )
    
    $
    233
    
    
    
    *
 
 *
    
    Measure not meaningful Three Months:
 
    
    The decrease in North America was primarily due to lower industry production volumes
($175 million), lower equity income at our joint ventures due to lower volumes ($21
million) and higher purchasing costs as a result of distressed supplier costs ($8 million),
partially offset by lower net engineering costs ($13 million) as a result of delays in
customer programs.
    
    The decrease in Europe was primarily a result of lower industry production volumes ($185
million), the unfavorable impact of foreign currency translation ($25 million), lower
pricing ($11 million) and increased purchasing costs as a result of distressed supplier
costs ($7 million), partially offset by favorable net engineering costs ($14 million) as a
result of delays in customer programs.
    
    The decrease in Asia was primarily due to lower volumes ($23 million) and the
unfavorable impact of foreign currency translation ($2 million).
 Year-to-Date:
 
    
    The decrease in North America was primarily due to lower industry production volumes
($290 million), an impairment charge on fixed assets in the first quarter ($77 million),
increased material costs in the first quarter ($34 million) and higher purchasing costs as
a result of distressed supplier costs ($8 million). These increases were partially offset
by lower engineering expenses ($14 million) and SG&A costs ($24 million).
    
    The decrease in Europe was primarily a result of lower industry production volumes ($345
million), an impairment charge on fixed assets in the first quarter ($33 million), the
unfavorable impact of foreign currency translation ($42 million), pricing and increased
material costs ($23 million) and increased purchasing costs as a result of distressed
supplier costs ($7 million). These increases were partially offset by lower engineering
expenses ($14 million).
 35




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##### Table of Contents




    
    The decrease in Asia is primarily due to lower volumes ($24 million) and the unfavorable
impact of foreign currency translation ($6 million).
 Power Solutions
 Three Months
    
    
    
    
    
    Six MonthsEnded March 31,
    
    
    
    
    
    Ended March 31,(in millions)
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeNet sales
    
    $
    905
    
    
    $
    1,457
    
    
    
    -38
    %
    
    $
    2,023
    
    
    $
    3,108
    
    
    
    -35
    %Segment income
    
    
    66
    
    
    
    121
    
    
    
    -45
    %
    
    
    106
    
    
    
    254
    
    
    
    -58
    %
 Three Months:
 
    
    Net sales decreased primarily due to the impact of lower lead costs on pricing ($430
million), lower sales volumes particularly to OEMs ($82 million) and the unfavorable
impact of foreign currency translation ($94 million), partially offset by improved
price/product mix ($54 million).
    
    Segment income decreased primarily due to the negative impact of lead and other
commodity costs not fully recovered through pricing ($5 million), the impact of an out of
period adjustment ($29 million) as discussed in Note 1 to the
financial statements, lower volumes ($17 million) and the unfavorable impact of
foreign currency translation ($9 million), partially offset by lower SG&A expenditures due
to cost containment measures ($6 million).
 Year-to-Date:
 
    
    Net sales decreased primarily due to the impact of lower lead costs on pricing ($834
million), lower sales volumes ($247 million) and the unfavorable impact of foreign currency
translation ($138 million), partially offset by improved price/product mix ($134 million).
    
    Segment income decreased due to lower volumes ($46 million), the unfavorable impact of
foreign currency translation ($11 million) and the negative impact of lead and other
commodity costs not fully recovered through pricing ($106 million), which includes a $62
million out of period adjustment as discussed in Note 1 to the
financial statements. The out of period adjustment was a partial factor for the amount we disclosed
in the first quarter  regarding our inability to recover all of our costs through our normal pricing
agreements. Partially offsetting these factors was
higher equity income from joint ventures ($6 million) and lower SG&A expenditures due to
cost containment measures ($9 million).
 Restructuring Costs
   36




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##### Table of Contents



Net Financing Charges
 Three Months Ended
    
    
    
    
    
    Six Months EndedMarch 31,
    
    
    
    
    
    March 31,(in millions)
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeNet financing charges
    
    $
    46
    
    
    $
    66
    
    
    
    -30
    %
    
    $
    102
    
    
    $
    135
    
    
    
    -24
    %
 
    
    The decrease in net financing charges in the three and six month periods is due to lower
borrowing costs and net foreign currency exchange gains.
 Provision for Income Taxes
 Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,(in millions)
    
    2009
    
    2008
    
    2009
    
    2008Tax provision
    
    $
    (183
    )
    
    $
    81
    
    
    $
    59
    
    
    $
    145Effective tax rate
    
    
    46.3
    %
    
    
    21.0
    %
    
    
    -7.7
    %
    
    
    21.0
    %Estimated annual base effective tax rate
    
    
    31.0
    %
    
    
    21.0
    %
    
    
    31.0
    %
    
    
    21.0
    %
 
    
    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.
    
    In the current fiscal quarter, the Company increased its estimated annual effective
income tax rate for continuing operations from 24% to 31%, primarily due to a geographical
shift in income. This created a
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##### Table of Contents



tax benefit of $7 million in the current quarter after
applying the new effective rate to the first quarter provision.
 
    
    In the second quarter of fiscal 2009, the Company performed an analysis of its worldwide
deferred tax assets. As a result, and after considering tax planning initiatives and other
positive and negative evidence, the Company determined that it was more likely than not
that the deferred tax asset associated with a capital loss would be utilized. Therefore,
the Company released $45 million of valuation allowances against the income tax provision.
    
    In the second quarter of fiscal 2009, the Company recorded a $27 million discrete period
tax adjustment related to second quarter 2009 restructuring costs using a blended statutory
tax rate of 19.2%.
    
    In the second quarter of fiscal 2009, the Company filed a claim for refund with the
Internal Revenue Service related to interest computations of prior tax payments and
refunds. The refund claim resulted in a tax provision decrease of $6 million.
    
    For the three and six months ended March 31, 2009, the tax provision decreased as a
result of $30 million tax benefit realized by a change in tax status of a French
subsidiary.
    
    In the first quarter of fiscal 2009, the Company performed an analysis of its worldwide
deferred tax assets. As a result of the rapid deterioration of operating results in various
jurisdictions around the world, it was determined that it was more likely than not that the
deferred tax assets would not be utilized in several jurisdictions including France,
Mexico, Spain and the United Kingdom. Therefore, the Company recorded a $300 million
valuation allowance as income tax expense.
    
    In the first quarter of fiscal 2009, the Company recorded a $30 million discrete period
tax adjustment related to first quarter 2009 impairment costs using a blended statutory tax
rate of 12.6%. Due to the tax rate change in the second quarter of fiscal 2009, the
discrete period tax adjustment increased by $18 million for a total tax adjustment of the
six months ended March 31, 2009 of $48 million.
 Net Income
 Three Months Ended
    
    
    
    
    
    Six Months EndedMarch 31,
    
    
    
    
    
    March 31,(in millions)
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeNet income (loss)
    
    $
    (193
    )
    
    $
    289
    
    
    
    *
    
    
    $
    (801
    )
    
    $
    524
    
    
    
    *
 
 *
    
    Measure not meaningful 
    
    The decrease in net income for the three months ended March 31, 2009, was primarily due
to restructuring charges recorded in current quarter, lower volumes primarily in the
automotive experience business, lead costs not recovered through pricing, the unfavorable
effects of foreign currency translation, partially offset by a decrease in the provision
for income taxes, lower minority interest earnings and a decrease in net financing charges.
    
    The decrease in net income for the six months ended March 31, 2009, was primarily due to
lower volumes mainly in the automotive experience business, lead costs not recovered by
pricing, first quarter impairment charges recorded on an equity investment in the North
American unitary products group in building efficiency and certain fixed assets in the
automotive experience North America and Europe segments, the second quarter fiscal 2009
restructuring charge and the unfavorable impact of currency translation, partially offset
by a decrease in the provision for income taxes, lower minority interest earnings and a
decrease in net financing charges.
 Backlog
  Financial Condition
 38




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Working Capital
 March 31,
    
    September 30,
    
    
    
    
    
    March 31,(in millions)
    
    2009
    
    2008
    
    Change
    
    2008
    
    ChangeWorking capital
    
    $
    1,251
    
    
    $
    1,225
    
    
    
    2
    %
    
    $
    1,880
    
    
    
    -33
    %Accounts receivable
    
    
    4,745
    
    
    
    6,472
    
    
    
    -27
    %
    
    
    6,451
    
    
    
    -26
    %Inventories
    
    
    1,648
    
    
    
    2,099
    
    
    
    -21
    %
    
    
    2,209
    
    
    
    -25
    %Accounts payable
    
    
    3,540
    
    
    
    5,225
    
    
    
    -32
    %
    
    
    5,238
    
    
    
    -32
    %
 
    
    The Company defines working capital as current assets less current liabilities,
excluding cash, short-term debt, the current portion of long-term debt and net assets of
discontinued operations. Management believes that this measure of working capital, which
excludes financing-related items and discontinued activities, provides a more useful
measurement of the Companys operating performance.
    
    The increase in working capital as compared to September 30, 2008 is primarily due to
lower accounts payable from timing of supplier payments, partially offset by lower accounts
receivable from lower sales volumes. Compared to March 31, 2008, the decrease is primarily
due to the restructuring reserves recorded in the fourth quarter of fiscal 2008 and in the
second quarter of fiscal 2009.
    
    The Companys days sales in accounts receivable (DSO) for the three months ended March
31, 2009 were 62, higher than 58 in the comparable period ended September 30, 2008 and
higher than 57 for the comparable period ended March 31, 2008. The increase in DSO is due
to a decrease in sales at a greater rate than the decrease in accounts receivable. There
has been no significant deterioration in the aging of accounts receivable at March 31, 2009
compared to September 30, 2008 and March 31, 2008, and there has been no significant change
in the Companys revenue recognition policies. The decrease in accounts receivable compared
to September 30, 2008 and March 31, 2008 is due to lower sales volumes.
    
    The Companys inventory turns for the three months ended March 31, 2009 were lower than
the period ended September 30, 2008 mainly due to seasonality and slower moving inventory
in the building efficiency business. Inventory turns were higher compared to March 31,
2008, due to improvements in inventory management.
    
    Days payable at March 31, 2009 increased to 74 days from 73 days at September 30, 2008
and 67 days at March 31, 2008 mainly due to the timing of payments.
 Cash Flows
 Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,(in millions)
    
    2009
    
    2008
    
    2009
    
    2008Net cash provided (used) by operating activities
    
    $
    182
    
    
    $
    298
    
    
    $
    (135
    )
    
    $
    476Net cash used by investing activities
    
    
    (178
    )
    
    
    (242
    )
    
    
    (535
    )
    
    
    (488
    )Net cash provided (used) by financing activities
    
    
    105
    
    
    
    (230
    )
    
    
    597
    
    
    
    (429
    )Capital expenditures
    
    
    158
    
    
    
    174
    
    
    
    426
    
    
    
    361
 
    
    The decrease in net cash provided by operating activities in the three months ended
March 31, 2009 was primarily due to a net loss in the quarter and unfavorable working
capital changes in accounts payable and accrued income taxes, partially offset by favorable
working capital changes in accounts receivable and inventory. For the six months ended
March 31, 2009, the decrease in net cash provided by operating activities was due to the
cumulative net loss for the period and unfavorable working capital changes in accounts
payable and accrued liabilities, partially offset by favorable working capital changes in
accounts receivable and inventories.
    
    The decrease in net cash used in investing activities for the three months ended March
31, 2009 was due to lower capital expenditures, a lower level of business acquisitions than
in fiscal 2008 and the impact of the settlement of cross-currency interest rate swaps,
partially offset by lower recoverable customer engineering expenditures. For the six months
ended March 31, 2009, the increase in net cash used in
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investing activities is due to
higher capital expenditures due to timing and lower recoverable customer engineering
expenditures, partially offset by the impact of the settlement of cross-currency interest
rate swaps and fiscal 2008 business acquisitions.
 
    
    The increase in net cash provided by financing activities for the three and six months
ended March 31, 2009 was primarily the result of the increase in long-term debt, partially
offset by debt repayments.
    
    The majority of the capital spending for property, plant and equipment in the three and
six months ended March 31, 2009 was primarily due to the timing of payments for investments
made within the automotive experience business.
 Deferred Taxes
     Long-Lived Assets
   40




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41




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##### Table of Contents



Capitalization
 March 31,
    
    
    September 30,
    
    
    
    
    
    
    March 31,(in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2008
    
    
    ChangeTotal debt
    
    $
    4,791
    
    
    $
    3,944
    
    
    
    21
    %
    
    $
    4,318
    
    
    
    11
    %Shareholders equity
    
    
    7,900
    
    
    
    9,424
    
    
    
    -16
    %
    
    
    9,595
    
    
    
    -18
    %Total capitalization
    
    $
    12,691
    
    
    $
    13,368
    
    
    
    -5
    %
    
    $
    13,913
    
    
    
    -9
    %Total debt as a % of
total capitalization
    
    
    37.8
    %
    
    
    29.5
    %
    
    
    
    
    
    
    31.0
    %
 
    
    On March 16, 2009, the Company closed concurrent public offerings. The Company issued
$402.5 million aggregate amount of senior, unsecured, fixed rate convertible notes that
mature September 30, 2012. The notes are convertible into shares of the Companys common
stock at a conversion rate of 89.3855 shares of common stock per $1,000 principal amount of
notes, which is equal to a conversion price of approximately $11.19 per share, subject to
anti-dilution adjustments. The Company also issued nine million equity units each of which
has a stated amount of $50 in an aggregate principal amount of $450 million. The equity
units consist of (i) a forward purchase contract obligating the holder to purchase from the
Company for a price in cash of $50, on the purchase contract settlement date of March 31,
2012, subject to early settlement, a certain number of shares of the Companys common stock
and (ii) a 1/20, or 5%, undivided beneficial ownership interest in $1,000 principal amount
of the Companys 11.5% subordinated notes due 2042.
    
    On February 16, 2009, the Company entered into a $50 million, three year, floating rate
bilateral loan agreement. The Company drew the entire amount under the loan agreement
during the course of the second quarter of fiscal 2009. Also during the second quarter of
fiscal 2009, the Company retired approximately $54 million in principal amount of its $800
million fixed rate bonds that mature in
January 2011. The Company used proceeds from the $50 million floating rate loan agreement to
retire the bonds.
    
    On January 17, 2009, the Company retired its 24 billion yen, three year, floating rate
loan agreement that matured. The Company used proceeds from commercial paper issuances to
repay the loan agreement.
    
    On June 1, 2008, the Company retired $200 million of York International Corporation
fixed rate bonds that matured. The Company used proceeds from commercial paper issuances to
repay the bonds.
    
    In fiscal 2008, the Company entered into new revolving credit facilities totaling 350
million euro with 100 million euro expiring in May 2009, 150 million euro expiring in May
2011 and 100 million euro expiring in August 2011. At March 31, 2009, there were no draws
on the revolving credit facilities.
    
    On January 17, 2008 and February 1, 2008, the Company retired $500 million and $175
million, respectively, in floating rate notes and fixed rate bonds at maturity. The Company
used a combination of cash, proceeds from commercial paper issuances and proceeds under the
new three year, floating rate yen loan to repay the notes and bonds.
    
    In December 2007, the Company entered into a 25 billion yen, three year, floating rate
loan agreement. The Company borrowed the 25 billion yen on January 15, 2008.
    
    In fiscal 2007, the Company entered into a five-year, $2.05 billion revolving credit
facility which expires in December 2011. This facility replaced a five-year $1.6 billion
revolving credit facility that
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##### Table of Contents



would have expired in October 2010 and serves as the
commercial paper backup facility. There were no draws on the committed credit line as of
March 31, 2009.
    
    The Company also selectively makes use of short-term credit lines. The Company estimates
that, as of March 31, 2009, it could borrow up to $2.0 billion at its current debt ratings
on committed and uncommitted credit lines.
    
    As of March 31, 2009, the Company was in compliance with all covenants and other
requirements set forth in its credit agreements and indentures, and the Company expects to
be in compliance in the foreseeable future. None of the Companys debt agreements require
accelerated repayment in the event of a decrease in credit ratings.
    
    The Company believes its capital resources and liquidity position at March 31, 2009, are
adequate to meet projected needs. The Company believes requirements for working capital,
capital expenditures, dividends, minimum pension contributions, debt maturities and any
potential acquisitions in fiscal 2009 will continue to be funded from operations,
supplemented by short- and long-term borrowings, if required. The Company does not have any
significant debt maturities until fiscal 2011. As such, the Company believes it has
sufficient financial resources to fund operations and meet its obligations for the
foreseeable future.
 New Accounting Standards
     43




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##### Table of Contents



Other Financial Information
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  44




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
     45




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##### Table of Contents



ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
     Approximate DollarTotal Number of
    
    Value of Shares thatTotal Number of
    
    
    
    
    
    Shares Purchased as
    
    May Yet beShares
    
    Average Price
    
    Part of the Publicly
    
    Purchased under thePeriod
    
    Purchased
    
    Paid per Share
    
    Announced Program
    
    Programs01/1/09 - 1/31/09Purchases by Company (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    102,394,71302/1/09 - 02/28/09Purchases by Company (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    102,394,71303/1/09 - 03/31/09Purchases by Company (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    102,394,71301/1/09 - 01/31/09Purchases by Citibank (2)
    
    
    (4,100,000
    )
    
    $
    13.51
    
    
    
    
    
    
    $
    200,000,00002/1/09 - 02/28/09Purchases by Citibank (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    200,000,00003/1/09 - 03/31/09Purchases by Citibank (2)
    
    
    1,505,000
    
    
    $
    9.54
    
    
    
    
    
    
    $
    181,940,000
 46




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##### Table of Contents



(1)
    
    The repurchases of the Companys common stock by the Company are intended to partially
offset dilution related to our stock option and restricted stock equity compensation plans
and are treated as repurchases of Company common stock for purposes of this disclosure.(2)
    
    Citibank may purchase shares of the Companys stock up to an amount equal to $200
million. The approximate dollar value of shares that may yet be purchased under the
Citibank program fluctuates based on the market value of the Companys stock and/or sales
by Citibank of the Companys stock.      
 ITEM 6. EXHIBITS
  47




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##### Table of Contents



SIGNATURES
  JOHNSON CONTROLS, INC.Date:  May 11, 2009
    By:
    /s/ R. Bruce McDonaldR. Bruce McDonaldExecutive Vice President and
Chief Financial Officer 48




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##### Table of Contents



JOHNSON CONTROLS, INC.
 Form 10-Q
 INDEX TO EXHIBITS
 Exhibit No.
    
    Description4.1
    
    Supplemental Indenture, dated March 16, 2009, between Johnson Controls, Inc. and U.S. Bank
National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Johnson
Controls, Inc. Current Report on Form 8-K/A dated March 10, 2009) (Commission File No.
1-5907).4.2
    
    Subordinated Indenture, dated March 16, 2009, between Johnson Controls, Inc. and U.S. Bank
National Association, as Trustee (incorporated by reference to Exhibit 4.2 to Johnson
Controls, Inc. Current Report on Form 8-K/A dated March 10, 2009) (Commission File No.
1-5907).4.3
    
    Supplemental Indenture No. 1, dated March 16, 2009, between Johnson Controls, Inc. and U.S.
Bank National Association, as Trustee (incorporated by reference to Exhibit 4.3 to Johnson
Controls, Inc. Current Report on Form 8-K/A dated March 10, 2009) (Commission File No.
1-5907).4.4
    
    Purchase Contract and Pledge Agreement, dated March 16, 2009, among Johnson Controls, Inc.,
U.S. Bank National Association, as Purchase Contract Agent, and U.S. Bank National
Association, as Collateral Agent, Custodial Agent and Securities Intermediary (incorporated by
reference to Exhibit 4.4 to Johnson Controls, Inc. Current Report on Form 8-K/A dated March
10, 2009) (Commission File No. 1-5907).4.5
    
    Form of Remarketing Agreement among Johnson Controls, Inc., U.S. Bank National Corporation,
as the Reset Agent and the Remarketing Agent and U.S. Bank National Corporation, as the
Purchase Contract Agent (incorporated by reference to Exhibit 4.5 to Johnson Controls, Inc.
Current Report on Form 8-K/A dated March 10, 2009) (Commission File No. 1-5907).4.6
    
    Form of Corporate Unit (incorporated by reference to Exhibit 4.6 to Johnson Controls, Inc.
Current Report on Form 8-K/A dated March 10, 2009) (Commission File No. 1-5907).4.7
    
    Form of Treasury Unit (incorporated by reference to Exhibit 4.7 to Johnson Controls, Inc.
Current Report on Form 8-K/A dated March 10, 2009) (Commission File No. 1-5907).4.8
    
    Form of Subordinated Note (incorporated by reference to Exhibit 4.8 to Johnson Controls, Inc.
Current Report on Form 8-K/A dated March 10, 2009) (Commission File No. 1-5907).15
    
    Letter of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm, dated
May 4, 2009, relating to Financial Information.31.1
    
    Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.31.2
    
    Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.32
    
    Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 49