UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-5097

JOHNSON CONTROLS, INC.

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

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ    No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ    No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No þ

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Shares Outstanding at March 31, 2011
Common Stock: $0.01 7/18 par value per share		678,449,119

 

 

JOHNSON CONTROLS, INC.

FORM 10-Q

Report Index

		Page
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Financial Position at March 31, 2011, September 30, 2010 and March 31, 2010			3
Consolidated Statements of Income for the Three and Six Month Periods Ended March 31, 2011 and 2010			4
Consolidated Statements of Cash Flows for the Three and Six Month Periods Ended March 31, 2011 and 2010			5
Notes to Condensed Consolidated Financial Statements			6
Report of Independent Registered Public Accounting Firm			34
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			35
Item 3. Quantitative and Qualitative Disclosures About Market Risk			49
Item 4. Controls and Procedures			49
Part II. Other Information
Item 1. Legal Proceedings			50
Item 1A. Risk Factors			50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			51
Item 6. Exhibits			52
Signatures			53
EX-15
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Johnson Controls, Inc.

(in millions; unaudited)

		March 31,				September 30,				March 31,
		2011				2010				2010
Assets
Cash and cash equivalents		$	401			$	560			$	770
Accounts receivable — net			6,946				6,095				5,431
Inventories			2,239				1,786				1,579
Other current assets			2,620				2,211				2,124
Current assets			12,206				10,652				9,904
Property, plant and equipment — net			4,761				4,096				3,779
Goodwill			6,807				6,501				6,377
Other intangible assets — net			832				741				709
Investments in partially-owned affiliates			864				728				770
Other noncurrent assets			3,198				3,025				2,270
Total assets		$	28,668			$	25,743			$	23,809
Liabilities and Equity
Short-term debt		$	106			$	75			$	68
Current portion of long-term debt			53				662				675
Accounts payable			6,082				5,426				4,822
Accrued compensation and benefits			1,070				1,122				936
Other current liabilities			2,861				2,625				2,314
Current liabilities			10,172				9,910				8,815
Long-term debt			4,382				2,652				2,636
Postretirement health and other benefits			234				235				208
Other noncurrent liabilities			2,551				2,573				2,524
Long-term liabilities			7,167				5,460				5,368
Commitments and contingencies (Note 19)
Redeemable noncontrolling interests			223				196				153
Shareholders’ equity attributable to Johnson Controls, Inc.			10,976				10,071				9,377
Noncontrolling interests			130				106				96
Total equity			11,106				10,177				9,473
Total liabilities and equity		$	28,668			$	25,743			$	23,809

The accompanying notes are an integral part of the financial statements.

Johnson Controls, Inc.

(in millions, except per share data; unaudited)

		Three Months Ended								Six Months Ended
		March 31,								March 31,
		2011				2010				2011				2010
Net sales
Products and systems*		$	8,107			$	6,642			$	15,702			$	13,318
Services*			2,037				1,675				3,979				3,407
			10,144				8,317				19,681				16,725
Cost of sales
Products and systems*			6,973				5,715				13,501				11,471
Services*			1,697				1,379				3,292				2,795
			8,670				7,094				16,793				14,266
Gross profit			1,474				1,223				2,888				2,459
Selling, general and administrative expenses			(1,014	)			(847	)			(1,961	)			(1,730	)
Net financing charges			(46	)			(43	)			(81	)			(78	)
Equity income			61				51				127				104
Income before income taxes			475				384				973				755
Provision for income taxes			90				87				185				92
Net income			385				297				788				663
Income attributable to noncontrolling interests			31				23				59				39
Net income attributable to Johnson Controls, Inc.		$	354			$	274			$	729			$	624
Earnings per share
Basic		$	0.52			$	0.41			$	1.08			$	0.93
Diluted		$	0.51			$	0.40			$	1.06			$	0.92

The accompanying notes are an integral part of the financial statements.

Johnson Controls, Inc.

(in millions; unaudited)

		Three Months Ended								Six Months Ended
		March 31,								March 31,
		2011				2010				2011				2010
Operating Activities
Net income attributable to Johnson Controls, Inc.		$	354			$	274			$	729			$	624
Income attributable to noncontrolling interests			31				23				59				39
Net income			385				297				788				663
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation			173				165				331				334
Amortization of intangibles			12				11				23				22
Equity in earnings of partially-owned affiliates, net of dividends received			(51	)			(32	)			(73	)			(44	)
Deferred income taxes			—				18				—				(44	)
Impairment charges			—				19				—				19
Equity-based compensation			14				9				36				29
Other			14				24				21				33
Changes in working capital, excluding acquisitions:
Accounts receivable			(562	)			(388	)			(515	)			(36	)
Inventories			(200	)			(41	)			(299	)			(97	)
Other current assets			(71	)			(24	)			(119	)			(111	)
Restructuring reserves			(39	)			(66	)			(69	)			(124	)
Accounts payable and accrued liabilities			405				233				125				376
Accrued income taxes			(18	)			(12	)			(81	)			1
Cash provided by operating activities			62				213				168				1,021
Investing Activities
Capital expenditures			(275	)			(134	)			(535	)			(311	)
Sale of property, plant and equipment			7				5				18				24
Acquisition of businesses, net of cash acquired			(534	)			(15	)			(629	)			(15	)
Recoverable customer engineering expenditures			(26	)			(16	)			(39	)			(38	)
Changes in long-term investments			(38	)			(25	)			(50	)			(30	)
Cash used by investing activities			(866	)			(185	)			(1,235	)			(370	)
Financing Activities
Increase (decrease) in short-term debt — net			(89	)			(295	)			13				(579	)
Increase in long-term debt			1,732				513				1,735				513
Repayment of long-term debt			(667	)			(263	)			(759	)			(503	)
Payment of cash dividends			(109	)			(87	)			(196	)			(164	)
Proceeds from the exercise of stock options			24				19				85				32
Settlement of interest rate swaps			—				—				24				—
Other			(3	)			(4	)			(8	)			(17	)
Cash provided (used) by financing activities			888				(117	)			894				(718	)
Effect of exchange rate changes on cash and cash equivalents			(4	)			68				14				76
Increase (decrease) in cash and cash equivalents		$	80			$	(21	)		$	(159	)		$	9

The accompanying notes are an integral part of the financial statements.

Johnson Controls, Inc.

1.

Financial Statements

		In 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, 2010. The results of operations for the three and six month periods ended March 31, 2011 are not necessarily indicative of results for the Company’s 2011 fiscal year because of seasonal and other factors.
		Certain amounts as of March 31, 2010 have been revised to conform to the current year’s presentation. Redeemable noncontrolling interests are classified as mezzanine equity (temporary equity) in the condensed consolidated statement of financial position. Refer to Note 14, “Equity and Noncontrolling Interests,” to the financial statements for further information. Certain amounts for the three and six month periods ended March 31, 2010 included within the financing activities section of the consolidated statement of cash flows have been reclassified for comparative purposes. Also, during the three month period ended December 31, 2010, the building efficiency business unit reorganized its management reporting structure to reflect its current business activities. Historical information has been revised to reflect the new building efficiency reportable segment structure. Refer to Note 18, “Segment Information,” to the financial statements for further information.
		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.
		On October 1, 2010, the Company adopted Accounting Standards Update (ASU) No. 2009-17, “Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.” ASU No. 2009-17 amends the consolidation guidance applicable to variable interest entities (“VIE’s”) and requires additional disclosures concerning an enterprise’s continuing involvement with VIE’s. Under certain criteria as provided for in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810, “Consolidation,” the Company may consolidate a partially-owned affiliate. To determine whether to consolidate a partially-owned affiliate, the Company first determines if the entity is a 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, the Company then determines if it is the primary beneficiary of the VIE. The party with the power to direct activities of the VIE that most significantly impact the VIE’s economic performance and the potential to absorb benefits or losses that could be significant to the VIE is considered the primary beneficiary and consolidates the VIE. The Company evaluated the impact of this guidance and determined that the adoption did not result in consolidation of additional entities or deconsolidation of existing VIE’s. As such, the adoption of this guidance had no impact on the Company’s consolidated financial condition and results of operations, and appropriate disclosures have been included herein.
		Consolidated VIE’s
		Based upon the criteria set forth in ASC 810, the Company has determined that for the reporting periods ended March 31, 2011, September 30, 2010 and March 31, 2010 it was the primary beneficiary in two VIE’s in which it holds less than 50% ownership as the Company absorbs significant economics of the entities and has the power to direct the activities that are considered most significant to the entities. The Company funds the entities’ short term liquidity needs through revolving credit facilities and has the power to direct the activities that are considered most significant to the entities through its key customer supply relationships. These two VIE’s manufacture products in

Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2011
(unaudited)

North America for the automotive industry. The carrying amounts and classification of assets (none of which are restricted) and liabilities included in the Company’s condensed consolidated statements of financial position for the consolidated VIE’s are as follows (in millions):

		March 31,				September 30,				March 31,
		2011				2010				2010
Current assets		$	227			$	215			$	161
Noncurrent assets			62				69				93
Total assets		$	289			$	284			$	254
Current liabilities		$	175			$	174			$	125
Noncurrent liabilities			—				—				—
Total liabilities		$	175			$	174			$	125

		Nonconsolidated VIE’s
		Based upon the criteria set forth in ASC 810, the Company has determined that it holds a variable interest in an equity method investee that was considered thinly capitalized at the time of its initial investment. The entity has been primarily financed with third party debt. During the three month period ended March 31, 2011, the owners of the remaining interest exercised their option to put their interest to the Company. The Company has twelve months from the date the notice was received to set the date of the put closing or to secure a third party buyer. The value of the put will be at a price that approximates fair value. The Company is not the primary beneficiary as the Company cannot make key operating decisions considered to be most significant to the VIE prior to the put closing. Therefore, the entity is accounted for under the equity method of accounting as the Company’s interest exceeds 20% and the Company does not have a controlling interest. The investment balance included within investments in partially-owned affiliates in the condensed consolidated statement of financial position at March 31, 2011 was $42 million, which represents the Company’s maximum exposure to loss. The investment balance at September 30, 2010 and March 31, 2010 was $41 million. Current liabilities due to the VIE are immaterial and represent normal course of business trade payables for all presented periods. Additionally, the Company consumes a significant amount of the investee’s manufacturing output.
		The Company did not have a significant variable interest in any other unconsolidated VIE’s for the presented reporting periods.

2.

New Accounting Standards

		In December 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-17, “Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.” ASU No. 2009-17 changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. This statement was effective for the Company beginning in the first quarter of fiscal 2011 (October 1, 2010). The adoption of this guidance had no impact on the Company’s consolidated financial condition and results of operations. Refer to Note 1, “Financial Statements,” to the financial statements for further discussion.
		In October 2009, the FASB issued ASU No. 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements — A Consensus of the FASB Emerging Issues Task Force.” ASU No. 2009-13 provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This guidance eliminates the use of the residual method allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective

Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2011
(unaudited)

		evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The amendments in this ASU also expand the disclosures related to a vendor’s multiple-deliverable revenue arrangements. The Company adopted ASU No. 2009-13 on October 1, 2010. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial condition and results of operations, and appropriate disclosures have been included herein.
		The Company’s building efficiency business sells certain heating, ventilating and air conditioning (HVAC) and refrigeration products and services in bundled arrangements, where multiple products and/or services are involved. Significant deliverables within these arrangements include equipment, commissioning, service labor and extended warranties. In order to estimate relative selling price, market data and transfer price studies are utilized. Approximately four to twelve months separate the timing of the first deliverable until the last piece of equipment is delivered, and there may be extended warranty arrangements with duration of one to five years commencing upon the end of the standard warranty period. As each deliverable had a determinable relative selling price and the residual method was not previously utilized by the Company, there were no changes in units of accounting, the allocation process, or the pattern and timing of revenue recognition upon adoption of ASU No. 2009-13. Furthermore, adoption of this ASU is not expected to have a material effect on the consolidated financial condition or results of operations in subsequent periods.

3.

Acquisition of Businesses

		During the second quarter of fiscal 2011, the Company completed its acquisition of the C. Rob. Hammerstein Group (Hammerstein), a leading global supplier of high-quality metal seat structures, components and mechanisms based in Solingen, Germany. The total purchase price, net of cash acquired, was approximately $521 million, all of which was paid during the three months ended March 31, 2011. In connection with the Hammerstein acquisition, the Company recorded goodwill of $173 million in the automotive experience Europe segment. The purchase price allocation may be subsequently adjusted to reflect final valuation studies.
		The Hammerstein acquisition enables the Company’s automotive experience business to enhance its expertise in metal seat structures and expand into premium vehicle segments. Hammerstein’s strong product portfolio and customer base in the premium segment complements the Company’s product portfolio, which is primarily comprised of vehicle segments with high production volumes. Hammerstein’s product capabilities include front seat structures, seat tracks and height adjusters, multi-way adjusters, power gear boxes, as well as special applications such as steering column adjusters. Hammerstein’s expertise includes the complete product development process, from design and engineering to the manufacture of individual components and complete seat systems.
		In the first six months of fiscal 2011, the Company completed three additional acquisitions for a combined purchase price, net of cash acquired, of $108 million, all of which was paid in the six months ended March 31, 2011. The acquisitions in the aggregate were not material to the Company’s consolidated financial statements. In connection with the acquisitions, the Company recorded goodwill of $39 million. The purchase price allocation may be subsequently adjusted to reflect final valuation studies.
		The Company also announced the acquisition of KEIPER and the automotive sport and specialty seat business of Recaro in the automotive experience business and EnergyConnect Group, Inc. in the building efficiency business. These acquisitions are expected to close in fiscal 2011 and are not expected to be material to the Company’s consolidated financial statements.
		In the first six months of fiscal 2010, the Company completed one acquisition for a purchase price of $18 million, of which $15 million was paid as of March 31, 2010. The acquisition was not material to the Company’s consolidated financial statements. In connection with the acquisition, the Company recorded goodwill of $8 million.

Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2011
(unaudited)

4.

Percentage-of-Completion Contracts

The 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 $738 million, $683 million and $600 million at March 31, 2011, September 30, 2010, and March 31, 2010, respectively. Amounts included within other current liabilities were $747 million, $639 million and $602 million at March 31, 2011, September 30, 2010, and March 31, 2010, respectively.

5.

Inventories

Inventories consisted of the following (in millions):

		March 31,				September 30,				March 31,
		2011				2010				2010
Raw materials and supplies		$	1,100			$	899			$	741
Work-in-process			332				278				247
Finished goods			941				743				681
FIFO inventories			2,373				1,920				1,669
LIFO reserve			(134	)			(134	)			(90	)
Inventories		$	2,239			$	1,786			$	1,579

Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2011
(unaudited)

6.

Goodwill and Other Intangible Assets

		During the first quarter of fiscal 2011, the building efficiency business unit reorganized its management reporting structure to reflect its current business activities. Historical information has been revised to reflect the new building efficiency reportable segment structure. Refer to Note 18, “Segment Information,” to the financial statements for further information.
		The changes in the carrying amount of goodwill in each of the Company’s reporting segments for the six month period ended September 30, 2010 and the six month period ended March 31, 2011 were as follows (in millions):

										Currency
		March 31,				Business				Translation and				September 30,
		2010				Acquisitions				Other				2010
Building efficiency
North America systems		$	526			$	—			$	(4	)		$	522
North America service			677				—				(1	)			676
Global workplace solutions			169				—				8				177
Asia			366				—				13				379
Other			1,072				—				13				1,085
Automotive experience
North America			1,378				—				—				1,378
Europe			1,120				5				15				1,140
Asia			214				—				19				233
Power solutions			855				51				5				911
Total		$	6,377			$	56			$	68			$	6,501

										Currency
		September 30,				Business				Translation and				March 31,
		2010				Acquisitions				Other				2011
Building efficiency
North America systems		$	522			$	—			$	(3	)		$	519
North America service			676				—				—				676
Global workplace solutions			177				—				7				184
Asia			379				—				6				385
Other			1,085				—				23				1,108
Automotive experience
North America			1,378				4				—				1,382
Europe			1,140				205				43				1,388
Asia			233				—				3				236
Power solutions			911				3				15				929
Total		$	6,501			$	212			$	94			$	6,807

Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2011
(unaudited)

The Company’s other intangible assets, primarily from business acquisitions, were valued based on independent appraisals and consisted of (in millions):

		March 31, 2011												September 30, 2010												March 31, 2010
		Gross												Gross												Gross
		Carrying				Accumulated								Carrying				Accumulated								Carrying				Accumulated
		Amount				Amortization				Net				Amount				Amortization				Net				Amount				Amortization				Net
Amortized intangible assets
Patented technology		$	285			$	(208	)		$	77			$	277			$	(191	)		$	86			$	277			$	(182	)		$	95
Customer relationships			446				(79	)			367				373				(70	)			303				342				(61	)			281
Miscellaneous			106				(35	)			71				68				(31	)			37				66				(28	)			38
Total amortized intangible assets			837				(322	)			515				718				(292	)			426				685				(271	)			414
Unamortized intangible assets
Trademarks			317				—				317				315				—				315				295				—				295
Total intangible assets		$	1,154			$	(322	)		$	832			$	1,033			$	(292	)		$	741			$	980			$	(271	)		$	709

Amortization of other intangible assets for the three month periods ended March 31, 2011 and 2010 was $12 million and $11 million, respectively. Amortization of other intangible assets for the six month periods ended March 31, 2011 and 2010 was $23 million and $22 million, respectively. Excluding the impact of future acquisitions, the Company anticipates amortization for fiscal 2012, 2013, 2014, 2015 and 2016 will be approximately $52 million, $46 million, $45 million, $43 million and $39 million per year, respectively.

7.

Product Warranties

		The 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 and other known factors. 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, the Company monitors its warranty activity and adjusts its reserve estimates when it is probable that future warranty costs will be different than those estimates.
		The Company’s product warranty liability is recorded in the condensed consolidated statement of financial position in other current liabilities if the warranty is less than one year and in other noncurrent liabilities if the warranty extends longer than one year.
		The changes in the carrying amount of the Company’s total product warranty liability for the six months ended March 31, 2011 and 2010 were as follows (in millions):

		Six Months Ended
		March 31,
		2011				2010
Balance at beginning of period		$	337			$	344
Accruals for warranties issued during the period			107				118
Accruals from acquisitions			—				2
Accruals related to pre-existing warranties (including changes in estimates)			(6	)			(2	)
Settlements made (in cash or in kind) during the period			(110	)			(142	)
Currency translation			1				(4	)
Balance at end of period		$	329			$	316

Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2011
(unaudited)

8.

Restructuring Costs

		To better align the Company’s cost structure with global automotive market conditions, the Company committed to a restructuring plan (2009 Plan) in the second quarter of fiscal 2009 and recorded a $230 million restructuring charge. The restructuring charge related to cost reduction initiatives in the Company’s automotive experience, building efficiency and power solutions businesses and included workforce reductions and plant consolidations. The Company expects to substantially complete the 2009 Plan by the end of 2011. The automotive-related restructuring actions targeted excess manufacturing capacity resulting from lower industry production in the European, North American and Japanese automotive markets. The restructuring actions in building efficiency were 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 focused on optimizing its manufacturing capacity as a result of lower overall demand for original equipment batteries resulting from lower vehicle production levels.
		Since the announcement of the 2009 Plan in March 2009, the Company has experienced lower employee severance and termination benefit cash payouts than previously calculated for automotive experience in Europe of approximately $70 million, all of which was identified prior to the current fiscal year, due to favorable severance negotiations and the decision to not close previously planned plants in response to increased customer demand. The underspend of the initial 2009 Plan reserves is committed to be utilized for additional costs to be incurred as part of power solutions and automotive experience Europe and North America’s additional cost reduction initiatives. The planned workforce reductions disclosed for the 2009 Plan have been updated for the Company’s revised actions.
		The following table summarizes the changes in the Company’s 2009 Plan reserve, included within other current liabilities in the condensed consolidated statements of financial position (in millions):

		Employee
		Severance and
		Termination				Currency
		Benefits				Translation				Total
Balance at September 30, 2010		$	54			$	2			$	56
Utilized — cash			(6	)			—				(6	)
Balance at December 31, 2010		$	48			$	2			$	50
Utilized — cash			(24	)			—				(24	)
Utilized — noncash			—				1				1
Balance at March 31, 2011		$	24			$	3			$	27

		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 related to cost reduction initiatives in its automotive experience, building efficiency and power solutions businesses and included workforce reductions and plant consolidations. The Company expects to substantially complete the 2008 Plan by the end of 2011. The automotive-related restructuring was in response to the fundamentals of the European and North American automotive markets. The actions targeted 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 were primarily in Europe where the Company centralized certain functions and rebalanced its resources to target the geographic markets with the greatest potential growth. Power solutions actions focused on optimizing its regional manufacturing capacity.
		Since the announcement of the 2008 Plan in September 2008, the Company has experienced lower employee severance and termination benefit cash payouts than previously calculated in Europe for building efficiency and automotive experience of approximately $95 million, all of which was identified prior to the current fiscal year, due

Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2011
(unaudited)

		to favorable severance negotiations, individuals transferred to open positions within the Company and changes in cost reduction actions from plant consolidation to downsizing of operations. The underspend of the initial 2008 Plan is committed to be utilized for similar additional restructuring actions. The underspend experienced by building efficiency in Europe is committed to be utilized by the same group for workforce reductions and plant consolidations. The underspend experienced by automotive experience in Europe is committed to be utilized for additional plant consolidations for automotive experience in North America and workforce reductions for building efficiency in Europe. The planned workforce reductions disclosed for the 2008 Plan have been updated for the Company’s revised actions.
		The following table summarizes the changes in the Company’s 2008 Plan reserve, included within other current liabilities in the condensed consolidated statements of financial position (in millions):

		Employee
		Severance and
		Termination				Currency
		Benefits				Translation				Total
Balance at September 30, 2010		$	108			$	(28	)		$	80
Utilized — cash			(24	)			—				(24	)
Utilized — noncash			—				(2	)			(2	)
Balance at December 31, 2010		$	84			$	(30	)		$	54
Utilized — cash			(15	)			—				(15	)
Utilized — noncash			—				1				1
Balance at March 31, 2011		$	69			$	(29	)		$	40

		The 2008 and 2009 Plans included workforce reductions of approximately 20,400 employees (9,500 for automotive experience — North America, 5,200 for automotive experience — Europe, 1,100 for automotive experience — Asia, 2,900 for building efficiency — other, 700 for building efficiency — global workplace solutions, 200 for building efficiency — Asia and 800 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, 2011, approximately 17,000 of the employees have been separated from the Company pursuant to the 2008 and 2009 Plans. In addition, the 2008 and 2009 Plans included 33 plant closures (14 for automotive experience — North America, 11 for automotive experience — Europe, 3 for automotive experience — Asia, 2 for building efficiency — other and 3 for power solutions). As of March 31, 2011, 26 of the 33 plants have been closed.
		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 its operations.

9.

Research and Development

Expenditures 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 $115 million and $88 million for the three months ended March 31, 2011 and 2010, respectively, and $221 million and $175 million for the six months ended March 31, 2011 and 2010, respectively. These expenditures are net of

Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2011
(unaudited)

customer reimbursements of $79 million and $81 million for the three months ended March 31, 2011 and 2010, respectively, and $150 million and $167 million for the six months ended March 31, 2011 and 2010, respectively.

10.

Income Taxes

The more significant components of the Company’s income tax provision are as follows (in millions):

		Three Months Ended								Six Months Ended
		March 31,								March 31,
		2011				2010				2011				2010
Federal, state and foreign income tax expense at annual effective rate		$	90			$	69			$	185			$	136
Valuation allowance adjustment			—				—				—				(93	)
Uncertain tax positions			—				—				—				31
Medicare Part D			—				18				—				18
Provision for income taxes		$	90			$	87			$	185			$	92

		Effective Tax Rate
		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. For the three and six months ended March 31, 2011, the Company’s estimated annual effective income tax rate from continuing operations is 19% versus the prior year rate of 18%.
		Valuation Allowance
		The Company reviews its deferred tax asset valuation allowances on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or consolidated group recording the net deferred tax asset are considered, along with any other positive or negative evidence. Since future financial results may differ from previous estimates, periodic adjustments to the Company’s valuation allowances may be necessary.
		It is reasonably possible that over the remainder of fiscal 2011, valuation allowances against deferred tax assets in certain jurisdictions of up to $100 million may be released.
		In the first quarter of fiscal 2010, the Company determined that it was more likely than not that a portion of the deferred tax assets within the Brazil automotive entity would be utilized. Therefore, the Company released $69 million of valuation allowances. This was comprised of a $93 million decrease in income tax expense offset by a $24 million reduction in cumulative translation adjustments.
		Uncertain Tax Positions
		At September 30, 2010, the Company had gross tax effected unrecognized tax benefits of $1,262 million of which $1,063 million, if recognized, would impact the effective tax rate. Total net accrued interest at September 30, 2010 was approximately $68 million (net of tax benefit). The net change in interest and penalties during the six months ended March 31, 2011 was $17 million, and for the same period in fiscal 2010 was $44 million, including $18 million of periodic interest expense on existing uncertain tax positions and $26 million related to the events described below. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.

Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2011
(unaudited)

		As a result of certain recent events related to prior year tax planning initiatives, during the first quarter of fiscal 2010, the Company increased the reserve for uncertain tax positions by $31 million, including $26 million of interest and penalties, which impacted the effective tax rate.
		The Company is subject to income taxes in the U.S. 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 major jurisdictions noted below:

Tax		Statute of
Jurisdiction		Limitations
Austria		5 years
Belgium		3 years
Brazil		5 years
Canada		5 years
China		3 to 5 years
Czech Republic		3 years
France		3 years
Germany		4 to 5 years
Italy		4 years
Japan		5 to 7 years
Mexico		5 years
Poland		5 years
Spain		4 years
United Kingdom		4 years
United States — Federal		3 years
United States — State		3 to 5 years

In the U.S., the fiscal years 2007 through 2009 are currently under exam by the Internal Revenue Service (IRS) and 2004 through 2006 are currently under IRS Appeals. Additionally, the Company is currently under exam in the following major foreign jurisdictions:

Tax Jurisdiction			Tax Years Covered
Brazil			2005 - 2008
Canada			2007 - 2008
Czech Republic			2007 - 2008
France			1996 - 2009
Germany			2001 - 2007
Italy			2005 - 2007
Mexico			2003 - 2004
Poland			2007 - 2008
Spain			2006 - 2008

It is reasonably possible that certain tax examinations, appellate proceedings and/or tax litigation will conclude within the next 12 months, the impact of which could be up to a $100 million adjustment to tax expense.

Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2011
(unaudited)

		Impacts of Tax Legislation
		On March 23, 2010, the U.S. President signed into law comprehensive health care reform legislation under the Patient Protection and Affordable Care Act (HR3590). Included among the major provisions of the law is a change in the tax treatment of a portion of Medicare Part D medical payments. The Company recorded a noncash charge of approximately $18 million in the second quarter of fiscal year 2010 to reflect the impact of this change.
		During the six month period ended March 31, 2011, tax legislation was adopted in various jurisdictions. None of these changes had a material impact on the Company’s consolidated financial condition, results of operations or cash flows.

11.		Retirement Plans

		The 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 ASC 715, “Compensation — Retirement Benefits” (in millions):

		U.S. Pension Plans
		Three Months Ended								Six Months Ended
		March 31,								March 31,
		2011				2010				2011				2010
Service cost		$	17			$	17			$	33			$	34
Interest cost			36				38				72				76
Expected return on plan assets			(52	)			(45	)			(104	)			(90	)
Amortization of net actuarial loss			14				7				28				14
Amortization of prior service cost			—				1				—				1
Net periodic benefit cost		$	15			$	18			$	29			$	35

		Non-U.S. Pension Plans
		Three Months Ended								Six Months Ended
		March 31,								March 31,
		2011				2010				2011				2010
Service cost		$	8			$	10			$	17			$	19
Interest cost			17				17				34				35
Expected return on plan assets			(20	)			(16	)			(38	)			(32	)
Amortization of net actuarial loss			2				2				6				5
Amortization of prior service cost			1				—				1				—
Settlement loss			—				1				—				1
Curtailment gain			(6	)			—				(19	)			—
Net periodic benefit cost		$	2			$	14			$	1			$	28

Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2011
(unaudited)

		Postretirement Health and Other Benefits
		Three Months Ended								Six Months Ended
		March 31,								March 31,
		2011				2010				2011				2010
Service cost		$	1			$	1			$	2			$	2
Interest cost			4				4				7				7
Amortization of net actuarial loss			—				—				1				—
Amortization of prior service credit			(5	)			(5	)			(9	)			(9	)
Net periodic benefit cost		$	—			$	—			$	1			$	—

12.

Debt and Financing Arrangements

		During the quarter ended March 31, 2011, the Company replaced its $2.05 billion committed five-year credit facility, scheduled to mature in December 2011, with a $2.5 billion committed four-year credit facility scheduled to mature in February 2015. The facility is used to support the Company’s outstanding commercial paper. At March 31, 2011, there were no draws on the facility.
		During the quarter ended March 31, 2011, the Company issued $350 million aggregate principal amount of floating rate senior unsecured notes due in fiscal 2014, $450 million aggregate principal amount of 1.75% senior unsecured fixed rate notes due in fiscal 2014, $500 million aggregate principal amount of 4.25% senior unsecured fixed rate notes due in fiscal 2021 and $300 million aggregate principal amount of 5.70% senior unsecured fixed rate notes due in fiscal 2041. Aggregate net proceeds of $1.6 billion from the issues were used for general corporate purposes including the retirement of short-term debt.
		During the quarter ended March 31, 2011, the Company entered into a 6-year, 100 million euro, floating rate loan scheduled to mature in February 2017. Proceeds from the facility were used for general corporate purposes.
		During the quarter ended March 31, 2011, the Company retired $654 million in principal amount, plus accrued interest, of its 5.25% fixed rate notes that matured on January 15, 2011. The Company used cash to fund the payment.
		During the quarter ended March 31, 2011, the Company retired its $100 million committed revolving facility prior to its scheduled maturity date of December 2011. There were no draws on the facility.
		During the quarter ended December 31, 2010, the Company repaid debt of $82 million which was acquired as part of an acquisition in the same quarter. The Company used cash to repay the debt.
		During the quarter ended March 31, 2010, the Company issued $500 million aggregate principal amount of 5.0% senior unsecured fixed rate notes due in fiscal 2020. Net proceeds from the issue were used for general corporate purposes including the retirement of short-term debt.
		During the quarter ended March 31, 2010, the Company retired approximately $61 million in principal amount of its fixed rate notes scheduled to mature on January 15, 2011. The Company used cash to fund the repurchases.
		During the quarter ended March 31, 2010, the Company retired its 18 billion yen, three year, floating rate loan agreement scheduled to mature on January 18, 2011. The Company used cash to repay the note.
		During the quarter ended December 31, 2009, the Company retired its 12 billion yen, three year, floating rate loan agreement that matured. Additionally, the Company retired its 7 billion yen, three year, floating rate loan agreement scheduled to mature on January 18, 2011. The Company used cash to repay the notes.

Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2011
(unaudited)

During the quarter ended December 31, 2009, the Company retired approximately $13 million in principal amount of its fixed rate notes scheduled to mature on January 15, 2011. Additionally, the Company repurchased 1,685 notes ($1,685,000 par value) of its 6.5% convertible senior notes scheduled to mature on September 30, 2012. The Company used cash to fund the repurchases.

13.		Earnings Per Share

		The Company presents both basic and diluted earnings per share (EPS) amounts. Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted EPS is calculated by dividing net income by the weighted average number of common shares and common equivalent shares outstanding during the reporting period that are calculated using the treasury stock method for stock options. The treasury stock method assumes that the Company uses the proceeds from the exercise of awards to repurchase common stock at the average market price during the period. The assumed proceeds under the treasury stock method include the purchase price that the grantee will pay in the future, compensation cost for future service that the Company has not yet recognized and any windfall tax benefits that would be credited to capital in excess of par value when the award generates a tax deduction. If there would be a shortfall resulting in a charge to capital in excess of par value, such an amount would be a reduction of the proceeds.
		The Company’s outstanding Equity Units due 2042 and 6.5% convertible senior notes due 2012 are reflected in diluted earnings per share using the “if-converted” method. Under this method, if dilutive, the common stock is assumed issued as of the beginning of the reporting period and included in calculating diluted earnings per share. In addition, if dilutive, interest expense, net of tax, related to the outstanding Equity Units and convertible senior notes is added back to the numerator in calculating diluted earnings per share.
		The following table reconciles the numerators and denominators used to calculate basic and diluted earnings per share (in millions):

		Three Months Ended								Six Months Ended
		March 31,								March 31,
		2011				2010				2011				2010
Income Available to Common Shareholders
Basic income available to common shareholders		$	354			$	274			$	729			$	624
Interest expense, net of tax			1				1				2				4
Diluted income available to common shareholders		$	355			$	275			$	731			$	628
Weighted Average Shares Outstanding
Basic weighted average shares outstanding			677.3				671.7				676.3				671.1
Effect of dilutive securities:
Stock options			9.2				6.3				8.6				6.1
Equity units			4.5				4.5				4.5				4.5
Convertible senior notes			—				0.1				—				0.1
Diluted weighted average shares outstanding			691.0				682.6				689.4				681.8
Antidilutive Securities
Options to purchase common shares			—				0.8				—				0.8

During the three months ended March 31, 2011 and 2010, the Company declared a dividend of $0.16 and $0.13, respectively, per common share. During the six months ended March 31, 2011 and 2010, the Company declared two quarterly dividends totaling $0.32 and $0.26, respectively, per common share. The Company paid all dividends in the month subsequent to the end of each fiscal quarter.

Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2011
(unaudited)

14.

Equity and Noncontrolling Interests

		The following schedules present changes in consolidated equity attributable to Johnson Controls, Inc. and noncontrolling interests (in millions):

		Three Months Ended March 31, 2011												Three Months Ended March 31, 2010
		Equity				Equity								Equity				Equity
		Attributable to				Attributable to								Attributable to				Attributable to
		Johnson				Noncontrolling								Johnson				Noncontrolling
		Controls, Inc.				Interests				Total Equity				Controls, Inc.				Interests				Total Equity
Beginning balance, December 31		$	10,431			$	117			$	10,548			$	9,317			$	84			$	9,401
Total comprehensive income:
Net income			354				16				370				274				17				291
Foreign currency translation adjustments			199				—				199				(175	)			(1	)			(176	)
Realized and unrealized gains (losses) on derivatives			(3	)			—				(3	)			4				—				4
Unrealized gains on marketable common stock			2				—				2				—				—				—
Employee retirement plans			63				—				63				8				—				8
Other comprehensive income (loss)			261				—				261				(163	)			(1	)			(164	)
Comprehensive income			615				16				631				111				16				127
Other changes in equity:
Cash dividends - common stock			(109	)			—				(109	)			(87	)			—				(87	)
Dividends attributable to noncontrolling interests			—				(3	)			(3	)			—				(4	)			(4	)
Redemption value adjustment attributable to redeemable noncontrolling interests			1				—				1				6				—				6
Other, including options exercised			38				—				38				30				—				30
Ending balance, March 31		$	10,976			$	130			$	11,106			$	9,377			$	96			$	9,473

Johnson Controls, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2011
(unaudited)

		Six Months Ended March 31, 2011												Six Months Ended March 31, 2010
		Equity				Equity								Equity				Equity
		Attributable to				Attributable to								Attributable to				Attributable to
		Johnson				Noncontrolling								Johnson				Noncontrolling
		Controls, Inc.				Interests				Total Equity				Controls, Inc.				Interests				Total Equity
Beginning balance, September 30		$	10,071			$	106			$	10,177			$	9,100			$	84			$	9,184
Total comprehensive income:
Net income			729				31				760				624				31				655
Foreign currency translation adjustments			170				1				171				(282	)			(2	)			(284	)
Realized and unrealized gains on derivatives			2				—				2				7				—				7
Unrealized gains on marketable common stock			7				—				7				—				—				—
Employee retirement plans			71				—				71				38				—				38
Other comprehensive income (loss)			250				1				251				(237	)			(2	)			(239	)
Comprehensive income			979				32				1,011				387				29				416
Other changes in equity:
Cash dividends - common stock			(217	)			—				(217	)			(174	)			—				(174	)
Dividends attributable to noncontrolling interests			—				(8	)			(8	)			—				(17	)			(17	)
Redemption value adjustment attributable to redeemable noncontrolling interests			5				—				5				8				—				8
Other, including options exercised			138				—				138				56				—				56
Ending balance, March 31		$	10,976			$	130			$	11,106			$	9,377			$	96			$	9,473