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
For the quarterly period ended March 31, 2018
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-13836  
 
 
 
 
 
 
JOHNSON CONTROLS INTERNATIONAL PLC
(Exact name of registrant as specified in its charter)  
 
 
 
 
 
 
Ireland
 
98-0390500
(Jurisdiction of Incorporation)
 
(I.R.S. Employer Identification No.)
 
 
One Albert Quay
Cork, Ireland
(Address of principal executive offices)
353-21-423-5000

(Registrant’s telephone number)

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   ¨
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   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
 
 
Accelerated filer
¨

Non-accelerated filer
¨

(Do not check if a smaller
 
Smaller reporting company
¨

 
 
 reporting company)

 
Emerging growth company
¨

 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Ordinary Shares Outstanding at March 31, 2018
Ordinary Shares, $0.01 par value per share
 
926,204,412
 
 
 
 
 

1

JOHNSON CONTROLS INTERNATIONAL PLC
FORM 10-Q
Report Index

   
Page
Part I. Financial Information
 
 
 
Item 1. Financial Statements (unaudited)
 
 
 
Consolidated Statements of Financial Position at March 31, 2018 and September 30, 2017
 
 
Consolidated Statements of Income for the Three and Six Month Periods Ended March 31, 2018 and 2017
 
 
Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Month Periods Ended March 31, 2018 and 2017
 
 
Consolidated Statements of Cash Flows for the Six Month Periods Ended March 31, 2018 and 2017
 
 
Notes to Consolidated Financial Statements
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
 
Item 4. Controls and Procedures
 
 
Part II. Other Information
 
 
 
Item 1. Legal Proceedings
 
 
Item 1A. Risk Factors
 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 
Item 6. Exhibits
 
 
Signatures

2


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
Johnson Controls International plc
Consolidated Statements of Financial Position
(in millions, except par value; unaudited)
 
 
 
 
 
March 31, 2018
 
September 30, 2017
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
268

 
$
321

Accounts receivable - net
6,679

 
6,666

Inventories
3,565

 
3,209

Assets held for sale
22

 
189

Other current assets
1,737

 
1,907

Current assets
12,271

 
12,292

 
 
 
 
Property, plant and equipment - net
6,235

 
6,121

Goodwill
19,806

 
19,688

Other intangible assets - net
6,625

 
6,741

Investments in partially-owned affiliates
1,294

 
1,191

Noncurrent assets held for sale
—

 
1,920

Other noncurrent assets
3,721

 
3,931

Total assets
$
49,952

 
$
51,884

 
 
 
 
Liabilities and Equity
 
 
 
 
 
 
 
Short-term debt
$
1,111

 
$
1,214

Current portion of long-term debt
25

 
394

Accounts payable
4,250

 
4,271

Accrued compensation and benefits
866

 
1,071

Deferred revenue
1,543

 
1,279

Liabilities held for sale
—

 
72

Other current liabilities
3,197

 
3,553

Current liabilities
10,992

 
11,854

 
 
 
 
Long-term debt
10,962

 
11,964

Pension and postretirement benefits
864

 
947

Noncurrent liabilities held for sale
—

 
173

Other noncurrent liabilities
5,019

 
5,368

Long-term liabilities
16,845

 
18,452

 
 
 
 
Commitments and contingencies (Note 21)


 


 
 
 
 
Redeemable noncontrolling interests
235

 
211

 
 
 
 
Ordinary shares, $0.01 par value
9

 
9

Ordinary A shares, €1.00 par value
—

 
—

Preferred shares, $0.01 par value
—

 
—

Ordinary shares held in treasury, at cost
(946
)
 
(710
)
Capital in excess of par value
16,471

 
16,390

Retained earnings
5,594

 
5,231

Accumulated other comprehensive loss
(254
)
 
(473
)
Shareholders’ equity attributable to Johnson Controls
20,874

 
20,447

Noncontrolling interests
1,006

 
920

Total equity
21,880

 
21,367

Total liabilities and equity
$
49,952

 
$
51,884


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

3


Johnson Controls International plc
Consolidated Statements of Income
(in millions, except per share data; unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2018
 
2017
 
2018
 
2017
Net sales
 
 
 
 
 
 
 
Products and systems*
$
5,996

 
$
5,769

 
$
11,942

 
$
11,354

Services*
1,479

 
1,498

 
2,968

 
2,999

 
7,475

 
7,267

 
14,910

 
14,353

Cost of sales
 
 
 
 
 
 
 
Products and systems*
4,417

 
4,087

 
8,866

 
8,150

Services*
838

 
899

 
1,655

 
1,808

 
5,255

 
4,986

 
10,521

 
9,958

 
 
 
 
 
 
 
 
Gross profit
2,220

 
2,281

 
4,389

 
4,395

 
 
 
 
 
 
 
 
Selling, general and administrative expenses
(1,588
)
 
(1,726
)
 
(3,005
)
 
(3,296
)
Restructuring and impairment costs
—

 
(99
)
 
(158
)
 
(177
)
Net financing charges
(115
)
 
(116
)
 
(231
)
 
(252
)
Equity income
44

 
53

 
104

 
108

 
 
 
 
 
 
 
 
Income from continuing operations before income taxes
561

 
393

 
1,099

 
778

 
 
 
 
 
 
 
 
Income tax provision
78

 
508

 
345

 
481

 
 
 
 
 
 
 
 
Income (loss) from continuing operations
483

 
(115
)
 
754

 
297

 
 
 
 
 
 
 
 
Loss from discontinued operations, net of tax (Note 4)
—

 
—

 
—

 
(34
)
 
 
 
 
 
 
 
 
Net income (loss)
483

 
(115
)
 
754

 
263

 
 
 
 
 
 
 
 
Income from continuing operations attributable to noncontrolling
   interests
45

 
33

 
86

 
73

 
 
 
 
 
 
 
 
Income from discontinued operations attributable to noncontrolling
   interests
—

 
—

 
—

 
9

 
 
 
 
 
 
 
 
Net income (loss) attributable to Johnson Controls
$
438

 
$
(148
)
 
$
668

 
$
181

 
 
 
 
 
 
 
 
Amounts attributable to Johnson Controls ordinary shareholders:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
438

 
$
(148
)
 
$
668

 
$
224

        Loss from discontinued operations
—

 
—

 
—

 
(43
)
Net income (loss)
$
438

 
$
(148
)
 
$
668

 
$
181

 
 
 
 
 
 
 
 
Basic earnings (loss) per share attributable to Johnson Controls
 
 
 
 
 
 
 
Continuing operations
$
0.47

 
$
(0.16
)
 
$
0.72

 
$
0.24

Discontinued operations
—

 
—

 
—

 
(0.05
)
Net income (loss)
$
0.47

 
$
(0.16
)
 
$
0.72

 
$
0.19

 
 
 
 
 
 
 
 
Diluted earnings (loss) per share attributable to Johnson Controls
 
 
 
 
 
 
 
Continuing operations
$
0.47

 
$
(0.16
)
 
$
0.72

 
$
0.24

Discontinued operations
—

 
—

 
—

 
(0.05
)
Net income (loss)
$
0.47

 
$
(0.16
)
 
$
0.72

 
$
0.19


*
Products and systems consist of Building Technologies & Solutions and Power Solutions products and systems. Services are Building Technologies & Solutions technical services.

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

4


Johnson Controls International plc
Consolidated Statements of Comprehensive Income (Loss)
(in millions; unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Net income (loss)
$
483

 
$
(115
)
 
$
754

 
$
263

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
204

 
252

 
283

 
(451
)
Realized and unrealized losses on derivatives
(10
)
 
(8
)
 
(11
)
 
(4
)
Realized and unrealized gains (losses) on marketable securities
(2
)
 
11

 
(2
)
 
9

 
 
 
 
 
 
 
 
Other comprehensive income (loss)
192

 
255

 
270

 
(446
)
 
 
 
 
 
 
 
 
Total comprehensive income (loss)
675

 
140

 
1,024

 
(183
)
 
 
 
 
 
 
 
 
Comprehensive income attributable to noncontrolling interests
77

 
42

 
137

 
51

 
 
 
 
 
 
 
 
Comprehensive income (loss) attributable to Johnson Controls
$
598

 
$
98

 
$
887

 
$
(234
)

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

5


Johnson Controls International plc
Consolidated Statements of Cash Flows
(in millions; unaudited)
 
Six Months Ended March 31,
 
2018
 
2017
Operating Activities
 
 
 
Net income attributable to Johnson Controls
$
668

 
$
181

Income from continuing operations attributable to noncontrolling interests
86

 
73

Income from discontinued operations attributable to noncontrolling interests
—

 
9

Net income
754

 
263

Adjustments to reconcile net income to cash provided (used) by operating activities:
 
 
 
Depreciation and amortization
552

 
638

Pension and postretirement benefit income
(72
)
 
(202
)
Pension and postretirement contributions
(37
)
 
(258
)
Equity in earnings of partially-owned affiliates, net of dividends received
(79
)
 
(116
)
Deferred income taxes
(77
)
 
1,059

Non-cash restructuring and impairment charges
30

 
39

Gain on Scott Safety business divestiture
(114
)
 
—

Equity-based compensation
56

 
81

Other
(24
)
 
1

Changes in assets and liabilities, excluding acquisitions and divestitures:
 
 
 
Accounts receivable
108

 
(21
)
Inventories
(300
)
 
(370
)
Other assets
15

 
(150
)
Restructuring reserves
(12
)
 
47

Accounts payable and accrued liabilities
(521
)
 
(599
)
Accrued income taxes
254

 
(1,931
)
Cash provided (used) by operating activities
533

 
(1,519
)
 
 
 
 
Investing Activities
 
 
 
Capital expenditures
(497
)
 
(634
)
Sale of property, plant and equipment
10

 
18

Acquisition of businesses, net of cash acquired
(15
)
 
(6
)
Business divestitures
2,114

 
180

Changes in long-term investments
(14
)
 
(30
)
Cash provided (used) by investing activities
1,598

 
(472
)
 
 
 
 
Financing Activities
 
 
 
Increase (decrease) in short-term debt - net
(100
)
 
55

Increase in long-term debt
886

 
1,552

Repayment of long-term debt
(2,328
)
 
(831
)
Debt financing costs
(4
)
 
(17
)
Stock repurchases
(199
)
 
(119
)
Payment of cash dividends
(473
)
 
(235
)
Proceeds from the exercise of stock options
36

 
88

Employee equity-based compensation withholding taxes
(37
)
 
(33
)
Dividends paid to noncontrolling interests
(46
)
 
(78
)
Dividend from Adient spin-off
—

 
2,050

Cash transferred to Adient related to spin-off
—

 
(665
)
Cash paid related to prior acquisitions
—

 
(37
)
Other
11

 
14

Cash provided (used) by financing activities
(2,254
)
 
1,744

Effect of exchange rate changes on cash and cash equivalents
61

 
(25
)
Change in cash held for sale
9

 
105

Decrease in cash and cash equivalents
(53
)
 
(167
)
Cash and cash equivalents at beginning of period
321

 
579

Cash and cash equivalents at end of period
$
268

 
$
412


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

6

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)



1.
Financial Statements

The consolidated financial statements include the consolidated accounts of Johnson Controls International plc, a corporation organized under the laws of Ireland, and its subsidiaries (Johnson Controls International plc and all its subsidiaries, hereinafter collectively referred to as the "Company" or "Johnson Controls"). In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (which include normal recurring adjustments) necessary to state fairly the financial position, results of operations and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC"). These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2017 filed with the SEC on November 21, 2017. The results of operations for the three and six month periods ended March 31, 2018 are not necessarily indicative of results for the Company’s 2018 fiscal year because of seasonal and other factors.

Nature of Operations

Johnson Controls International plc, headquartered in Cork, Ireland, is a global diversified technology and multi industrial leader serving a wide range of customers in more than 150 countries. The Company creates intelligent buildings, efficient energy solutions, integrated infrastructure and next generation transportation systems that work seamlessly together to deliver on the promise of smart cities and communities. The Company is committed to helping our customers win and creating greater value for all of its stakeholders through strategic focus on our buildings and energy growth platforms.

In the fourth quarter of fiscal 2016, Johnson Controls, Inc. ("JCI Inc.") and Tyco International plc ("Tyco") completed their combination with JCI Inc. merging with a wholly-owned, indirect subsidiary of Tyco (the "Merger"). Following the Merger, Tyco changed its name to “Johnson Controls International plc” and JCI Inc. is a wholly-owned subsidiary of Johnson Controls International plc. The Merger was accounted for as a reverse acquisition using the acquisition method of accounting in accordance with Accounting Standards Codification ("ASC") 805, "Business Combinations." JCI Inc. was the accounting acquirer for financial reporting purposes. Accordingly, the historical consolidated financial statements of JCI Inc. for periods prior to this transaction are considered to be the historic financial statements of the Company. 

The Building Technologies & Solutions ("Buildings") business is a global market leader in engineering, developing, manufacturing and installing building products and systems around the world, including heating, ventilating, air-conditioning ("HVAC") equipment, HVAC controls, energy-management systems, security systems, fire detection systems and fire suppression solutions. The Buildings business further serves customers by providing technical services (in the HVAC, security and fire-protection space), energy-management consulting and data-driven solutions via its recently launch data-enabled business. Finally, the Company is a North American market leader in residential air conditioning and heating systems and a global market leader in industrial refrigeration products.

The Power Solutions business is a leading global supplier of lead-acid automotive batteries for virtually every type of passenger car, light truck and utility vehicle. The Company serves both automotive original equipment manufacturers and the general vehicle battery aftermarket. The Company also supplies advanced battery technologies to power start-stop, hybrid and electric vehicles.

Principles of Consolidation

The consolidated financial statements include the consolidated accounts of Johnson Controls International plc and its subsidiaries that are consolidated in conformity with U.S. GAAP. All significant intercompany transactions have been eliminated. The results of companies acquired or disposed of during the year are included in the consolidated financial statements from the effective date of acquisition or up to the date of disposal. Investments in partially-owned affiliates are accounted for by the equity method when the Company’s interest exceeds 20% and the Company does not have a controlling interest.


7

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


Under certain criteria as provided for in Financial Accounting Standards Board ("FASB") 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 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 rights. 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. If the entity is not considered a VIE, then the Company applies the voting interest model to determine whether or not the Company shall consolidate the partially-owned affiliate.

Consolidated VIEs    

Based upon the criteria set forth in ASC 810, the Company has determined that it was not the primary beneficiary in any VIEs for the reporting period ended March 31, 2018 and that it was the primary beneficiary in one VIE for the reporting period ended  September 30, 2017 , as the Company absorbed significant economics of the entity and had the power to direct the activities that are considered most significant to the entity.

In fiscal 2012, a pre-existing VIE accounted for under the equity method was reorganized into three separate investments as a result of the counterparty exercising its option to put its interest to the Company. The Company acquired additional interests in two of the reorganized group entities. The reorganized group entities are considered to be VIEs as the other owner party has been provided decision making rights but does not have equity at risk. The Company was considered the primary beneficiary of one of the entities due to the Company’s power pertaining to decisions over significant activities of the entity. As such, this VIE was consolidated within the Company’s consolidated statements of financial position as of September 30, 2017. During the quarter ended December 31, 2017, certain joint venture agreements were amended, and as a result, the Company can no longer make key operating decisions considered to be most significant to the VIE. As such, the Company is no longer considered the primary beneficiary of this entity, and the Company deconsolidated the entity during the quarter ended December 31, 2017. The impact of the entity on the Company’s consolidated statements of income for the six month periods ended March 31, 2018 and 2017 was not material.

The carrying amounts and classification of assets (none of which are restricted) and liabilities included in the Company’s consolidated statements of financial position for the consolidated VIE is as follows (in millions):
 
 
September 30,
2017
 
 
 
Current assets
 
$
2

Noncurrent assets
 
53

Total assets
 
$
55

 
 
 
Current liabilities
 
$
6

Noncurrent liabilities
 
42

Total liabilities
 
$
48


The Company did not have a significant variable interest in any other consolidated VIEs for the presented reporting periods.

Nonconsolidated VIEs

As mentioned previously within the "Consolidated VIEs" section above, in fisca1 2012, a pre-existing VIE was reorganized into three separate investments as a result of the counterparty exercising its option to put its interest to the Company. The reorganized group entities are considered to be VIEs as the other owner party has been provided decision making rights but does not have equity at risk. The VIEs are named as co-obligors under a third party debt agreement in the amount of $159 million , maturing in fiscal 2020, under which a VIE could become subject to paying more than its allocated share of the third

8

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


party debt in the event of bankruptcy of one or more of the other co-obligors. The other co-obligors, all related parties in which the Company is an equity investor, consist of the remaining group entities involved in the reorganization. As part of the overall reorganization transaction, the Company has also provided financial support to the group entities in the form of loans totaling $37 million , which are subordinate to the third party debt agreement. The Company is a significant customer of certain co-obligors, resulting in a remote possibility of loss. Additionally, the Company is subject to a floor guaranty expiring in fiscal 2022; in the event that the other owner party no longer owns any part of the group entities due to sale or transfer, the Company has guaranteed that the proceeds received from the sale or transfer will not be less than $25 million . The Company has partnered with the group entities to design and manufacture battery components for the Power Solutions business. The Company is not considered to be the primary beneficiary of three of the entities as of March 31, 2018 and two of the entities as of September 30, 2017 , as the Company cannot make key operating decisions considered to be most significant to the VIEs. Therefore, the entities are 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 Company’s maximum exposure to loss includes the partially-owned affiliate investment balances of $41 million and $65 million at March 31, 2018 and  September 30, 2017 , respectively, as well as the subordinated loan from the Company, third party debt agreement and floor guaranty mentioned above. Current liabilities due to the VIEs are not material and represent normal course of business trade payables for all presented periods.

The Company did not have a significant variable interest in any other unconsolidated VIEs for the presented reporting periods.

Restricted Cash

At March 31, 2018 , the Company held restricted cash of approximately  $21 million , of which  $12 million was recorded within other current assets in the consolidated statements of financial position and  $9 million was recorded within other noncurrent assets in the consolidated statements of financial position. At September 30, 2017 , the Company held restricted cash of approximately  $31 million , of which  $22 million was recorded within other current assets in the consolidated statements of financial position and  $9 million was recorded within other noncurrent assets in the consolidated statements of financial position. These amounts were primarily related to cash restricted for payment of asbestos liabilities.

Retrospective Changes

Effective July 1, 2017, the Company reorganized the reportable segments within its Building Technologies & Solutions business to align with its new management reporting structure and business activities. Prior to this reorganization, Building Technologies & Solutions was comprised of five reportable segments for financial reporting purposes: Systems and Service North America, Products North America, Asia, Rest of World and Tyco. As a result of this change, Building Technologies & Solutions is now comprised of four reportable segments for financial reporting purposes: Building Solutions North America, Building Solutions EMEA/LA, Building Solutions Asia Pacific and Global Products. Refer to Note 18, “Segment Information,” of the notes to consolidated financial statements for further information. The net sales and cost of sales split of products and systems versus services in the consolidated statements of income has also been revised for the Building Technologies & Solutions reorganization.

In March 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." During the quarter ended December 31, 2017, the Company adopted ASU No. 2016-09. As a result, employee withholding taxes paid to taxing authorities for equity-based compensation transactions, previously classified as cash flows from operating activities, were reclassified to financing activities in the consolidated statements of cash flows for the six months ended March 31, 2017. Refer to Note 2, "New Accounting Standards," of the notes to consolidated financial statements for further information.
    
2. 
New Accounting Standards

Recently Adopted Accounting Pronouncements

In March 2018, the FASB issued ASU No. 2018-05, "Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulleting No. 118" to add various SEC paragraphs pursuant to the issuance of SEC Staff Accounting Bulletin No. 118 ("SAB 118") to ASC 740 "Income Taxes." SAB 118 was issued by the SEC in December 2017 to provide immediate guidance for accounting implications of U.S. tax reform under the "Tax Cuts and Jobs Act" in the period of

9

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


enactment. SAB 118 provides for a provisional one year measurement period for entities to finalize their accounting for certain income tax effects related to the "Tax Cuts and Jobs Act." The Company applied this guidance to its consolidated financial statements and related disclosures beginning in the quarter ended December 31, 2017. Refer to Note 9, "Income Taxes," of the notes to consolidated financial statements for further information.

In August 2017, the FASB issued ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." The ASU more closely aligns the results of hedge accounting with risk management activities through amendments to the designation and measurement guidance to better reflect a Company's hedging strategy and effectiveness. During the quarter ended December 31, 2017, the Company early adopted ASU 2017-12. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." ASU No. 2016-09 impacts certain aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statements of cash flows. During the quarter ended December 31, 2017, the Company adopted ASU No. 2016-09. As a result, the Company recognized deferred tax assets of $179 million in the consolidated statements of financial position related to certain operating loss carryforwards resulting from the exercise of employee stock options and vested restricted stock on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of October 1, 2017. Additionally, employee withholding taxes paid to taxing authorities for equity-based compensation transactions, previously classified as cash flows from operating activities, were reclassified to financing activities in the consolidated statements of cash flows for the six months ended March 31, 2017 for comparative purposes. The remaining provisions of ASU No. 2016-09 did not have a material impact on the Company's consolidated financial statements.
 
Recently Issued Accounting Pronouncements

In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)." The ASU requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The guidance will be effective for the Company for the quarter ending December 31, 2018, with early adoption permitted. The amendments in this update should be applied retrospectively to all periods presented. The impact of this guidance for the Company will depend on the levels of restricted cash balances in the periods presented.

In October 2016, the FASB issued ASU No. 2016-16, "Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory." The ASU requires the tax effects of all intra-entity sales of assets other than inventory to be recognized in the period in which the transaction occurs. The guidance will be effective for the Company for the quarter ending December 31, 2018, with early adoption permitted but only in the first interim period of a fiscal year. The changes are required to be applied by means of a cumulative-effect adjustment recorded in retained earnings as of the beginning of the fiscal year of adoption. The Company is currently assessing the impact adoption of this guidance will have on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments." ASU No. 2016-15 provides clarification guidance on eight specific cash flow presentation issues in order to reduce the diversity in practice. ASU No. 2016-15 will be effective for the Company for the quarter ending December 31, 2018, with early adoption permitted. The guidance should be applied retrospectively to all periods presented, unless deemed impracticable, in which case prospective application is permitted. The Company is currently assessing the impact adoption of this guidance will have on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." ASU No. 2016-02 requires recognition of operating leases as lease assets and liabilities on the balance sheet, and disclosure of key information about leasing arrangements. ASU No. 2016-02 will be effective retrospectively for the Company for the quarter ending December 31, 2019, with early adoption permitted. The Company is currently assessing the impact adoption of this guidance will have on its consolidated financial statements. The Company has started the assessment process by evaluating the population of leases under the revised definition of what qualifies as a leased asset. The Company is the lessee under various agreements for

10

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


facilities and equipment that are currently accounted for as operating leases. The new guidance will require the Company to record operating leases on the balance sheet with a right-of-use asset and corresponding liability for future payment obligations. Additionally in January 2018, the FASB issued ASU No. 2018-01, "Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842," which provides an optional transition practical expedient for existing or expired land easements that were not previously recorded as leases. ASU No. 2018-01 follows the same implementation guidelines as ASU No. 2016-02. The Company expects the new guidance will have a material impact on its consolidated statements of financial position for the addition of right-of-use assets and lease liabilities, but the Company does not expect it to have a material impact on its consolidated statements of income and its consolidated statements of cash flows.
In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." ASU No. 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments, including marketable securities. ASU No. 2016-01 will be effective for the Company for the quarter ending December 31, 2018, and early adoption is not permitted, with certain exceptions. The changes are required to be applied by means of a cumulative-effect adjustment on the balance sheet as of the beginning of the fiscal year of adoption. Additionally in February 2018, the FASB issued ASU No. 2018-03, "Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," which provides additional clarification on certain topics addressed in ASU No. 2016-01. ASU No. 2018-01 will be effective for the Company when ASU No. 2016-01 is adopted. The impact of this guidance for the Company will depend on the magnitude of the unrealized gains and losses on the Company's marketable securities investments.

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." ASU No. 2014-09 clarifies the principles for recognizing revenue when an entity either enters into a contract with customers to transfer goods or services or enters into a contract for the transfer of non-financial assets. The original standard was effective retrospectively for the Company for the quarter ending December 31, 2017; however in August 2015, the FASB issued ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which defers the effective date of ASU No. 2014-09 by one-year for all entities. The new standard will become effective retrospectively for the Company for the quarter ending December 31, 2018, with early adoption permitted, but not before the original effective date. Additionally, in March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)," in April 2016, the FASB issued ASU No. 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing," in May 2016, the FASB issued ASU No. 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients," and in December 2016, the FASB issued ASU No. 2016-20, "Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers," all of which provide additional clarification on certain topics addressed in ASU No. 2014-09. ASU No. 2016-08, ASU No. 2016-10, ASU No. 2016-12 and ASU No. 2016-20 follow the same implementation guidelines as ASU No. 2014-09 and ASU No. 2015-14. The Company has elected to adopt the new revenue guidance as of October 1, 2018 using the modified retrospective approach.  In preparation for adoption of the new guidance, the Company has reviewed representative samples of contracts and other forms of agreements with customers globally and is in the process of evaluating the impact of the new revenue standard. Based on its procedures to date, the Company is not in a position today to quantify the potential impact the new revenue standard will have to its consolidated financial statements.

Other recently issued accounting pronouncements are not expected to have a material impact on the Company's consolidated financial statements.

3.
Acquisitions and Divestitures

During the first six months of fiscal 2018, the Company completed certain acquisitions for a combined purchase price of  $15 million , all of which was paid as of March 31, 2018. The acquisitions were not material to the Company’s consolidated financial statements. In connection with the acquisitions, the Company recorded goodwill of  $8 million within the Global Products segment.

In the second quarter of fiscal 2018, the Company completed the sale of a certain Global Products business. The selling price was  $103 million , all of which was received in the three months ended March 31, 2018. In connection with the sale, the

11

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


Company reduced goodwill by  $20 million and realized an insignificant gain. The divestiture was not material to the Company's consolidated financial statements.

In the first quarter of fiscal 2018, the Company completed the sale of its Scott Safety business to 3M Company. The selling price, net of cash divested, was $2.0 billion , all of which was received as of December 31, 2017. In connection with the sale, the Company recorded a pre-tax gain of $114 million within selling, general and administrative expenses in the consolidated statements of income and reduced goodwill in assets held for sale by  $1.2 billion . The gain, net of tax, recorded was $84 million . Net cash proceeds from the transaction of approximately $1.9 billion were used to repay a significant portion of the Tyco International Holding S.a.r.L.'s ("TSarl") $4.0 billion of merger-related debt. The Scott Safety business is included in the Global Products segment and was reported within assets and liabilities held for sale in the consolidated statements of financial position as of September 30, 2017. Refer to Note 4, "Discontinued Operations," of the notes to consolidated financial statements for further disclosure related to the Company's net assets held for sale.

In the first six months of fiscal 2017, the Company completed  three  acquisitions for a combined purchase price, net of cash acquired, of  $9 million ,  $6 million  of which was paid in the six months ended March 31, 2017. The acquisitions in the aggregate were not material to the Company’s consolidated financial statements.

In the second quarter of fiscal 2017, the Company completed the sale of its ADT security business in South Africa within the Building Solutions EMEA/LA segment. The selling price, net of cash divested, was  $129 million , all of which was received in the six months ended March 31, 2017. In connection with the sale, the Company reduced goodwill in assets held for sale by  $92 million . The divestiture was not material to the Company's consolidated financial statements.

In the first six months of fiscal 2017, the Company completed one divestiture for a sales price of $4 million , all of which was received in the six months ended March 31, 2017. The divestiture decreased the Company's ownership from a controlling to noncontrolling interest, and as a result, the Company deconsolidated cash of $5 million . The divestiture was not material to the Company's consolidated financial statements.

In the first six months of fiscal 2017, the Company received $52 million in net cash proceeds related to prior year business divestitures.

4.
Discontinued Operations

On October 31, 2016, the Company completed the spin-off of its Automotive Experience business by way of the transfer of the Automotive Experience business from Johnson Controls to Adient plc and the issuance of ordinary shares of Adient directly to holders of Johnson Controls ordinary shares on a pro rata basis. Prior to the open of business on October 31, 2016, each of the Company's shareholders received one ordinary share of Adient plc for every 10 ordinary shares of Johnson Controls held as of the close of business on October 19, 2016, the record date for the distribution. Company shareholders received cash in lieu of fractional shares of Adient, if any. Following the separation and distribution, Adient plc is now an independent public company trading on the New York Stock Exchange ("NYSE") under the symbol "ADNT." The Company did not retain any equity interest in Adient plc. Adient’s historical financial results are reflected in the Company’s consolidated financial statements as a discontinued operation. The Company did not allocate any general corporate overhead to discontinued operations.


12

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


The following table summarizes the results of Adient, reclassified as discontinued operations for the six month period ended March 31, 2017 (in millions). As the Adient spin-off occurred on October 31, 2016, there is only one month of Adient results included in the six month period ended March 31, 2017 .
 
Six Months Ended March 31,
 
2017
 
 
Net sales
$
1,434

 
 
Income from discontinued operations before income taxes
1

Provision for income taxes on discontinued operations
35

Income from discontinued operations attributable to noncontrolling interests, net of tax
9

Loss from discontinued operations
$
(43
)

For the six months ended  March 31, 2017 , the income from discontinued operations before income taxes included separation costs of  $79 million .

For the six months ended  March 31, 2017 , the effective tax rate was more than the U.S. federal statutory rate of  35%  primarily due to the tax impacts of separation costs and Adient spin-off related tax expense, partially offset by non-U.S. tax rate differentials.

The following table summarizes depreciation and amortization, capital expenditures, and significant operating and investing noncash items related to Adient for the six month period ended March 31, 2017 (in millions):
 
Six Months Ended March 31,
 
2017
 
 
Depreciation and amortization
$
29

Equity in earnings of partially-owned affiliates
(31
)
Deferred income taxes
562

Equity-based compensation
1

Accrued income taxes
(808
)
Capital expenditures
(91
)

Assets and Liabilities Held for Sale

During the second quarter of fiscal 2017, the Company signed a definitive agreement to sell its Scott Safety business of the Global Products segment to 3M Company. The transaction closed on October 4, 2017. The assets and liabilities of this business are presented as held for sale in the consolidated statements of financial position as of September 30, 2017. The business did not meet the criteria to be classified as a discontinued operation as the divestiture of the Scott Safety business did not have a major effect on the Company’s operations and financial results.


13

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


The following table summarizes the carrying value of the Scott Safety assets and liabilities held for sale at September 30, 2017 (in millions):
 
September 30, 2017
 
 
Cash
$
9

Accounts receivable - net
100

Inventories
75

Other current assets
5

Assets held for sale
$
189

 
 
Property, plant and equipment - net
$
79

Goodwill
1,248

Other intangible assets - net
592

Other noncurrent assets
1

Noncurrent assets held for sale
$
1,920

 
 
Accounts payable
$
37

Accrued compensation and benefits
10

Other current liabilities
25

Liabilities held for sale
$
72

 
 
Other noncurrent liabilities
$
173

Noncurrent liabilities held for sale
$
173


At March 31, 2018, $22 million of certain Corporate assets were classified as held for sale.

5.
Percentage-of-Completion Contracts

The Building Technologies & Solutions 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 primarily within accounts receivable - net and billings in excess of costs and earnings on uncompleted contracts primarily within deferred revenue in the consolidated statements of financial position. Costs and earnings in excess of billings related to these contracts were $1,065 million and $908 million at March 31, 2018 and  September 30, 2017 , respectively. Billings in excess of costs and earnings related to these contracts were $565 million and $451 million at March 31, 2018 and  September 30, 2017 , respectively.

6.
Inventories

Inventories consisted of the following (in millions):
 
March 31, 2018
 
September 30, 2017
 
 
 
 
Raw materials and supplies
$
991

 
$
919

Work-in-process
575

 
567

Finished goods
1,999

 
1,723

Inventories
$
3,565

 
$
3,209



14

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


7.
Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill in each of the Company’s reportable segments for the six month period ended March 31, 2018 were as follows (in millions):
 
 
 
Business Acquisitions
 
Business Divestitures
 
Currency Translation and Other
 
 
 
September 30,
 
 
 
 
March 31,
 
2017
 
 
 
 
2018
 
 
 
 
 
 
 
 
 
 
Building  Technologies & Solutions
 
 
 
 
 
 
 
 
 
     Building Solutions North America
$
9,637

 
$
—

 
$
—

 
$
(22
)
 
$
9,615

     Building Solutions EMEA/LA
2,012

 
—

 
—

 
77

 
2,089

     Building Solutions Asia Pacific
1,255

 
—

 
—

 
54

 
1,309

     Global Products
5,687

 
8

 
(20
)
 
2

 
5,677

Power Solutions
1,097

 
—

 
—

 
19

 
1,116

Total
$
19,688

 
$
8

 
$
(20
)
 
$
130

 
$
19,806


At September 30, 2017 , accumulated goodwill impairment charges included $47 million related to the Building Solutions EMEA/LA - Latin America reporting unit.

The Company’s other intangible assets, primarily from business acquisitions valued based on independent appraisals, consisted of (in millions):
 
March 31, 2018
 
September 30, 2017
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Amortized intangible assets
 
 
 
 
 
 
 
 
 
 
 
Technology
$
1,344

 
$
(205
)
 
$
1,139

 
$
1,328

 
$
(137
)
 
$
1,191

Customer relationships
3,163

 
(561
)
 
2,602

 
3,168

 
(486
)
 
2,682

Miscellaneous
443

 
(176
)
 
267

 
389

 
(147
)
 
242

Total amortized intangible assets
4,950

 
(942
)
 
4,008

 
4,885

 
(770
)
 
4,115

Unamortized intangible assets
 
 
 
 
 
 
 
 
 
 
 
Trademarks/trade names
2,494

 
—

 
2,494

 
2,483

 
—

 
2,483

Miscellaneous
123

 
—

 
123

 
143

 
—

 
143

 
2,617

 
—

 
2,617

 
2,626

 
—

 
2,626

Total intangible assets
$
7,567

 
$
(942
)
 
$
6,625


$
7,511


$
(770
)

$
6,741


Amortization of other intangible assets included within continuing operations for the three month periods ended March 31, 2018 and 2017 was $94 million and $126 million , respectively. Amortization of other intangible assets included within continuing operations for the six month periods ended March 31, 2018 and 2017 was $188 million and $275 million , respectively. Excluding the impact of any future acquisitions, the Company anticipates amortization for fiscal 2019, 2020, 2021, 2022 and 2023 will be approximately $383 million , $379 million , $371 million , $361 million and $348 million per year, respectively.


15

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


8.
Significant Restructuring and Impairment Costs

To better align its resources with its growth strategies and reduce the cost structure of its global operations in certain underlying markets, the Company commits to restructuring plans as necessary.

In fiscal 2018, the Company committed to a significant restructuring plan (2018 Plan) and recorded $158 million of restructuring and impairment costs in the consolidated statements of income. This was the total amount incurred to date and the total amount expected to be incurred for this restructuring plan. The restructuring actions related to cost reduction initiatives in the Company’s Building Technologies & Solutions and Power Solutions businesses and at Corporate. The costs consist primarily of workforce reductions, plant closures and asset impairments. Of the restructuring and impairment costs recorded, $76 million related to the Global Products segment, $32 million related to the Building Solutions EMEA/LA segment, $24 million related to Corporate, $14 million related to the Building Solutions Asia Pacific segment, $8 million related to the Building Solutions North America segment and $4 million related to the Power Solutions segment. The restructuring actions are expected to be substantially complete in 2020.

The following table summarizes the changes in the Company’s 2018 Plan reserve, included within other current liabilities in the consolidated statements of financial position (in millions):
 
Employee Severance and Termination Benefits
 
Long-Lived Asset Impairments
 
Other
 
Total
 
 
 
 
 
 
 
 
Original reserve
$
125

 
$
30

 
$
3

 
$
158

Utilized—noncash
—

 
(30
)
 
—

 
(30
)
Balance at December 31, 2017
$
125

 
$
—

 
$
3

 
$
128

Utilized—cash
(8
)
 
—

 
(1
)
 
(9
)
Balance at March 31, 2018
$
117

 
$
—

 
$
2

 
$
119


In fiscal 2017, the Company committed to a significant restructuring plan (2017 Plan) and recorded $367 million of restructuring and impairment costs in the consolidated statements of income. This was the total amount incurred to date and the total amount expected to be incurred for this restructuring plan. The restructuring actions related to cost reduction initiatives in the Company’s Building Technologies & Solutions and Power Solutions businesses and at Corporate. The costs consist primarily of workforce reductions, plant closures and asset impairments. Of the restructuring and impairment costs recorded, $166 million related to Corporate, $74 million related to the Building Solutions EMEA/LA segment, $59 million related to the Building Solutions North America segment, $32 million related to the Global Products segment, $20 million related to the Power Solutions segment and $16 million related to the Building Solutions Asia Pacific segment. The restructuring actions are expected to be substantially complete in 2018.


16

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


The following table summarizes the changes in the Company’s 2017 Plan reserve, included within other current liabilities in the consolidated statements of financial position (in millions):

 
Employee Severance and Termination Benefits
 
Long-Lived Asset Impairments
 
Other
 
Currency
Translation
 
Total
 
 
 
 
 
 
 
 
 
 
Original reserve
$
276

 
$
77

 
$
14

 
$
—

 
$
367

Utilized—cash
(75
)
 
—

 
—

 
—

 
(75
)
Utilized—noncash
—

 
(77
)
 
(1
)
 
—

 
(78
)
   Adjustment to restructuring reserves
25

 
—

 
—

 
—

 
25

Balance at September 30, 2017
$
226


$
—


$
13


$
—


$
239

Utilized—cash
(109
)
 
—

 
(3
)
 
—

 
(112
)
Utilized—noncash
—

 
—

 
—

 
1

 
1

Balance at March 31, 2018
$
117

 
$
—

 
$
10


$
1

 
$
128


In fiscal 2016, the Company committed to a significant restructuring plan (2016 Plan) and recorded $288 million of restructuring and impairment costs in the consolidated statements of income. This was the total amount incurred to date and the total amount expected to be incurred for this restructuring plan. The restructuring actions related to cost reduction initiatives in the Company’s Building Technologies & Solutions and Power Solutions businesses and at Corporate. The costs consist primarily of workforce reductions, plant closures, asset impairments and change-in-control payments. Of the restructuring and impairment costs recorded, $161 million related to Corporate, $66 million related to the Power Solutions segment, $44 million related to the Global Products segment and $17 million related to the Building Solutions EMEA/LA segment. The restructuring actions are expected to be substantially complete in 2018. Included in the reserve is $56 million of committed restructuring actions taken by Tyco for liabilities assumed as part of the Tyco acquisition.

Additionally, the Company recorded $332 million of restructuring and impairment costs within discontinued operations related to Adient in fiscal 2016.


17

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


The following table summarizes the changes in the Company’s 2016 Plan reserve, included within other current liabilities in the consolidated statements of financial position (in millions):

Employee Severance and Termination Benefits
 
Long-Lived Asset Impairments
 
Other
 
Currency
Translation
 
Total
 
 
 
 
 
 
 
 
 
 
Original reserve
$
368

 
$
190

 
$
62

 
$
—

 
$
620

Acquired Tyco restructuring
     reserves
78

 
—

 
—

 
—

 
78

Utilized—cash
(32
)
 
—

 
—

 
—

 
(32
)
Utilized—noncash
—

 
(190
)
 
(32
)
 
1

 
(221
)
Balance at September 30, 2016
$
414

 
$
—

 
$
30

 
$
1

 
$
445

Adient spin-off impact
(194
)
 
—

 
(22
)
 
—

 
(216
)
Utilized—cash
(86
)
 
—

 
(2
)
 
—

 
(88
)
Utilized—noncash
—

 
—

 
—

 
1

 
1

 Adjustment to restructuring
    reserves
(25
)
 
—

 
—

 
—

 
(25
)
Transfer to liabilities held for sale
(3
)
 
—

 
—

 
—

 
(3
)
Adjustment to acquired Tyco
     restructuring reserves
(22
)
 
—

 
—

 
—

 
(22
)
Balance at September 30, 2017
$
84

 
$
—

 
$
6

 
$
2

 
$
92

Utilized—cash
(14
)
 
—

 
(2
)
 
—

 
(16
)
Balance at March 31, 2018
$
70

 
$
—

 
$
4

 
$
2

 
$
76


The Company's fiscal 2018, 2017 and 2016 restructuring plans included workforce reductions of approximately 9,200 employees ( 7,300 for the Building Technologies & Solutions business, 1,700 for Corporate and 200 for Power Solutions). Restructuring charges associated with employee severance and termination benefits are paid over the severance period granted to each employee or on a lump sum basis in accordance with individual severance agreements. As of March 31, 2018 , approximately 2,700 of the employees have been separated from the Company pursuant to the restructuring plans. In addition, the restructuring plans included eleven plant closures in the Building Technologies & Solutions business. As of March 31, 2018 , four of the eleven 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 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.

9.
Income Taxes

In calculating the provision for income taxes, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances known at each interim period. On a quarterly basis, the actual effective tax rate is adjusted, as appropriate, based upon changed facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter.

The statutory tax rate in Ireland is being used as a comparison since the Company is domiciled in Ireland. For the three months ended March 31, 2018, the Company's effective tax rate was 14% and was higher than the statutory tax rate of 12.5% primarily due to tax rate differentials, partially offset by the benefits of continuing global tax planning initiatives. For the six months ended March 31, 2018, the Company's effective tax rate was 31% and was higher than the statutory tax rate of 12.5% primarily due to the discrete net impacts of U.S. Tax Reform, final income tax effects of the completed divestiture of the Scott Safety business and tax rate differentials, partially offset by the benefits of continuing global tax planning initiatives and tax audit

18

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


closures. For the three months ended March 31, 2017, the Company's effective tax rate was 129% and was higher than the statutory tax rate of 12.5% primarily due to the establishment of a deferred tax liability on the outside basis difference of the Company's investment in certain subsidiaries related to the divestiture of the Scott Safety business and tax rate differentials, partially offset by the benefits of continuing global tax planning initiatives, the jurisdictional mix of significant restructuring and impairment costs, and Tyco Merger transaction and integration costs. For the six months ended March 31, 2017, the Company's effective tax rate was 62% and was higher than the statutory tax rate of 12.5% primarily due to the establishment of a deferred tax liability on the outside basis difference of the Company's investment in certain subsidiaries related to the divestiture of the Scott Safety business, the income tax effects of pension mark-to-market gains, and tax rate differentials, partially offset by the benefits of continuing global tax planning initiatives, the jurisdictional mix of significant restructuring and impairment costs, Tyco Merger transaction and integration costs, purchase accounting impacts and a tax benefit due to changes in entity tax status.

Valuation Allowance

The Company reviews the realizability of its deferred tax assets 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.

Uncertain Tax Positions

At September 30, 2017 , the Company had gross tax effected unrecognized tax benefits of $2,173 million , of which $2,047 million , if recognized, would impact the effective tax rate. Total net accrued interest at September 30, 2017 was approximately $99 million (net of tax benefit). The interest and penalties accrued during the six months ended March 31, 2018 and 2017 were not material. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.

In the first quarter of fiscal 2018, tax audit resolutions resulted in a net $25 million benefit to income tax expense.

In the U.S., fiscal years 2015 through 2016 are currently under exam by the Internal Revenue Service ("IRS"). Additionally, the Company is currently under exam in the following major non-U.S. jurisdictions:
Tax Jurisdiction
 
Tax Years Covered
 
 
 
Belgium
 
2015 - 2016
Brazil
 
2011 - 2012
Canada
 
2013 - 2014
China
 
2008 - 2016
France
 
2010 - 2016
Germany
 
2007 - 2015
Spain
 
2010 - 2014
Switzerland
 
2011 - 2014
United Kingdom
 
2011 - 2015

Impacts of Tax Legislation

On December 22, 2017, the “Tax Cuts and Jobs Act” (H.R. 1) was enacted which significantly revises U.S. corporate income tax by, among other things, lower corporate income tax rates, impose a one-time transition tax on deemed repatriated earnings of non-U.S. subsidiaries, and implement a territorial tax system and various base erosion minimum tax provisions.


19

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


In the first quarter of fiscal 2018, as a result of the enacted legislation, the Company recorded a discrete non-cash tax benefit of $101 million due to the remeasurement of U.S. deferred tax assets and liabilities. The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21% or the blended fiscal 2018 rate of 24.5% . This tax benefit is provisional as the Company is still analyzing certain aspects of the legislation and refining calculations, which could potentially materially affect the measurement of these amounts or give rise to new deferred tax amounts.

In the first quarter of fiscal 2018, the Company also recorded a discrete tax charge of $305 million due to the one-time transition tax on deemed repatriated earnings of certain non-U.S. subsidiaries. This charge is inclusive of relevant non-U.S. withholding taxes and U.S. state income tax on the portion of the earnings expected to be repatriated. This one-time transition tax is based on the Company’s post-1986 earnings and profits (“E&P”) not previously subjected to U.S. taxation. This tax charge is provisional as the Company has not yet finally determined its post-1986 non-U.S. E&P. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. Given the varying tax rates ( 15.5% on cash and 8% on other property), this amount may change when the Company completes the calculation of post-1986 non-U.S. E&P previously deferred from U.S. federal taxation and concludes on the amounts held in cash versus other specified assets.

Various impacts of the enacted legislation are still being evaluated by the Company and may materially differ from the estimated impacts recognized in the first quarter of fiscal 2018 due to future treasury regulations, tax law technical corrections, and other potential guidance, notices, rulings, refined computations, actions the Company may take as a result of the tax legislation, and other items. The SEC has issued rules that allow for a measurement period of up to one year after the enactment date of the legislation to finalize the recording of the related tax impacts. 

On October 13, 2016, the U.S. Treasury and the IRS released final and temporary Section 385 regulations. These regulations address whether certain instruments between related parties are treated as debt or equity. The Company does not expect that the regulations will have a material impact on its consolidated financial statements.

During the six months ended March 31, 2018 and 2017 , other tax legislation was adopted in various jurisdictions. These law changes did not have a material impact on the Company's consolidated financial statements.

Other Tax Matters

In the second quarter of fiscal 2018, the Company recorded $64 million of transaction and integration costs. These costs generated a $9 million tax benefit which reflects the Company’s current tax position in these jurisdictions.

In the first quarter of fiscal 2018, the Company completed the sale of its Scott Safety business to 3M Company. Refer to Note 3, "Acquisitions and Divestitures," of the notes to consolidated financial statements for additional information. In connection with the sale, the Company recorded a pre-tax gain of $114 million and income tax expense of $30 million .

In the first quarter of fiscal 2018, the Company recorded $50 million of transaction and integration costs. These costs generated a $7 million tax benefit which was impacted by the Company’s current tax position in these jurisdictions.

In the first quarter of fiscal 2018, the Company recorded $158 million of significant restructuring and impairment costs. Refer to Note 8, "Significant Restructuring and Impairment Costs," of the notes to consolidated financial statements for additional information. The restructuring costs generated a $24 million tax benefit, which was impacted by the Company’s current tax position in these jurisdictions and the lower enacted U.S. tax rate.

In the second quarter of fiscal 2017, the Company recorded a discrete non-cash tax charge of $457 million related to establishment of a deferred tax liability on the outside basis difference of the Company's investment in certain subsidiaries of the Scott Safety business.

In the second quarter of fiscal 2017, the Company recorded $138 million of transaction and integration costs which generated a $31 million tax benefit.


20

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


In the second quarter of fiscal 2017, the Company recorded pension mark-to-market gains of $18 million , which resulted in tax expense of $8 million .

In the second quarter of fiscal 2017, the Company recorded $99 million of significant restructuring and impairment costs. Refer to Note 8, "Significant Restructuring and Impairment Costs," of the notes to consolidated financial statements for additional information. The restructuring costs generated a $20 million tax benefit, which was impacted by the Company’s current tax position in these jurisdictions.

In the first quarter of fiscal 2017, the Company recorded a discrete tax benefit of $101 million due to changes in entity tax status.

In the first quarter of fiscal 2017, the Company recorded pension mark-to-market gains of $117 million , which resulted in tax expense of $46 million .

In the first quarter of fiscal 2017, the Company recorded $130 million of transaction and integration costs which generated an $11 million tax benefit.

In the first quarter of fiscal 2017, the Company recorded $78 million of significant restructuring and impairment costs. Refer to Note 8, "Significant Restructuring and Impairment Costs," of the notes to consolidated financial statements for additional information. The restructuring costs generated a $14 million tax benefit, which was impacted by the Company’s current tax position in these jurisdictions.

10.
Pension and Postretirement Plans

The components of the Company’s net periodic benefit costs from continuing operations associated with its defined benefit pension and postretirement plans are shown in the tables below in accordance with ASC 715, "Compensation – Retirement Benefits" (in millions):
 
U.S. Pension Plans
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Service cost
$
3

 
$
4

 
$
7

 
$
9

Interest cost
27

 
29

 
53

 
57

Expected return on plan assets
(57
)
 
(58
)
 
(114
)
 
(117
)
Net actuarial gain
—

 
(18
)
 
—

 
(135
)
Settlement gain
—

 
(1
)
 
—

 
(9
)
Net periodic benefit credit
$
(27
)
 
$
(44
)
 
$
(54
)
 
$
(195
)

 
Non-U.S. Pension Plans
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Service cost
$
6

 
$
8

 
$
12

 
$
16

Interest cost
15

 
11

 
29

 
23

Expected return on plan assets
(29
)
 
(22
)
 
(58
)
 
(45
)
Net periodic benefit credit
$
(8
)
 
$
(3
)
 
$
(17
)
 
$
(6
)


21

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


 
Postretirement Benefits
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Service cost
$
1

 
$
—

 
$
1

 
$
1

Interest cost
1

 
2

 
3

 
3

Expected return on plan assets
(3
)
 
(2
)
 
(5
)
 
(5
)
Net periodic benefit credit
$
(1
)
 
$
—

 
$
(1
)
 
$
(1
)

During the three and six months ended March 31, 2017, the amount of lump sum payouts triggered a remeasurement event for certain U.S. pension plans resulting in the recognition of net actuarial gains of $18 million and $135 million , respectively.

11.
Debt and Financing Arrangements

In October 2017, the Company completed the previously announced sale of its Scott Safety business to 3M. Net cash proceeds from the transaction of approximately $1.9 billion were used to repay a significant portion of the TSarl $4.0 billion of merger-related debt. In addition, in March 2018, the Company repaid $26 million in principal amount, plus accrued interest, of the TSarl merger-related debt. As of March 31, 2018, the outstanding balance of the TSarl term loan was approximately $1.7 billion .

In March 2018, the Company increased the committed credit limit from $1.0 billion to $1.25 billion on TSarl's committed revolving credit facility scheduled to expire in August 2020. As of March 31, 2018, there were no draws on the facility.

In March 2018, the Company entered into a 364 -day $250 million committed revolving credit facility scheduled to expire in March 2019. As of March 31, 2018, there were no draws on the facility.

In March 2018, a 364 -day $150 million committed revolving credit facility expired. The Company entered into a new $150 million committed revolving credit facility scheduled to expire in February 2019. As of March 31, 2018, there were no draws on the facility.

In February 2018, a 364 -day $150 million committed revolving credit facility expired. The Company entered into a new $150 million committed revolving credit facility scheduled to expire in February 2019. As of March 31, 2018, there were no draws on the facility.

In January 2018, a 364 -day $250 million committed revolving credit facility expired. The Company entered into a new $200 million committed revolving credit facility scheduled to expire in January 2019. As of March 31, 2018, there were no draws on the facility.

In January 2018, the Company retired $67 million in principal amount, plus accrued interest, of its 3.75% fixed rate notes that expired in January 2018.

In December 2017, the Company repaid a 364 -day 150 million euro floating rate term loan, plus accrued interest, scheduled to mature in September 2018.

In November 2017, the Company issued 750 million euro in principal amount of 0.0% senior unsecured fixed rate notes due in December 2020. Proceeds from the issuance were used to repay existing debt and for other general corporate purposes.

In November 2017, the Company retired $300 million in principal amount, plus accrued interest, of its 1.4% fixed rate notes that expired in November 2017.


22

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


Net Financing Charges

The Company's net financing charges line item in the consolidated statements of income for the three and six months ended March 31, 2018 and 2017 contained the following components (in millions):
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Interest expense, net of capitalized interest costs
$
104

 
$
118

 
$
218

 
$
228

Banking fees and bond cost amortization
14

 
11

 
27

 
41

Interest income
(5
)
 
(5
)
 
(14
)
 
(12
)
Net foreign exchange results for financing activities
2

 
(8
)
 
—

 
(5
)
Net financing charges
$
115

 
$
116

 
$
231

 
$
252


Net financing charges for the six month period ended March 31, 2017 , included $17 million of transaction costs related primarily to the prior year debt exchange offer fees.

12.
Stock-Based Compensation

During September 2016, the Board of Directors of the Company approved amendments to the Johnson Controls International plc 2012 Share and Incentive Plan (the "Plan"). The types of awards authorized by the Plan comprise of stock options, stock appreciation rights, performance shares, performance units and other stock-based compensation awards. The Compensation Committee of the Company's Board of Directors determines the types of awards to be granted to individual participants and the terms and conditions of the awards. Awards are typically granted annually in the Company’s fiscal first quarter. A summary of the stock-based awards granted during the six month periods ended March 31, 2018 and 2017 is presented below:
 
Six Months Ended March 31,
 
2018
 
2017
 
Number Granted
 
Weighted Average Grant Date Fair Value
 
Number Granted
 
Weighted Average Grant Date Fair Value
 
 
 
 
 
 
 
 
Stock options
1,355,595

 
$
7.05

 
2,830,826

 
$
7.81

Stock appreciation rights
—

 
—

 
15,693

 
8.28

Restricted stock/units
2,095,225

 
37.37

 
1,582,962

 
41.74

Performance shares
496,478

 
36.31

 
846,725

 
48.40


Stock Options

Stock options are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Stock option awards typically vest between two and three years after the grant date and expire ten years from the grant date.


23

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


The fair value of each option is estimated on the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in the following table. The expected life of options represents the period of time that options granted are expected to be outstanding, assessed separately for executives and non-executives. The risk-free interest rate for periods during the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. For fiscal 2018, the expected volatility is based on the historical volatility of the Company’s stock after the Adient spin-off blended with the historical volatility of certain peer companies’ stock prior to the Adient spin-off over the most recent period corresponding to the expected life as of the grant date. For fiscal 2017, the expected volatility is based on the historical volatility of certain peer companies over the most recent period corresponding to the expected life as of the grant date. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of the Company’s ordinary shares as of the grant date. The Company uses historical data to estimate option exercises and employee terminations within the valuation model.
 
Six Months Ended
March 31,
 
2018
 
2017
Expected life of option (years)
6.5
 
4.75 & 6.5
Risk-free interest rate
2.28%
 
1.23% - 1.48%
Expected volatility of the Company’s stock
23.7%
 
24.6%
Expected dividend yield on the Company’s stock
2.78%
 
2.21%

Stock Appreciation Rights ("SARs")

SARs vest under the same terms and conditions as stock option awards; however, they are settled in cash for the difference between the market price on the date of exercise and the exercise price. As a result, SARs are recorded in the Company’s consolidated statements of financial position as a liability until the date of exercise. The fair value of each SAR award is estimated using a similar method described for stock options. The fair value of each SAR award is recalculated at the end of each reporting period and the liability and expense are adjusted based on the new fair value.

Restricted (Nonvested) Stock / Units

The Plan provides for the award of restricted stock or restricted stock units to certain employees. These awards are typically share settled unless the employee is a non-U.S. employee or elects to defer settlement until retirement at which point the award would be settled in cash. Restricted awards typically vest over a period of three years from the grant date. The Plan allows for different vesting terms on specific grants with approval by the Board of Directors. The fair value of each share-settled restricted award is based on the closing market value of the Company’s ordinary shares on the date of grant. The fair value of each cash-settled restricted award is recalculated at the end of each reporting period based on the closing market value of the Company's ordinary shares at the end of the reporting period, and the liability and expense are adjusted based on the new fair value.

Performance Share Awards

The Plan permits the grant of performance-based share unit ("PSU") awards. The PSUs are generally contingent on the achievement of pre-determined performance goals over a three -year performance period as well as on the award holder's continuous employment until the vesting date. The PSUs are also indexed to the achievement of specified levels of total shareholder return versus a peer group over the performance period. Each PSU that is earned will be settled with shares of the Company's ordinary shares following the completion of the performance period, unless the award holder elected to defer a portion or all of the award until retirement which would then be settled in cash.

The fair value of each PSU is estimated on the date of grant using a Monte Carlo simulation that uses the assumptions noted in the following table. The risk-free interest rate for periods during the contractual life of the PSU is based on the U.S. Treasury yield curve in effect at the time of grant. For fiscal 2018, the expected volatility is based on the historical volatility of the Company’s stock after the Adient spin-off blended with the historical volatility of certain peer companies’ stock prior to the Adient spin-off over the most recent three-year period as of the grant date. For fiscal 2017, the expected volatility is based on historical volatility of certain peer companies over the most recent three-year period as of the grant date.

24

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


 
Six Months Ended
March 31,
 
2018
 
2017
Risk-free interest rate
1.92%
 
1.40%
Expected volatility of the Company’s stock
21.7%
 
21.0%

13.
Earnings Per Share

The Company presents both basic and diluted earnings per share ("EPS") amounts. Basic EPS is calculated by dividing net income attributable to Johnson Controls by the weighted average number of ordinary shares outstanding during the reporting period. Diluted EPS is calculated by dividing net income attributable to Johnson Controls by the weighted average number of ordinary shares and ordinary equivalent shares outstanding during the reporting period that are calculated using the treasury stock method for stock options, unvested restricted stock and unvested performance share awards. The treasury stock method assumes that the Company uses the proceeds from the exercise of stock option awards to repurchase ordinary shares 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 and compensation cost for future service that the Company has not yet recognized. For unvested restricted stock and unvested performance share awards, assumed proceeds under the treasury stock method would include unamortized compensation cost.

The following table reconciles the numerators and denominators used to calculate basic and diluted earnings per share (in millions):
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2018
 
2017
 
2018
 
2017
Income (loss) Available to Ordinary
   Shareholders
     
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
438

 
$
(148
)
 
$
668

 
$
224

Loss from discontinued operations
—

 
—

 
—

 
(43
)
Basic and diluted income (loss) available to
   shareholders
$
438

 
$
(148
)
 
$
668

 
$
181

 
 
 
 
 
 
 
 
Weighted Average Shares Outstanding
 
 
 
 
 
 
 
Basic weighted average shares outstanding
926.2

 
939.2

 
926.2

 
938.2

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options, unvested restricted stock and
     unvested performance share awards
6.3

 
—

 
6.7

 
9.8

Diluted weighted average shares outstanding
932.5

 
939.2

 
932.9

 
948.0

 
 
 
 
 
 
 
 
Antidilutive Securities
 
 
 
 
 
 
 
Options to purchase shares
1.4

 
—

 
1.2

 
0.1


For the three months ended March 31, 2017, the total number of potential dilutive shares due to stock options, unvested restricted stock and unvested performance share awards was 9.4 million . However, these items were not included in the computation of diluted loss per share for the three months ended March 31, 2017 since to do so would decrease the loss per share.

During the three months ended March 31, 2018 and 2017 , the Company declared a dividend of $0.26 and $0.25 , respectively, per share. During the six months ended March 31, 2018 and 2017 , the Company declared a dividend of $0.52 and $0.50 , respectively, per share.The Company paid all dividends in the month subsequent to the end of each fiscal quarter.

25

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


14.
Equity and Noncontrolling Interests

Other comprehensive income includes activity relating to discontinued operations. The following schedules present changes in consolidated equity attributable to Johnson Controls and noncontrolling interests (in millions, net of tax):
    
 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017
 
Equity
Attributable to
Johnson Controls International plc
 
Equity
Attributable to
Noncontrolling
Interests
 
Total
Equity
 
Equity
Attributable to
Johnson Controls International plc
 
Equity
Attributable to
Noncontrolling
Interests
 
Total
Equity
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance, December 31,
$
20,535

 
$
965

 
$
21,500

 
$
19,577

 
$
819

 
$
20,396

Total comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
438

 
33

 
471

 
(148
)
 
25

 
(123
)
Foreign currency translation adjustments
168

 
31

 
199

 
241

 
10

 
251

Realized and unrealized gains (losses) on derivatives
(6
)
 
1

 
(5
)
 
(6
)
 
(2
)
 
(8
)
Realized and unrealized gains (losses) on marketable securities
(2
)
 
—

 
(2
)
 
11

 
—

 
11

    Other comprehensive income
160

 
32

 
192

 
246

 
8

 
254

Comprehensive income
598

 
65

 
663

 
98

 
33

 
131

 
 
 
 
 
 
 
 
 
 
 
 
Other changes in equity:
 
 
 
 
 
 
 
 
 
 
 
Cash dividends—ordinary shares
(240
)
 
—

 
(240
)
 
(235
)
 
—

 
(235
)
Dividends attributable to noncontrolling
     interests
—

 
(43
)
 
(43
)
 
—

 
(47
)
 
(47
)
Repurchases of ordinary shares
(49
)
 
—

 
(49
)
 
(119
)
 
—

 
(119
)
Change in noncontrolling interest share
—

 
19

 
19

 
—

 
8

 
8

Spin-off of Adient
—

 
—

 
—

 
(18
)
 
—

 
(18
)
Other, including options exercised
30

 
—

 
30

 
85

 
—

 
85

Ending balance, March 31
$
20,874

 
$
1,006

 
$
21,880

 
$
19,388

 
$
813

 
$
20,201


26

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


 
Six Months Ended March 31, 2018
 
Six Months Ended March 31, 2017
 
Equity
Attributable to
Johnson Controls International plc
 
Equity
Attributable to
Noncontrolling
Interests
 
Total
Equity
 
Equity
Attributable to
Johnson Controls International plc
 
Equity
Attributable to
Noncontrolling
Interests
 
Total
Equity
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance, September 30,
$
20,447

 
$
920

 
$
21,367

 
$
24,118

 
$
972

 
$
25,090

Total comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Net income
668

 
61

 
729

 
181

 
61

 
242

Foreign currency translation adjustments
226

 
47

 
273

 
(418
)
 
(25
)
 
(443
)
Realized and unrealized gains (losses) on derivatives
(5
)
 
2

 
(3
)
 
(6
)
 
2

 
(4
)
Realized and unrealized gains (losses) on marketable securities
(2
)
 
—

 
(2
)
 
9

 
—

 
9

    Other comprehensive income (loss)
219

 
49

 
268

 
(415
)
 
(23
)
 
(438
)
Comprehensive income (loss)
887

 
110

 
997

 
(234
)
 
38

 
(196
)
 
 
 
 
 
 
 
 
 
 
 
 
Other changes in equity:
 
 
 
 
 
 
 
 
 
 
 
Cash dividends—ordinary shares
(482
)
 
—

 
(482
)
 
(471
)
 
—

 
(471
)
Dividends attributable to noncontrolling
     interests
—

 
(43
)
 
(43
)
 
—

 
(47
)
 
(47
)
Repurchases of ordinary shares
(199
)
 
—

 
(199
)
 
(119
)
 
—

 
(119
)
Change in noncontrolling interest share
—

 
19

 
19

 
—

 
(12
)
 
(12
)
Adoption of ASU 2016-09
179

 
—

 
179

 
—

 
—

 
—

Spin-off of Adient
—

 
—

 
—

 
(4,038
)
 
(138
)
 
(4,176
)
Other, including options exercised
42

 
—

 
42

 
132

 
—

 
132

Ending balance, March 31
$
20,874

 
$
1,006

 
$
21,880

 
$
19,388

 
$
813

 
$
20,201


As previously disclosed, during the quarter ended December 31, 2017, the Company adopted ASU No. 2016-09. As a result, the Company recognized deferred tax assets of $179 million related to certain operating loss carryforwards resulting from the exercise of employee stock options and restricted stock vestings on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of October 1, 2017.

As previously disclosed, on October 31, 2016, the Company completed the Adient spin-off. As a result of the spin-off, the Company divested net assets of approximately $4.0 billion .

Following the Tyco Merger, the Company adopted, subject to the ongoing existence of sufficient distributable reserves, the existing Tyco International plc $1 billion share repurchase program in September 2016. In December 2017, the Company's Board of Directors approved an  $1 billion  increase to its share repurchase authorization. The share repurchase program does not have an expiration date and may be amended or terminated by the Board of Directors at any time without prior notice. For the three and six month periods ended March 31, 2018 , the Company repurchased $49 million and $199 million of its ordinary shares, respectively. For the three and six month periods ended March 31, 2017 , the Company had $119 million repurchases of its ordinary shares. As of March 31, 2018 , approximately $1.1 billion remains available under the share repurchase program.

The Company consolidates certain subsidiaries in which the noncontrolling interest party has within its control the right to require the Company to redeem all or a portion of its interest in the subsidiary. The redeemable noncontrolling interests are reported at their estimated redemption value. Any adjustment to the redemption value impacts retained earnings but does not impact net income. Redeemable noncontrolling interests which are redeemable only upon future events, the occurrence of which is not currently probable, are recorded at carrying value.


27

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


The following schedules present changes in the redeemable noncontrolling interests (in millions):
 
Three Months Ended
March 31,
 
2018
 
2017
 
 
 
 
Beginning balance, December 31
$
226

 
$
159

Net income
12

 
8

Foreign currency translation adjustments
5

 
1

Realized and unrealized losses on derivatives
(5
)
 
—

Dividends
(3
)
 
—

Ending balance, March 31
$
235

 
$
168

 
 
 
 
 
Six Months Ended
March 31,
 
2018
 
2017
 
 
 
 
Beginning balance, September 30
$
211

 
$
234

Net income
25

 
21

Foreign currency translation adjustments
10

 
(8
)
Realized and unrealized losses on derivatives
(8
)
 
—

Dividends
(3
)
 
(43
)
Spin-off of Adient
—

 
(36
)
Ending balance, March 31
$
235

 
$
168


28

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


The following schedules present changes in accumulated other comprehensive income ("AOCI") attributable to Johnson Controls (in millions, net of tax):
 
Three Months Ended
March 31,
 
2018
 
2017
 
 
 
 
Foreign currency translation adjustments ("CTA")
 
 
 
Balance at beginning of period
$
(423
)
 
$
(1,248
)
Aggregate adjustment for the period (net of tax effect of $0)
168

 
241

Balance at end of period
(255
)
 
(1,007
)
 
 
 
 
Realized and unrealized gains (losses) on derivatives
 
 
 
Balance at beginning of period
7

 
20

Current period changes in fair value (net of tax effect of $(2) and $0)
(4
)
 
1

Reclassification to income (net of tax effect of $0 and $(4)) **
(2
)
 
(7
)
Balance at end of period
1

 
14

 
 
 
 
Realized and unrealized gains (losses) on marketable securities
 
 
 
Balance at beginning of period
4

 
(3
)
Current period changes in fair value (net of tax effect of $0)
(2
)
 
11

Balance at end of period
2

 
8

 
 
 
 
Pension and postretirement plans
 
 
 
Balance at beginning of period
(2
)
 
(2
)
Other changes
—

 
—

Balance at end of period
(2
)
 
(2
)
 
 
 
 
Accumulated other comprehensive loss, end of period
$
(254
)
 
$
(987
)

29

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


 
 
 
 
 
Six Months Ended
March 31,
 
2018
 
2017
 
 
 
 
CTA
 
 
 
Balance at beginning of period
$
(481
)
 
$
(1,152
)
Aggregate adjustment for the period (net of tax effect of $1 and $5) *
226

 
(418
)
Adient spin-off impact (net of tax effect of $0)
—

 
563

Balance at end of period
(255
)
 
(1,007
)
 
 
 
 
Realized and unrealized gains (losses) on derivatives
 
 
 
Balance at beginning of period
6

 
4

Current period changes in fair value (net of tax effect of $1 and $4)
2

 
7

Reclassification to income (net of tax effect of $(2) and $(7)) **
(7
)
 
(13
)
Adient spin-off impact (net of tax effect of $0 and $6)
—

 
16

Balance at end of period
1

 
14

 
 
 
 
Realized and unrealized gains (losses) on marketable securities
 
 
 
Balance at beginning of period
4

 
(1
)
Current period changes in fair value (net of tax effect of $0)
(2
)
 
9

Balance at end of period
2

 
8

 
 
 
 
Pension and postretirement plans
 
 
 
Balance at beginning of period
(2
)
 
(4
)
Adient spin-off impact (net of tax effect of $0)
—

 
2

Balance at end of period
(2
)
 
(2
)
 
 
 
 
Accumulated other comprehensive loss, end of period
$
(254
)
 
$
(987
)

* During the six months ended March 31, 2018,  $12 million  of cumulative CTA was recognized as part of the divestiture-related gain recognized as a result of the divestiture of Scott Safety.

** Refer to Note 15, "Derivative Instruments and Hedging Activities," of the notes to consolidated financial statements for disclosure of the line items in the consolidated statements of income affected by reclassifications from AOCI into income related to derivatives.

15.
Derivative Instruments and Hedging Activities

The Company selectively uses derivative instruments to reduce market risk associated with changes in foreign currency, commodities, stock-based compensation liabilities and interest rates. Under Company policy, the use of derivatives is restricted to those intended for hedging purposes; the use of any derivative instrument for speculative purposes is strictly prohibited. A description of each type of derivative utilized by the Company to manage risk is included in the following paragraphs. In addition, refer to Note 16, "Fair Value Measurements," of the notes to consolidated financial statements for information related to the fair value measurements and valuation methods utilized by the Company for each derivative type.


30

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


Cash Flow Hedges

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 selectively hedges anticipated transactions that are subject to foreign exchange rate risk primarily using foreign currency exchange hedge contracts. The Company hedges 70% to 90% of the nominal amount of each of its known foreign exchange transactional exposures. As cash flow hedges under ASC 815, "Derivatives and Hedging," 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 occur and affect earnings. These contracts were highly effective in hedging the variability in future cash flows attributable to changes in currency exchange rates during the three and six months ended March 31, 2018 and 2017 .

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, tin, aluminum and polypropylene 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 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, occur and affect earnings. The maturities of the commodity hedge contracts coincide with the expected purchase of the commodities. These contracts were highly effective in hedging the variability in future cash flows attributable to changes in commodity prices during the three and six months ended March 31, 2018 and 2017 .

The Company had the following outstanding contracts to hedge forecasted commodity purchases (in metric tons):
 
 
Volume Outstanding as of
Commodity
 
March 31, 2018
 
September 30, 2017
 
 
 
 
 
Copper
 
3,901

 
1,962

Polypropylene
 
16,561

 
19,563

Lead
 
6,500

 
24,705

Aluminum
 
4,525

 
2,169

Tin
 
2,015

 
1,715


Fair Value Hedges

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 statements of income. As of September 30, 2016, the Company had four fixed to floating interest rate swaps totaling $400 million to hedge the coupon of its 2.6% notes that matured in December 2016, three fixed to floating interest rate swaps totaling $300 million to hedge the coupon of its 1.4% notes maturing November 2017 and one fixed to floating interest rate swap totaling $150 million to hedge the coupon of its 7.125% notes maturing July 2017. In December 2016, the four remaining outstanding interest rate swaps were terminated. The Company had no interest rate swaps outstanding at March 31, 2018 and September 30, 2017 , respectively.


31

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


Net Investment Hedges

The Company enters into foreign currency denominated debt obligations to selectively hedge portions of its net investment in non-U.S. subsidiaries. The currency effects of the debt obligations are reflected in the AOCI account within shareholders’ equity attributable to Johnson Controls ordinary shareholders where they offset currency gains and losses recorded on the Company’s net investments globally. At March 31, 2018 , the Company had one billion euro, 750 million euro, 423 million euro and 58 million euro bonds designated as net investment hedges in the Company's net investment in Europe and 35 billion yen of foreign denominated debt designated as net investment hedge in the Company's net investment in Japan. At September 30, 2017 , the Company had one billion euro, 423 million euro and 58 million euro bonds designated as net investment hedges in the Company's net investment in Europe and 35 billion yen of foreign denominated debt designated as net investment hedge in the Company's net investment in Japan.

Derivatives Not Designated as Hedging Instruments

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, allowing the Company to fix a portion of the liabilities at a stated amount. As of March 31, 2018 , the Company hedged approximately 1.8 million shares of its ordinary shares, which have a cost basis of $73 million . As of September 30, 2017 , the Company hedged approximately 1.4 million shares of its ordinary shares, which have a cost basis of $58 million .

The Company also holds certain foreign currency forward contracts which do not qualify for hedge accounting treatment. The change in fair value of foreign currency exchange derivatives not designated as hedging instruments under ASC 815 are recorded in the consolidated statements of income.

Fair Value of Derivative Instruments

The following table presents the location and fair values of derivative instruments and hedging activities included in the Company’s consolidated statements of financial position (in millions):
 
Derivatives and Hedging Activities Designated
as Hedging Instruments under ASC 815
 
Derivatives and Hedging Activities Not
Designated as Hedging Instruments under ASC 815
 
March 31,
 
September 30,
 
March 31,
 
September 30,
 
2018
 
2017
 
2018
 
2017
Other current assets
 
 
 
 
 
 
 
Foreign currency exchange derivatives
$
26

 
$
27

 
$
—

 
$
—

Commodity derivatives
3

 
9

 
—

 
—

Other noncurrent assets
 
 
 
 
 
 
 
Equity swap
—

 
—

 
63

 
55

Total assets
$
29

 
$
36

 
$
63

 
$
55

 
 
 
 
 
 
 
 
Other current liabilities
 
 
 
 
 
 
 
Foreign currency exchange derivatives
$
15

 
$
21

 
$
22

 
$
25

         Commodity derivatives
2

 
1

 
—

 
—

Long-term debt
 
 
 
 
 
 
 
Foreign currency denominated debt
3,081

 
2,058

 
—

 
—

Total liabilities
$
3,098

 
$
2,080

 
$
22

 
$
25



32

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


Counterparty Credit Risk

The use of derivative financial instruments exposes the Company to counterparty credit risk. The Company has established policies and procedures to limit the potential for counterparty credit risk, including establishing limits for credit exposure and continually assessing the creditworthiness of counterparties. As a matter of practice, the Company deals with major banks worldwide having strong investment grade long-term credit ratings. To further reduce the risk of loss, the Company generally enters into International Swaps and Derivatives Association ("ISDA") master netting agreements with substantially all of its counterparties. The Company's derivative contracts do not contain any credit risk related contingent features and do not require collateral or other security to be furnished by the Company or the counterparties. The Company's exposure to credit risk associated with its derivative instruments is measured on an individual counterparty basis, as well as by groups of counterparties that share similar attributes. The Company does not anticipate any non-performance by any of its counterparties, and the concentration of risk with financial institutions does not present significant credit risk to the Company.

The Company enters into ISDA master netting agreements with counterparties that permit the net settlement of amounts owed under the derivative contracts. The master netting agreements generally provide for net settlement of all outstanding contracts with a counterparty in the case of an event of default or a termination event. The Company has not elected to offset the fair value positions of the derivative contracts recorded in the consolidated statements of financial position. Collateral is generally not required of the Company or the counterparties under the master netting agreements. As of March 31, 2018 and September 30, 2017 , no cash collateral was received or pledged under the master netting agreements.

The gross and net amounts of derivative assets and liabilities were as follows (in millions):
 
 
Fair Value of Assets
 
Fair Value of Liabilities
 
 
March 31,
 
September 30,
 
March 31,
 
September 30,
 
 
2018
 
2017
 
2018
 
2017
Gross amount recognized
 
$
92

 
$
91

 
$
3,120

 
$
2,105

Gross amount eligible for offsetting
 
(20
)
 
(16
)
 
(20
)
 
(16
)
Net amount
 
$
72

 
$
75

 
$
3,100

 
$
2,089

    
Derivatives Impact on the Statements of Income and Statements of Comprehensive Income

The following table presents the pre-tax gains (losses) recorded in other comprehensive income (loss) related to cash flow hedges for the three and six months ended March 31, 2018 and 2017 (in millions):
Derivatives in ASC 815 Cash Flow
 Hedging Relationships
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2018
 
2017
 
2018
 
2017
Foreign currency exchange derivatives
 
$
(5
)
 
$
(2
)
 
$
1

 
$
6

Commodity derivatives
 
(1
)
 
3

 
2

 
5

Total
 
$
(6
)
 
$
1

 
$
3

 
$
11


The following tables present the location and amount of the pre-tax gains (losses) on cash flow hedges reclassified from AOCI into the Company’s consolidated statements of income for the three and six months ended March 31, 2018 and 2017 (in millions):
Derivatives in ASC 815 Cash Flow Hedging Relationships
 
Location of Gain (Loss) Reclassified from AOCI into Income
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2018
 
2017
 
2018
 
2017
Foreign currency exchange derivatives
 
Cost of sales
 
$
(2
)
 
$
8

 
$
—

 
$
16

Commodity derivatives
 
Cost of sales
 
4

 
3

 
9

 
4

Total
 
 
 
$
2

 
$
11

 
$
9

 
$
20



33

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


  The following table presents the location and amount of pre-tax gains (losses) on fair value hedges recognized in the Company’s consolidated statements of income for the three and six months ended March 31, 2018 and 2017 (in millions):
Derivatives in ASC 815 Fair Value
Hedging Relationships
 
Location of Gain (Loss) Recognized in Income on Derivative
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2018
 
2017
 
2018
 
2017
Interest rate swap
 
Net financing charges
 
$
—

 
$
—

 
$
—

 
$
(1
)
Fixed rate debt swapped to floating
 
Net financing charges
 
—

 
—

 
—

 
2

Total
 
 
 
$
—

 
$
—

 
$
—

 
$
1


The following table presents the location and amount of pre-tax gains (losses) on derivatives not designated as hedging instruments recognized in the Company’s consolidated statements of income for the three and six months ended March 31, 2018 and 2017 (in millions):
 
 
 
 
Amount of Gain (Loss) Recognized in
Income on Derivative
Derivatives Not Designated as Hedging Instruments under ASC 815
 
Location of Gain (Loss)
Recognized in Income on Derivative
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2018
 
2017
 
2018
 
2017
Foreign currency exchange derivatives
 
Cost of sales
 
$
(4
)
 
$
2

 
$
(2
)
 
$
3

Foreign currency exchange derivatives
 
Net financing charges
 
(3
)
 
5

 
1

 
9

Foreign currency exchange derivatives
 
Income tax provision
 
—

 
—

 
2

 
(3
)
Foreign currency exchange derivatives
 
Income (loss) from discontinued operations
 
—

 
—

 
—

 
5

Equity swap
 
Selling, general and administrative
 
(5
)
 
—

 
(7
)
 
—

Total
 
 
 
$
(12
)
 
$
7

 
$
(6
)
 
$
14


The pre-tax gains (losses) recorded in CTA within other comprehensive income (loss) related to net investment hedges were $(100) million and $(19) million for the three months ended March 31, 2018 and 2017 , respectively. The pre-tax gains (losses) recorded in CTA within other comprehensive income (loss) related to net investment hedges were $(136) million and $28 million for the six months ended March 31, 2018 and 2017 , respectively. For the three and six months ended March 31, 2018 and 2017 , no gains or losses were reclassified from CTA into income for the Company’s outstanding net investment hedges.

16.
Fair Value Measurements

ASC 820, "Fair Value Measurement," defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:

Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2: Quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs where there is little or no market data, which requires the reporting entity to develop its own assumptions.

ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.


34

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


Recurring Fair Value Measurements

The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value as of March 31, 2018 and September 30, 2017 (in millions):
 
Fair Value Measurements Using:
 
Total as of
March 31, 2018
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Other current assets
 
 
 
 
 
 
 
Foreign currency exchange derivatives
$
26

 
$
—

 
$
26

 
$
—

Commodity derivatives
3

 
—

 
3

 
—

       Exchange traded funds (fixed income) 1

29

 
29

 
—

 
—

Other noncurrent assets
 
 
 
 
 
 
 
Investments in marketable common stock
7

 
7

 
—

 
—

Deferred compensation plan assets
95

 
95

 
—

 
—

Exchange traded funds (fixed income) 1
137

 
137

 
—

 
—

Exchange traded funds (equity) 1
108

 
108

 
—

 
—

Equity swap
63

 
—

 
63

 
—

Total assets
$
468

 
$
376

 
$
92

 
$
—

Other current liabilities
 
 
 
 
 
 
 
Foreign currency exchange derivatives
$
37

 
$
—

 
$
37

 
$
—

        Commodity derivatives
2

 
—

 
2

 
—

Total liabilities
$
39

 
$
—

 
$
39

 
$
—

 
 
Fair Value Measurements Using:
 
Total as of
September 30, 2017
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Other current assets
 
 
 
 
 
 
 
Foreign currency exchange derivatives
$
27

 
$
—

 
$
27

 
$
—

Commodity derivatives
9

 
—

 
9

 
—

Exchange traded funds (fixed income) 1
14

 
14

 
—

 
—

Other noncurrent assets
 
 
 
 
 
 
 
Investments in marketable common stock
10

 
10

 
—

 
—

Deferred compensation plan assets
92

 
92

 
—

 
—

Exchange traded funds (fixed income) 1
155

 
155

 
—

 
—

Exchange traded funds (equity) 1
100

 
100

 
—

 
—

Equity swap
55

 
—

 
55

 
—

Total assets
$
462

 
$
371

 
$
91

 
$
—

Other current liabilities
 
 
 
 
 
 
 
Foreign currency exchange derivatives
$
46

 
$
—

 
$
46

 
$
—

Commodity derivatives
1

 
—

 
1

 
—

Total liabilities
$
47

 
$
—

 
$
47

 
$
—



35

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


1 Classified as restricted investments for payment of asbestos liabilities. See Note 21, "Commitments and Contingencies," of the notes to consolidated financial statements for further details.

Valuation Methods

Foreign currency exchange derivatives : The foreign currency exchange derivatives are valued under a market approach using publicized spot and forward prices.

Commodity derivatives : The commodity derivatives are valued under a market approach using publicized prices, where available, or dealer quotes.

Equity swaps : 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.

Deferred compensation plan assets : Assets held in the deferred compensation plans will be used to pay benefits under certain of the Company's non-qualified deferred compensation plans. The investments primarily consist of mutual funds which are publicly traded on stock exchanges and are valued using a market approach based on the quoted market prices.

Investments in marketable common stock and exchange traded funds : Investments in marketable common stock and exchange traded funds are valued using a market approach based on the quoted market prices, where available, or broker/dealer quotes of identical or comparable instruments. The Company recorded unrealized gains of $15 million and unrealized losses of $13 million on these investments as of March 31, 2018 within AOCI in the consolidated statements of financial position. The Company recorded unrealized gains of $10 million and unrealized losses of $6 million on these investments as of September 30, 2017 within AOCI in the consolidated statements of financial position.

The fair values of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying values. The fair value of long-term debt was $11.2 billion and $12.7 billion at March 31, 2018 and  September 30, 2017 , respectively. The fair value of public debt was $9.1 billion and $8.6 billion , at March 31, 2018 and  September 30, 2017 , respectively, which was determined primarily using market quotes classified as Level 1 inputs within the ASC 820 fair value hierarchy. The fair value of other long-term debt was $2.1 billion and $4.1 billion at March 31, 2018 and  September 30, 2017 , respectively, which was determined based on quoted market prices for similar instruments classified as Level 2 inputs within the ASC 820 fair value hierarchy.

17.
Impairment of Long-Lived Assets

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


36

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


In the first quarter of fiscal 2018, the Company concluded it had a triggering event requiring assessment of impairment for certain of its long-lived assets in conjunction with its restructuring actions announced in fiscal 2018. As a result, the Company reviewed the long-lived assets for impairment and recorded $30 million of asset impairment charges within restructuring and impairment costs in the consolidated statements of income. Of the total impairment charges, $23 million related to the Global Products segment, $5 million related to Corporate assets and $2 million related to the Power Solutions segment. Refer to Note 8, "Significant Restructuring and Impairment Costs," of the notes to consolidated financial statements for additional information. The impairments were measured under a market approach utilizing an appraisal to determine fair values of the impaired assets. This method is consistent with the methods the Company employed in prior periods to value other long-lived assets. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement."

In the first and second quarters of fiscal 2017, the Company concluded it had triggering events requiring assessment of impairment for certain of its long-lived assets in conjunction with its restructuring actions announced in fiscal 2017. As a result, the Company reviewed the long-lived assets for impairment and recorded $38 million of asset impairment charges within restructuring and impairment costs in the consolidated statements of income, of which $15 million was recorded in the first quarter and $23 million was recorded in the second quarter. Of the total impairment charges, $20 million related to the Global Products segment, $17 million related to Corporate assets and $1 million related to the Buildings North America segment. Refer to Note 8, "Significant Restructuring and Impairment Costs," of the notes to consolidated financial statements for additional information. The impairments were measured, depending on the asset, under either an income approach utilizing forecasted discounted cash flows or a market approach utilizing an appraisal to determine fair values of the impaired assets. This method is consistent with the methods the Company employed in prior periods to value other long-lived assets. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement."

At March 31, 2018 and 2017 , the Company concluded it did not have any other triggering events requiring assessment of impairment of its long-lived assets.

18.
Segment Information

ASC 280, "Segment Reporting," establishes the standards for reporting information about segments in financial statements. In applying the criteria set forth in ASC 280, the Company has determined that it has five reportable segments for financial reporting purposes. The Company’s five reportable segments are presented in the context of its two primary businesses – Building Technologies & Solutions and Power Solutions.

Effective July 1, 2017, the Company reorganized the reportable segments within its Building Technologies & Solutions business to align with its new management reporting structure and business activities. Prior to this reorganization, Building Technologies & Solutions was comprised of five reportable segments for financial reporting purposes: Systems and Service North America, Products North America, Asia, Rest of World and Tyco. As a result of this change, Building Technologies & Solutions is now comprised of four reportable segments for financial reporting purposes: Building Solutions North America, Building Solutions EMEA/LA, Building Solutions Asia Pacific and Global Products. Historical information has been revised to reflect the new Building Technologies & Solutions segments.

A summary of the significant Building Technologies & Solutions reportable segment changes is as follows:
•
The “Systems and Service North America” segment is now part of the new “Building Solutions North America” reportable segment.

•
The North America Unitary Products business, Air Distribution Technologies business and refrigeration systems business, as well as HVAC products installed for Marine customers, previously included in the “Products North America” segment, are now part of the new reportable segment “Global Products.” The systems and products installation business for U.S. Navy customers, previously included in the “Products North America” segment, is now part of the new “Building Solutions North America” reportable segment.


37

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


•
The systems and service business within the former “Asia” segment is now part of the new “Building Solutions Asia Pacific” reportable segment. The HVAC products manufacturing business and the Johnson Controls-Hitachi joint venture, previously part of the “Asia” segment, are now part of the new “Global Products” reportable segment.

•
The systems and service businesses in Europe, the Middle East and Latin America within the former “Rest of World” segment are now part of the new “Building Solutions EMEA/LA” reportable segment. The HVAC products manufacturing businesses, previously part of the “Rest of World” segment, are now part of the new “Global Products” reportable segment.

•
As the Company has integrated the legacy Tyco business with its legacy Building Efficiency business for segment reporting purposes, Tyco is no longer a separate reportable segment. The Tyco businesses are now included throughout the new reportable segments.

Building Technologies & Solutions

•
Building Solutions North America designs, sells, installs, and services HVAC and controls systems, integrated electronic security systems (including monitoring), and integrated fire detection and suppression systems for commercial, industrial, retail, small business, institutional and governmental customers in North America.  Building Solutions North America also provides energy efficiency solutions and technical services, including inspection, scheduled maintenance, and repair and replacement of mechanical and control systems, to non-residential building and industrial applications in the North American marketplace.

•
Building Solutions EMEA/LA designs, sells, installs, and services HVAC, controls, refrigeration, integrated electronic security, integrated fire detection and suppression systems, and provides technical services to markets in Europe, the Middle East, Africa and Latin America.

•
Building Solutions Asia Pacific designs, sells, installs, and services HVAC, controls, refrigeration, integrated electronic security, integrated fire detection and suppression systems, and provides technical services to the Asia Pacific marketplace.

•
Global Products designs and produces heating and air conditioning for residential and commercial applications, and markets products and refrigeration systems to replacement and new construction market customers globally. The Global Products business also designs, manufactures and sells fire protection and security products, including intrusion security, anti-theft devices, and access control and video management systems, for commercial, industrial, retail, residential, small business, institutional and governmental customers worldwide. Global Products also includes the Johnson Controls-Hitachi joint venture, which was formed October 1, 2015, and included the Scott Safety business, prior to its sale on October 4, 2017. 

Power Solutions

Power 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 its business segments primarily on segment earnings before interest, taxes and amortization ("EBITA"), which represents income from continuing operations before income taxes and noncontrolling interests, excluding general corporate expenses, intangible asset amortization, net financing charges, significant restructuring and impairment costs, and the net mark-to-market adjustments related to pension and postretirement plans.


38

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


Financial information relating to the Company’s reportable segments is as follows (in millions):
 
Net Sales
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2018
 
2017
 
2018
 
2017
Building Technologies & Solutions
 
 
 
 
 
 
 
      Building Solutions North America
$
2,097

 
$
2,097

 
$
4,109

 
$
4,039

      Building Solutions EMEA/LA
907

 
898

 
1,822

 
1,773

      Building Solutions Asia Pacific
586

 
562

 
1,183

 
1,137

      Global Products
2,040

 
2,014

 
3,821

 
3,808

 
5,630

 
5,571

 
10,935

 
10,757

Power Solutions
1,845

 
1,696

 
3,975

 
3,596

 
 
 
 
 
 
 
 
   Total net sales
$
7,475

 
$
7,267

 
$
14,910

 
$
14,353

 
Segment EBITA
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2018
 
2017
 
2018
 
2017
Building Technologies & Solutions
 
 
 
 
 
 
 
      Building Solutions North America
$
239

 
$
255

 
$
466

 
$
451

      Building Solutions EMEA/LA
77

 
89

 
146

 
138

      Building Solutions Asia Pacific
71

 
67

 
145

 
130

      Global Products
228

 
242

 
514

 
369

 
615

 
653

 
1,271

 
1,088

Power Solutions
314

 
303

 
698

 
692

 
 
 
 
 
 
 
 
      Total segment EBITA
$
929

 
$
956

 
$
1,969

 
$
1,780

 
 
 
 
 
 
 
 
Corporate expenses
$
(159
)
 
$
(240
)
 
$
(293
)
 
$
(433
)
Amortization of intangible assets
(94
)
 
(126
)
 
(188
)
 
(275
)
Restructuring and impairment costs
—

 
(99
)
 
(158
)
 
(177
)
Net mark-to-market adjustments on pension
   plans
—

 
18

 
—

 
135

Net financing charges
(115
)
 
(116
)
 
(231
)
 
(252
)
Income from continuing operations
   before income taxes
$
561

 
$
393

 
$
1,099

 
$
778


19.
Guarantees

Certain of the Company's subsidiaries at the business segment level have guaranteed the performance of third-parties and provided financial guarantees for uncompleted work and financial commitments. The terms of these guarantees vary with end dates ranging from the current fiscal year through the completion of such transactions and would typically be triggered in the event of nonperformance. Performance under the guarantees, if required, would not have a material effect on the Company's financial position, results of operations or cash flows.

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

39

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


rates and other known factors. Based on analysis of return rates and other factors, the Company’s warranty provisions are adjusted as necessary. 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 for continuing operations is recorded in the consolidated statements 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, including extended warranties, for the six months ended March 31, 2018 and 2017 were as follows (in millions):
 
Six Months Ended
March 31,
 
2018
 
2017
 
 
 
 
Balance at beginning of period
$
409

 
$
374

Accruals for warranties issued during the period
159

 
152

Accruals from acquisition and divestitures
—

 
(5
)
Accruals related to pre-existing warranties
(8
)
 
(2
)
Settlements made (in cash or in kind) during the period
(165
)
 
(146
)
Currency translation
5

 
(2
)
Balance at end of period
$
400

 
$
371


As a result of the Tyco Merger in the fourth quarter of fiscal 2016, the Company recorded, as part of the acquired liabilities of Tyco, $290 million of post sale contingent tax indemnification liabilities which is generally recorded within other noncurrent liabilities in the consolidated statements of financial position. The liabilities are recorded at fair value and relate to certain tax related matters borne by the buyer of previously divested subsidiaries of Tyco which Tyco has indemnified certain parties and the amounts are probable of being paid. At March 31, 2018 and September 30, 2017, the Company recorded liabilities of $276 million and $290 million , respectively. Of the $276 million recorded as of March 31, 2018 , $235 million is related to prior divested businesses and the remainder relates to Tyco’s tax sharing agreements from its 2007 and 2012 spin-off transactions. These are certain guarantees or indemnifications extended among Tyco, Medtronic, TE Connectivity, ADT and Pentair in accordance with the terms of the 2007 and 2012 separation and tax sharing agreements.

20.
Tyco International Finance S.A.

Tyco International Finance S.A. (" TIFSA"), a 100% owned subsidiary of the Company, has public debt securities outstanding which, as of September 30, 2016, were fully and unconditionally guaranteed by Johnson Controls and by Tyco Fire & Security Finance S.C.A. ("TIFSCA"), a wholly owned subsidiary of the Company and parent company of TIFSA. During the first quarter of fiscal 2017, the guarantees were removed. The following tables present condensed consolidating financial information for Johnson Controls, TIFSCA, TIFSA and all other subsidiaries. Condensed financial information for the Company, TIFSCA and TIFSA on a stand-alone basis is presented using the equity method of accounting for subsidiaries.
 


40

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the Three Months Ended March 31, 2018

(in millions)
Johnson Controls
International plc
 
Tyco Fire & Security Finance SCA
 
Tyco International Finance S.A.
 
Other Subsidiaries
 
Consolidating Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
—

 
$
—

 
$
—

 
$
7,475

 
$
—

 
$
7,475

Cost of sales
—

 
—

 
—

 
5,255

 
—

 
5,255

 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
—

 
—

 
—

 
2,220

 
—

 
2,220

 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative
     expenses
(7
)
 
—

 
11

 
(1,592
)
 
—

 
(1,588
)
Net financing charges
(86
)
 
23

 
(3
)
 
(49
)
 
—

 
(115
)
Equity income (loss)
582

 
439

 
(9
)
 
44

 
(1,012
)
 
44

Intercompany interest and fees
(51
)
 
70

 
(17
)
 
(2
)
 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations before income taxes
438

 
532

 
(18
)
 
621

 
(1,012
)
 
561

 
 
 
 
 
 
 
 
 
 
 
 
Income tax provision
—

 
—

 
—

 
78

 
—

 
78

 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing
   operations
438

 
532

 
(18
)
 
543

 
(1,012
)
 
483

 
 
 
 
 
 
 
 
 
 
 
 
Loss from sale of intercompany
   investment, net of tax
—

 
—

 
—

 
(953
)
 
953

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
438

 
532

 
(18
)
 
(410
)
 
(59
)
 
483

 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
    attributable to noncontrolling
    interests
—

 
—

 
—

 
45

 
—

 
45

 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to
   Johnson Controls
$
438

 
$
532

 
$
(18
)
 
$
(455
)
 
$
(59
)
 
$
438



41

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)



CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended March 31, 2018

(in millions)
Johnson Controls
International
plc
 
Tyco Fire & Security Finance SCA
 
Tyco International Finance S.A.
 
Other Subsidiaries
 
Consolidating Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
438

 
$
532

 
$
(18
)
 
$
(410
)
 
$
(59
)
 
$
483

Other comprehensive income (loss),
   net of tax
 
 
 
 
 
 
 
 
 
 
 
     Foreign currency translation
        adjustments
168

 
(16
)
 
(2
)
 
388

 
(334
)
 
204

     Realized and unrealized losses
         on derivatives
(6
)
 
—

 
—

 
(10
)
 
6

 
(10
)
     Realized and unrealized losses
         on marketable securities
(2
)
 
—

 
—

 
(2
)
 
2

 
(2
)
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
160

 
(16
)
 
(2
)
 
376

 
(326
)
 
192

 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income (loss)
598

 
516

 
(20
)
 
(34
)
 
(385
)
 
675

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income attributable
   to noncontrolling interests
—

 
—

 
—

 
77

 
—

 
77

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
   attributable to Johnson Controls
$
598

 
$
516

 
$
(20
)
 
$
(111
)
 
$
(385
)
 
$
598



42

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)



CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the Six Months Ended March 31, 2018

(in millions)
Johnson Controls
International plc
 
Tyco Fire & Security Finance SCA
 
Tyco International Finance S.A.
 
Other Subsidiaries
 
Consolidating Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
—

 
$
—

 
$
—

 
$
14,910

 
$
—

 
$
14,910

Cost of sales
—

 
—

 
—

 
10,521

 
—

 
10,521

 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
—

 
—

 
—

 
4,389

 
—

 
4,389

 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative
     expenses
(10
)
 
—

 
11

 
(3,006
)
 
—

 
(3,005
)
Restructuring and impairment costs
—

 
—

 
—

 
(158
)
 
—

 
(158
)
Net financing charges
(136
)
 
24

 
(5
)
 
(114
)
 
—

 
(231
)
Equity income
867

 
627

 
133

 
104

 
(1,627
)
 
104

Intercompany interest and fees
(53
)
 
155

 
(46
)
 
(56
)
 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
     before income taxes
668

 
806

 
93

 
1,159

 
(1,627
)
 
1,099

 
 
 
 
 
 
 
 
 
 
 
 
Income tax provision
—

 
—

 
—

 
345

 
—

 
345

 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
668

 
806

 
93

 
814

 
(1,627
)
 
754

 
 
 
 
 
 
 
 
 
 
 
 
Loss from sale of intercompany
   investment, net of tax
—

 
—

 
—

 
(953
)
 
953

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
668

 
806

 
93

 
(139
)
 
(674
)
 
754

 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
    attributable to noncontrolling
    interests
—

 
—

 
—

 
86

 
—

 
86

 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to
   Johnson Controls
$
668

 
$
806

 
$
93

 
$
(225
)
 
$
(674
)
 
$
668




43

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
For the Six Months Ended March 31, 2018

(in millions)
Johnson Controls
International
plc
 
Tyco Fire & Security Finance SCA
 
Tyco International Finance S.A.
 
Other Subsidiaries
 
Consolidating Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
668

 
$
806

 
$
93

 
$
(139
)
 
$
(674
)
 
$
754

Other comprehensive income (loss),
   net of tax
 
 
 
 
 
 
 
 
 
 
 
     Foreign currency translation
        adjustments
226

 
(23
)
 
(3
)
 
441

 
(358
)
 
283

     Realized and unrealized losses
       on derivatives
(5
)
 
—

 
—

 
(11
)
 
5

 
(11
)
     Realized and unrealized gains
       (losses) on marketable securities
(2
)
 
—

 
(4
)
 
2

 
2

 
(2
)
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
219

 
(23
)
 
(7
)
 
432

 
(351
)
 
270

 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
887

 
783

 
86

 
293

 
(1,025
)
 
1,024

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income attributable
   to noncontrolling interests
—

 
—

 
—

 
137

 
—

 
137

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income attributable
   to Johnson Controls
$
887

 
$
783

 
$
86

 
$
156

 
$
(1,025
)
 
$
887



44

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)



CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the Three Months Ended March 31, 2017

(in millions)
Johnson Controls
International plc
 
Tyco Fire & Security Finance SCA
 
Tyco International Finance S.A.
 
Other Subsidiaries
 
Consolidating Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
—

 
$
—

 
$
—

 
$
7,267

 
$
—

 
$
7,267

Cost of sales
—

 
—

 
—

 
4,986

 
—

 
4,986

 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
—

 
—

 
—

 
2,281

 
—

 
2,281

 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative
     expenses
(4
)
 
—

 
(1
)
 
(1,721
)
 
—

 
(1,726
)
Restructuring and impairment costs
—

 
—

 
—

 
(99
)
 
—

 
(99
)
Net financing charges
(59
)
 
—

 
5

 
(62
)
 
—

 
(116
)
Equity income (loss)
(103
)
 
(187
)
 
(382
)
 
53

 
672

 
53

Intercompany interest and fees
18

 
73

 
20

 
(111
)
 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing
   operations before income taxes
(148
)
 
(114
)
 
(358
)
 
341

 
672

 
393

 
 
 
 
 
 
 
 
 
 
 
 
Income tax provision
—

 
—

 
—

 
508

 
—

 
508

 
 
 
 
 
 
 
 
 
 
 
 
Net loss
(148
)
 
(114
)
 
(358
)
 
(167
)
 
672

 
(115
)
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
   attributable to noncontrolling
   interests
—

 
—

 
—

 
33

 
—

 
33

 
 
 
 
 
 
 
 
 
 
 
 
Net loss attributable to
   Johnson Controls
$
(148
)
 
$
(114
)
 
$
(358
)
 
$
(200
)
 
$
672

 
$
(148
)


45

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)



CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended March 31, 2017

(in millions)
Johnson Controls
International
plc
 
Tyco Fire & Security Finance SCA
 
Tyco International Finance S.A.
 
Other Subsidiaries
 
Consolidating Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
$
(148
)
 
$
(114
)
 
$
(358
)
 
$
(167
)
 
$
672

 
$
(115
)
Other comprehensive income (loss),
   net of tax
 
 
 
 
 
 
 
 
 
 
 
     Foreign currency translation
        adjustments
241

 
(7
)
 
(1
)
 
260

 
(241
)
 
252

     Realized and unrealized losses
       on derivatives
(6
)
 
—

 
—

 
(8
)
 
6

 
(8
)
     Realized and unrealized gains
       on marketable securities
11

 
—

 
7

 
4

 
(11
)
 
11

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
246

 
(7
)
 
6

 
256

 
(246
)
 
255

 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income (loss)
98

 
(121
)
 
(352
)
 
89

 
426

 
140

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income attributable
   to noncontrolling interests
—

 
—

 
—

 
42

 
—

 
42

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
   attributable to Johnson Controls
$
98

 
$
(121
)
 
$
(352
)
 
$
47

 
$
426

 
$
98



46

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)



CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the Six Months Ended March 31, 2017

(in millions)
Johnson Controls
International plc
 
Tyco Fire & Security Finance SCA
 
Tyco International Finance S.A.
 
Other Subsidiaries
 
Consolidating Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
—

 
$
—

 
$
—

 
$
14,353

 
$
—

 
$
14,353

Cost of sales
—

 
—

 
—

 
9,958

 
—

 
9,958

 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
—

 
—

 
—

 
4,395

 
—

 
4,395

 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative
     expenses
(6
)
 
—

 
—

 
(3,290
)
 
—

 
(3,296
)
Restructuring and impairment costs
—

 
—

 
—

 
(177
)
 
—

 
(177
)
Net financing charges
(78
)
 
—

 
(14
)
 
(160
)
 
—

 
(252
)
Equity income (loss)
215

 
(473
)
 
(492
)
 
108

 
750

 
108

Intercompany interest and fees
50

 
73

 
37

 
(160
)
 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing
   operations before income taxes
181

 
(400
)
 
(469
)
 
716

 
750

 
778

 
 
 
 
 
 
 
 
 
 
 
 
Income tax provision
—

 
—

 
—

 
481

 
—

 
481

 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing
   operations
181

 
(400
)
 
(469
)
 
235

 
750

 
297

 
 
 
 
 
 
 
 
 
 
 
 
Loss from sale of intercompany
   investment, net of tax
—

 
—

 
(935
)
 
—

 
935

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Loss from discontinued
   operations, net of tax
—

 
—

 
—

 
(34
)
 
—

 
(34
)
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
181

 
(400
)
 
(1,404
)
 
201

 
1,685

 
263

 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
   attributable to noncontrolling
   interests
—

 
—

 
—

 
73

 
—

 
73

Income from discontinued
   operations attributable to
   noncontrolling interests
—

 
—

 
—

 
9

 
—

 
9

 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to
   Johnson Controls
$
181

 
$
(400
)
 
$
(1,404
)
 
$
119

 
$
1,685

 
$
181



47

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)



CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
For the Six Months Ended March 31, 2017

(in millions)
Johnson Controls
International
plc
 
Tyco Fire & Security Finance SCA
 
Tyco International Finance S.A.
 
Other Subsidiaries
 
Consolidating Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
181

 
$
(400
)
 
$
(1,404
)
 
$
201

 
$
1,685

 
$
263

Other comprehensive income (loss),
   net of tax
 
 
 
 
 
 
 
 
 
 
 
     Foreign currency translation
        adjustments
(418
)
 
(7
)
 
26

 
(470
)
 
418

 
(451
)
     Realized and unrealized losses
       on derivatives
(6
)
 
—

 
—

 
(4
)
 
6

 
(4
)
     Realized and unrealized gains
       on marketable securities
9

 
—

 
7

 
2

 
(9
)
 
9

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
(415
)
 
(7
)
 
33

 
(472
)
 
415

 
(446
)
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive loss
(234
)
 
(407
)
 
(1,371
)
 
(271
)
 
2,100

 
(183
)
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income attributable
   to noncontrolling interests
—

 
—

 
—

 
51

 
—

 
51

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive loss attributable to Johnson Controls
$
(234
)
 
$
(407
)
 
$
(1,371
)
 
$
(322
)
 
$
2,100

 
$
(234
)



48

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)



CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION
As of March 31, 2018
(in millions)
Johnson Controls
International
 plc
 
Tyco Fire & Security Finance SCA
 
Tyco International Finance S.A.
 
Other Subsidiaries
 
Consolidating Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
304

 
$
161

 
$
1,293

 
$
(1,490
)
 
$
268

Accounts receivable - net
—

 
—

 
—

 
6,679

 
—

 
6,679

Inventories
—

 
—

 
—

 
3,565

 
—

 
3,565

Intercompany receivables
48

 
2,206

 
365

 
23,090

 
(25,709
)
 
—

Assets held for sale
—

 
—

 
—

 
22

 
—

 
22

Other current assets
11

 
2

 
2

 
1,722

 
—

 
1,737

Current assets
59

 
2,512

 
528

 
36,371

 
(27,199
)
 
12,271

 
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment - net
—

 
—

 
—

 
6,235

 
—

 
6,235

Goodwill
243

 
—

 
32

 
19,531

 
—

 
19,806

Other intangible assets - net
—

 
—

 
—

 
6,625

 
—

 
6,625

Investments in partially-owned
   affiliates
—

 
—

 
—

 
1,294

 
—

 
1,294

Investments in affiliates
39,838

 
33,681

 
21,456

 
—

 
(94,975
)
 
—

Intercompany loans receivable
—

 
4,140

 
2,836

 
9,004

 
(15,980
)
 
—

Other noncurrent assets
63

 
—

 
3

 
3,655

 
—

 
3,721

Total assets
$
40,203

 
$
40,333

 
$
24,855

 
$
82,715

 
$
(138,154
)
 
$
49,952

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Equity
 
 
 
 
 
 
 
 
 
 
 
Short-term debt
$
2,163

 
$
9

 
$
—

 
$
429

 
$
(1,490
)
 
$
1,111

Current portion of long-term debt
—

 
—

 
—

 
25

 
—

 
25

Accounts payable
1

 
—

 
—

 
4,249

 
—

 
4,250

Accrued compensation and benefits
1

 
—

 
—

 
865

 
—

 
866

Deferred revenue
—

 
—

 
—

 
1,543

 
—

 
1,543

Intercompany payables
3,361

 
19,459

 
2,031

 
858

 
(25,709
)
 
—

Other current liabilities
303

 
13

 
27

 
2,854

 
—

 
3,197

Current liabilities
5,829

 
19,481

 
2,058

 
10,823

 
(27,199
)
 
10,992

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
8,812

 
—

 
155

 
1,995

 
—

 
10,962

Pension and postretirement benefits
—

 
—

 
—

 
864

 
—

 
864

Intercompany loans payable
4,688

 
—

 
4,316

 
6,976

 
(15,980
)
 
—

Other noncurrent liabilities
—

 
—

 
24

 
4,995

 
—

 
5,019

Long-term liabilities
13,500

 
—

 
4,495

 
14,830

 
(15,980
)
 
16,845

 
 
 
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interests
—

 
—

 
—

 
235

 
—

 
235

Ordinary shares
9

 
—

 
—

 
—

 
—

 
9

Ordinary shares held in treasury
(946
)
 
—

 
—

 
—

 
—

 
(946
)
Other shareholders' equity
21,811

 
20,852

 
18,302

 
55,821

 
(94,975
)
 
21,811

Shareholders’ equity attributable to Johnson Controls
20,874

 
20,852

 
18,302

 
55,821

 
(94,975
)
 
20,874

Noncontrolling interests
—

 
—

 
—

 
1,006

 
—

 
1,006

Total equity
20,874

 
20,852

 
18,302

 
56,827

 
(94,975
)
 
21,880

Total liabilities and equity
$
40,203

 
$
40,333

 
$
24,855

 
$
82,715

 
$
(138,154
)
 
$
49,952



49

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)



CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION
As of September 30, 2017
(in millions)
Johnson Controls
International
 plc
 
Tyco Fire & Security Finance SCA
 
Tyco International Finance S.A.
 
Other Subsidiaries
 
Consolidating Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
107

 
$
382

 
$
718

 
$
(886
)
 
$
321

Accounts receivable - net
—

 
—

 
—

 
6,666

 
—

 
6,666

Inventories
—

 
—

 
—

 
3,209

 
—

 
3,209

Intercompany receivables
1,580

 
1,732

 
55

 
4,470

 
(7,837
)
 
—

Assets held for sale
—

 
—

 
—

 
189

 
—

 
189

Other current assets
14

 
—

 
1

 
1,892

 
—

 
1,907

Current assets
$
1,594

 
$
1,839

 
$
438

 
$
17,144

 
$
(8,723
)
 
$
12,292

 
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment - net
—

 
—

 
—

 
6,121

 
—

 
6,121

Goodwill
243

 
—

 
32

 
19,413

 
—

 
19,688

Other intangible assets - net
—

 
—

 
—

 
6,741

 
—

 
6,741

Investments in partially-owned affiliates
—

 
—

 
—

 
1,191

 
—

 
1,191

Investments in affiliates
19,487

 
31,594

 
21,132

 
—

 
(72,213
)
 
—

Intercompany loans receivable
17,908

 
4,140

 
2,836

 
9,004

 
(33,888
)
 
—

Noncurrent assets held for sale
—

 
—

 
—

 
1,920

 
—

 
1,920

Other noncurrent assets
56

 
—

 
7

 
3,868

 
—

 
3,931

Total assets
$
39,288

 
$
37,573

 
$
24,445

 
$
65,402

 
$
(114,824
)
 
$
51,884

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Equity
 
 
 
 
 
 
 
 
 
 
 
Short-term debt
$
1,476

 
$
—

 
$
—

 
$
624

 
$
(886
)
 
$
1,214

Current portion of long-term debt
307

 
—

 
18

 
69

 
—

 
394

Accounts payable
—

 
—

 
—

 
4,271

 
—

 
4,271

Accrued compensation and benefits
4

 
—

 
—

 
1,067

 
—

 
1,071

Deferred revenue
—

 
—

 
—

 
1,279

 
—

 
1,279

Liabilities held for sale
—

 
—

 
—

 
72

 
—

 
72

Intercompany payables
4,236

 
1,055

 
1,886

 
660

 
(7,837
)
 
—

Other current liabilities
324

 
2

 
24

 
3,203

 
—

 
3,553

Current liabilities
6,347

 
1,057

 
1,928

 
11,245

 
(8,723
)
 
11,854

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
7,806

 
—

 
152

 
4,006

 
—

 
11,964

Pension and postretirement benefits
—

 
—

 
—

 
947

 
—

 
947

Intercompany loans payable
4,688

 
17,908

 
4,316

 
6,976

 
(33,888
)
 
—

Noncurrent liabilities held for sale
—

 
—

 
—

 
173

 
—

 
173

Other noncurrent liabilities
—

 
—

 
24

 
5,344

 
—

 
5,368

Long-term liabilities
12,494

 
17,908

 
4,492

 
17,446

 
(33,888
)
 
18,452

 
 
 
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interest
—

 
—

 
—

 
211

 
—

 
211

Ordinary shares
9

 
—

 
—

 
—

 
—

 
9

Ordinary shares held in treasury
(710
)
 
—

 
—

 
—

 
—

 
(710
)
Other shareholders' equity
21,148

 
18,608

 
18,025

 
35,580

 
(72,213
)
 
21,148

Shareholders’ equity attributable to
    Johnson Controls
20,447

 
18,608

 
18,025

 
35,580

 
(72,213
)
 
20,447

Noncontrolling interests
—

 
—

 
—

 
920

 
—

 
920

Total equity
20,447

 
18,608

 
18,025

 
36,500

 
(72,213
)
 
21,367

Total liabilities and equity
$
39,288

 
$
37,573

 
$
24,445

 
$
65,402

 
$
(114,824
)
 
$
51,884


50

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended March 31, 2018
(in millions)
Johnson Controls
International plc
 
Tyco Fire & Security Finance SCA
 
Tyco International Finance S.A.
 
Other Subsidiaries
 
Consolidating Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Operating Activities
 
 
 
 
 
 
 
 
 
 
 
Net cash provided (used) by operating
   activities
$
(342
)
 
$
188

 
$
82

 
$
605

 
$
—

 
$
533

 
 
 
 
 
 
 
 
 
 
 
 
Investing Activities
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
—

 
—

 
(497
)
 
—

 
(497
)
Sale of property, plant and equipment
—

 
—

 
—

 
10

 
—

 
10

Acquisition of businesses, net of cash
   acquired
—

 
—

 
—

 
(15
)
 
—

 
(15
)
Business divestitures
—

 
—

 
—

 
2,114

 
—

 
2,114

Changes in long-term investments
—

 
—

 
—

 
(14
)
 
—

 
(14
)
Net change in intercompany loans receivable
300

 
—

 
(285
)
 
583

 
(598
)
 
—

     Net cash provided (used) by investing
      activities
300

 
—

 
(285
)
 
2,181

 
(598
)
 
1,598

 
 
 
 
 
 
 
 
 
 
 
 
Financing Activities
 
 
 
 
 
 
 
 
 
 
 
Increase (decrease) in short-term debt - net
687

 
9

 
—

 
(192
)
 
(604
)
 
(100
)
Increase in long-term debt
885

 
—

 
—

 
1

 
—

 
886

Repayment of long-term debt
(307
)
 
—

 
(18
)
 
(2,003
)
 
—

 
(2,328
)
Debt financing costs
(4
)
 
—

 
—

 
—

 
—

 
(4
)
Stock repurchases
(199
)
 
—

 
—

 
—

 
—

 
(199
)
Payment of cash dividends
(473
)
 
—

 
—

 
—

 
—

 
(473
)
Proceeds from the exercise of stock options
36

 
—

 
—

 
—

 
—

 
36

Employee equity-based compensation
    withholding taxes
—

 
—

 
—

 
(37
)
 
—

 
(37
)
Net change in intercompany loans payable
(583
)
 
—

 
—

 
(15
)
 
598

 
—

Dividends paid to noncontrolling interests
—

 
—

 
—

 
(46
)
 
—

 
(46
)
Other
—

 
—

 
—

 
11

 
—

 
11

     Net cash provided (used) by financing
      activities
42

 
9

 
(18
)
 
(2,281
)
 
(6
)
 
(2,254
)
Effect of exchange rate changes on
   cash and cash equivalents
—

 
—

 
—

 
61

 
—

 
61

Change in cash held for sale
—

 
—

 
—

 
9

 
—

 
9

Increase (decrease) in cash and
   cash equivalents
—

 
197

 
(221
)
 
575

 
(604
)
 
(53
)
Cash and cash equivalents at
   beginning of period
—

 
107

 
382

 
718

 
(886
)
 
321

Cash and cash equivalents at
   end of period
$
—

 
$
304

 
$
161

 
$
1,293

 
$
(1,490
)
 
$
268




51

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended March 31, 2017
(in millions)
Johnson Controls
International plc
 
Tyco Fire & Security Finance SCA
 
Tyco International Finance S.A.
 
Other Subsidiaries
 
Consolidating Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Operating Activities
 
 
 
 
 
 
 
 
 
 
 
Net cash provided (used) by operating
   activities
$
62

 
$
—

 
$
67

 
$
(1,648
)
 
$
—

 
$
(1,519
)
 
 
 
 
 
 
 
 
 
 
 
 
Investing Activities
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
—

 
—

 
(634
)
 
—

 
(634
)
Sale of property, plant and equipment
—

 
—

 
—

 
18

 
—

 
18

Acquisition of businesses, net of cash
   acquired
—

 
—

 
(6
)
 
—

 
—

 
(6
)
Business divestitures
—

 
—

 
—

 
180

 
—

 
180

Changes in long-term investments
—

 
—

 
(11
)
 
(19
)
 
—

 
(30
)
Net change in intercompany loans receivable
—

 
—

 
10

 
165

 
(175
)
 
—

Increase in intercompany investment
   in subsidiaries
(1,924
)
 
(1,716
)
 
(76
)
 
—

 
3,716

 
—

     Net cash used by investing activities
(1,924
)
 
(1,716
)
 
(83
)
 
(290
)
 
3,541

 
(472
)
 
 
 
 
 
 
 
 
 
 
 
 
Financing Activities
 
 
 
 
 
 
 
 
 
 
 
Increase (decrease) in short-term debt - net
885

 
76

 
—

 
(545
)
 
(361
)
 
55

Increase in long-term debt
1,544

 
—

 
—

 
8

 
—

 
1,552

Repayment of long-term debt
(46
)
 
—

 
(16
)
 
(769
)
 
—

 
(831
)
Debt financing costs
(17
)
 
—

 
—

 
—

 
—

 
(17
)
Stock repurchases
(119
)
 
—

 
—

 
—

 
—

 
(119
)
Payment of cash dividends
(235
)
 
—

 
—

 
—

 
—

 
(235
)
Proceeds from the exercise of stock options
88

 
—

 
—

 
—

 
—

 
88

Employee equity-based compensation
   withholding taxes
—

 
—

 
—

 
(33
)
 
—

 
(33
)
Net change in intercompany loans payable
(165
)
 
—

 
—

 
(10
)
 
175

 
—

Increase in equity from parent
—

 
1,640

 
76

 
2,000

 
(3,716
)
 
—

Dividends paid to noncontrolling interests
—

 
—

 
—

 
(78
)
 
—

 
(78
)
Dividend from Adient spin-off
—

 
—

 
—

 
2,050

 
—

 
2,050

Cash transferred to Adient related to spin-off
(87
)
 
—

 
—

 
(578
)
 
—

 
(665
)
Cash paid related to prior acquisitions
—

 
—

 
—

 
(37
)
 
—

 
(37
)
Other
6

 
—

 
—

 
8

 
—

 
14

     Net cash provided by financing activities
1,854

 
1,716

 
60

 
2,016

 
(3,902
)
 
1,744

Effect of exchange rate changes on
   cash and cash equivalents
—

 
—

 
—

 
(25
)
 
—

 
(25
)
Change in cash held for sale
—

 
—

 
—

 
105

 
—

 
105

Increase (decrease) in cash and
   cash equivalents
(8
)
 
—

 
44

 
158

 
(361
)
 
(167
)
Cash and cash equivalents at
   beginning of period
11

 
—

 
244

 
324

 
—

 
579

Cash and cash equivalents at
   end of period
$
3

 
$
—

 
$
288

 
$
482

 
$
(361
)
 
$
412



52

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


21.
Commitments and Contingencies

Environmental Matters

The Company accrues for potential environmental liabilities when it is probable a liability has been incurred and the amount of the liability is reasonably estimable. As of March 31, 2018 , reserves for environmental liabilities totaled  $47 million , of which $12 million was recorded within other current liabilities and $35 million was recorded within other noncurrent liabilities in the consolidated statements of financial position. Reserves for environmental liabilities for continuing operations totaled $51 million at September 30, 2017 . 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 does not currently believe 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. In addition, the Company has identified asset retirement obligations for environmental matters that are expected to be addressed at the retirement, disposal, removal or abandonment of existing owned facilities. At March 31, 2018 and September 30, 2017 , the Company recorded conditional asset retirement obligations of $65 million and $61 million , respectively.

Asbestos Matters

The Company and certain of its subsidiaries, along with numerous other third parties, are named as defendants in personal injury lawsuits based on alleged exposure to asbestos containing materials. These cases have typically involved product liability claims based primarily on allegations of manufacture, sale or distribution of industrial products that either contained asbestos or were used with asbestos containing components.

As of  March 31, 2018 , the Company's estimated asbestos related net liability recorded on a discounted basis within the Company's consolidated statements of financial position was  $174 million . The net liability within the consolidated statements of financial position was comprised of a liability for pending and future claims and related defense costs of  $555 million , of which  $54 million  was recorded in other current liabilities and  $501 million  was recorded in other noncurrent liabilities. The Company also maintained separate cash, investments and receivables related to insurance recoveries within the consolidated statements of financial position of  $381 million , of which  $57 million was recorded in other current assets, and  $324 million was recorded in other noncurrent assets. Assets included  $12 million  of cash and  $274 million of investments, which have all been designated as restricted. In connection with the recognition of liabilities for asbestos-related matters, the Company records asbestos-related insurance recoveries that are probable; the amount of such recoveries recorded at March 31, 2018 was $95 million . As of  September 30, 2017 , the Company's estimated asbestos related net liability recorded on a discounted basis within the Company's consolidated statements of financial position was  $181 million . The net liability within the consolidated statements of financial position was comprised of a liability for pending and future claims and related defense costs of  $573 million , of which  $48 million  was recorded in other current liabilities and  $525 million  was recorded in other noncurrent liabilities. The Company also maintained separate cash, investments and receivables related to insurance recoveries within the consolidated statements of financial position of  $392 million , of which  $53 million was recorded in other current assets, and  $339 million was recorded in other noncurrent assets. Assets included  $22 million  of cash and  $269 million of investments, which have all been designated as restricted. In connection with the recognition of liabilities for asbestos-related matters, the Company records asbestos-related insurance recoveries that are probable; the amount of such recoveries recorded at September 30, 2017 was $101 million .

The Company's estimate of the liability and corresponding insurance recovery for pending and future claims and defense costs is based on the Company's historical claim experience, and estimates of the number and resolution cost of potential future claims that may be filed and is discounted to present value from 2068 (which is the Company's reasonable best estimate of the actuarially determined time period through which asbestos-related claims will be filed against Company affiliates). Asbestos related defense costs are included in the asbestos liability. The Company's legal strategy for resolving claims also impacts these estimates. The Company considers various trends and developments in evaluating the period of time (the look-back

53

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


period) over which historical claim and settlement experience is used to estimate and value claims reasonably projected to be made through 2068. At least annually, the Company assesses the sufficiency of its estimated liability for pending and future claims and defense costs by evaluating actual experience regarding claims filed, settled and dismissed, and amounts paid in settlements. In addition to claims and settlement experience, the Company considers additional quantitative and qualitative factors such as changes in legislation, the legal environment, and the Company's defense strategy. The Company also evaluates the recoverability of its insurance receivable on an annual basis. The Company evaluates all of these factors and determines whether a change in the estimate of its liability for pending and future claims and defense costs or insurance receivable is warranted.

The amounts recorded by the Company for asbestos-related liabilities and insurance-related assets are based on the Company's strategies for resolving its asbestos claims, currently available information, and a number of estimates and assumptions. Key variables and assumptions include the number and type of new claims that are filed each year, the average cost of resolution of claims, the identity of defendants, the resolution of coverage issues with insurance carriers, amount of insurance, and the solvency risk with respect to the Company's insurance carriers. Many of these factors are closely linked, such that a change in one variable or assumption will impact one or more of the others, and no single variable or assumption predominately influences the determination of the Company's asbestos-related liabilities and insurance-related assets. Furthermore, predictions with respect to these variables are subject to greater uncertainty in the later portion of the projection period. Other factors that may affect the Company's liability and cash payments for asbestos-related matters include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms of state or federal tort legislation and the applicability of insurance policies among subsidiaries. As a result, actual liabilities or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in the Company's calculations vary significantly from actual results.

Insurable Liabilities

The Company records liabilities for its workers' compensation, product, general, property and auto liabilities. The determination of these liabilities and related expenses is dependent on claims experience. For most of these liabilities, claims incurred but not yet reported are estimated by utilizing actuarial valuations based upon historical claims experience. At March 31, 2018 and September 30, 2017 , the insurable liabilities totaled $439 million and $445 million , respectively, of which $81 million and $122 million was recorded within other current liabilities, $22 million and $22 million was recorded within accrued compensation and benefits, and $336 million and $301 million was recorded within other noncurrent liabilities in the consolidated statements of financial position, respectively. The Company records receivables from third party insurers when recovery has been determined to be probable. The amount of such receivables recorded at March 31, 2018 was $21 million , of which $6 million was recorded within other current assets and $15 million was recorded within other noncurrent assets. The amount of such receivables recorded at September 30, 2017 was $46 million , of which $31 million was recorded within other current assets and $15 million was recorded within other noncurrent assets. The Company maintains captive insurance companies to manage certain of its insurable liabilities.

Arbitration Award

In September 2017, the Company was subject to an unfavorable arbitration award of approximately $50 million relating to a contractual dispute with a subcontractor used by the Company at an airport construction project in Doha, Qatar. In connection with the unfavorable arbitration award, the Company recorded a charge of $50 million within selling, general and administrative expenses in the consolidated statements of income in the fourth quarter of fiscal 2017. The airport project is being managed by a steering committee. The Company and the subcontractor were working jointly to document claims for increased costs against the steering committee when the subcontractor initiated the arbitration proceeding against the Company. Pursuant to its arbitration proceeding against the Company, the subcontractor sought to recover costs it alleges it incurred due to project delays, additional work and related financing costs. The Company has filed annulment proceedings with respect to the arbitration award in the local court in Qatar. While the award remains outstanding, a portion of the balance will accrue interest at a statutory rate of 9.56% .

In a related action, the Company has initiated an arbitration claim against the steering committee related to costs it incurred in connection with delays of the airport construction project, including costs related to the above award. The arbitrator is expected to issue a decision on the Company’s claims against the steering committee by the end of fiscal 2018.

54

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)



Aqueous Film-Forming Foam Litigation

Two of our subsidiaries, Chemguard, Inc. ("Chemguard") and Tyco Fire Products L.P. ("Tyco Fire Products"), have been named, along with other defendant manufacturers, in a number of class action lawsuits relating to the use of fire-fighting foam products by the U.S. Department of Defense (the "DOD") and others for fire suppression purposes and related training exercises. Plaintiffs generally allege that the firefighting foam products manufactured by defendants contain or break down into the chemicals perfluorooctane sulfonate ("PFOS") and perfluorooctanoic acid ("PFOA") and that the use of these products by others at various airbases and airports resulted in the release of these chemicals into the environment and ultimately into communities’ drinking water supplies neighboring those airports and airbases. Plaintiffs generally seek compensatory damages, including damages for alleged personal injuries, medical monitoring, and alleged diminution in property values, and also seek punitive damages and injunctive relief to address remediation of the alleged contamination. As of May 3, 2018, the Company is named in 15 putative class actions in federal courts in five states as set forth below:
    Colorado
•
District of Colorado - Bell et al. v. The 3M Company et al., filed on September 18, 2016.
•
District of Colorado - Bell et al. v. The 3M Company et al., filed on September 18, 2016.
•
District of Colorado - Davis et al. v. The 3M Company et al., filed on September 22, 2016.

The above cases have been consolidated in the U.S. District Court for the District of Colorado, and a hearing on the plaintiffs’ motion for class certification is likely to be scheduled for July 2018 with a trial date schedule for April 2019. In addition to the putative class actions above, Chemguard and Tyco Fire Products are defendants in Adams, et al. v. The 3M Company et.al. , filed on March 26, 2018, in the United States District Court for the District of Colorado. A group of approximately 90 plaintiffs allege that releases of PFOS and PFOA have contaminated the surrounding communities’ water supplies near the Peterson Air Force Base and the Colorado Municipal Springs Airport. The plaintiffs assert defective design, failure to warn, negligence, private nuisance and trespass and seek recovery for alleged diminished property values, personal injury, medical monitoring and punitive damages.

Massachusetts
•
District of Massachusetts - Civitarese et al. v. The 3m Company et al., filed on April 18, 2018 in the United States District Court of Massachusetts.

Washington
•
Eastern District of Washington - Ackerman et al. v. The 3M Company et al. filed on April 5, 2018 in the United States District Court, Eastern District of Washington.

New York
•
Eastern District of New York - Green et al. v. The 3M Company et al., filed March 27, 2017 in Supreme Court of the State of New York, Suffolk County, prior to removal to federal court.
•
Southern District of New York - Adamo et al. v. The Port Authority of NY and NJ et al., filed August 11, 2017 in Supreme Court of the State of New York, Orange County, prior to removal to federal court.
•
Southern District of New York - Fogarty et al. v. The Port Authority of NY and NJ et al., filed August 11, 2017 in Supreme Court of the State of New York, Orange County, prior to removal to federal court.
•
Southern District of New York - Miller et al. v. The Port Authority of NY and NJ et al., filed August 11, 2017 in Supreme Court of the State of New York, Orange County, prior to removal to federal court.
•
Supreme Court of the State of New York, Suffolk County - Singer et al. v. The 3M Company et al., filed October 10, 2017.
•
Supreme Court of the State of New York, Suffolk County - Shipman et al. v. The 3M Company et al., filed March 21, 2018.


55

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


Chemguard and Tyco Fire Products are also defendants in Ayo, et al. v. The 3M Company, et al ., filed on December 11, 2017 in the Suffolk County Supreme Court of New York. Approximately 32 plaintiffs allege that releases of PFOS and PFOA have contaminated surrounding communities’ water supplies near the Gabreski Air National Guard Base located on Long Island, New York. The plaintiffs assert defective design, failure to warn, negligence, private nuisance, and trespass and seek recovery for alleged diminished property values, personal injury, medical monitoring and punitive damages.
Responses to the complaints have not been filed yet in any of the New York actions.
Pennsylvania
•
Eastern District of Pennsylvania - Bates et al. v. The 3M Company et al., filed September 15, 2016.
•
Eastern District of Pennsylvania - Grande et al. v. The 3M Company et al., filed October 13, 2016.
•
Eastern District of Pennsylvania - Yockey et al. v. The 3M Company et al., filed October 24, 2016.
•
Eastern District of Pennsylvania - Fearnley et al. v. The 3M Company et al., filed December 9, 2016.

The above cases have been consolidated in the U.S. District Court for the Eastern District of Pennsylvania. The defendants' motion to dismiss the complaint in the consolidated proceeding was denied without prejudice and the cases are currently stayed pending the appeal of an action in which the Company is not a party.

In addition to the putative class actions, Chemguard and Tyco Fire Products are also defendants in an action filed by two plaintiffs in the U.S. District Court for the Eastern District of Pennsylvania: Menkes et al. v. The 3M Company et al. , (filed February 7, 2017). The Menkes plaintiffs assert substantive claims and allegations similar to the putative class allegations, but also include personal injury claim. Further, the Company was recently served with an individual action in Pennsylvania state court, Court of Common Pleas Philadelphia: Gentles v. 3M Company et. al. (filed April 26, 2018). The Company is also on notice of approximately 540 other possible individual product liability claims by filings made in Pennsylvania state court, but complaints have not been filed in those matters, and, under Pennsylvania’s procedural rules, they may or may not result in lawsuits.
Chemguard and Tyco Fire Products are also defendants in three cases pending in the U.S. District Court for the District of Massachusetts: Town of Barnstable v. the 3M. Co., et al, (filed Nov. 21, 2016) , County of Barnstable v. the 3M. Co., et al , (filed January 9, 2017) and City of Westfield v. the 3M Co., et al., (filed on February 24, 2018). These municipal plaintiffs generally allege that the use of the defendants’ fire-fighting foam products at a fire training academy and municipal airport released PFOS and PFOA into the town’s water supply wells, allegedly requiring remediation of the town and county property. The defendants have filed a motion to dismiss in County of Barnstable, which was granted without prejudice and the plaintiffs have subsequently filed an amended complaint.
The Company is vigorously defending these cases and believes that it has meritorious defenses to class certification and the claims asserted. However, there are numerous factual and legal issues to be resolved in connection with these claims, and it is extremely difficult to predict the outcome or ultimate financial exposure, if any, represented by these matters, but there can be no assurance that any such exposure will not be material. The Company is also pursuing insurance coverage for these matters.
The Company is involved in various lawsuits, claims and proceedings incident to the operation of its businesses, including those pertaining to product liability, environmental, safety and health, intellectual property, employment, commercial and contractual matters, and various other casualty matters. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to us, 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.

22.
Related Party Transactions

In the ordinary course of business, the Company enters into transactions with related parties, such as equity affiliates. Such transactions consist of facility management services, the sale or purchase of goods and other arrangements.

The net sales to and purchases from related parties included in the consolidated statements of income were $222 million and $70 million , respectively, for the three months ended March 31, 2018 ; and $229 million and $52 million , respectively, for the three months ended March 31, 2017 . The net sales to and purchases from related parties included in the consolidated statements

56

Johnson Controls International plc
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)


of income were $464 million and $111 million , respectively, for the six months ended March 31, 2018 ; and $454 million and $101 million , respectively, for the six months ended March 31, 2017 .

The following table sets forth the amount of accounts receivable due from and payable to related parties in the consolidated statements of financial position (in millions):
 
 
March 31, 2018
 
September 30, 2017

 
 
 
 
 
Receivable from related parties
 
$
107

 
$
108

Payable to related parties
 
60

 
50


The Company has also provided financial support to certain of its VIE's; see Note 1, "Financial Statements," of the notes to consolidated financial statements for additional information.


57


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statements for Forward-Looking Information

Unless otherwise indicated, references to "Johnson Controls," the "Company," "we," "our" and "us" in this Quarterly Report on Form 10-Q refer to Johnson Controls International plc and its consolidated subsidiaries.

The Company has made statements in this document that are forward-looking and therefore are subject to risks and uncertainties. All statements in this document other than statements of historical fact are, or could be, "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In this document, statements regarding Johnson Controls' future financial position, sales, costs, earnings, cash flows, other measures of results of operations, synergies and integration opportunities, capital expenditures and debt levels are forward-looking statements. Words such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "should," "forecast," "project" or "plan" and terms of similar meaning are also generally intended to identify forward-looking statements. However, the absence of these words does not mean that a statement is not forward-looking. Johnson Controls cautions that these statements are subject to numerous important risks, uncertainties, assumptions and other factors, some of which are beyond Johnson Controls’ control, that could cause Johnson Controls’ actual results to differ materially from those expressed or implied by such forward-looking statements, including, among others, risks related to: any delay or inability of Johnson Controls to realize the expected benefits and synergies of recent portfolio transactions such as the merger with Tyco International plc ("Tyco"), the spin-off of Adient, changes in tax laws, regulations, rates, policies or interpretations, the loss of key senior management, the tax treatment of recent portfolio transactions, significant transaction costs and/or unknown liabilities associated with such transactions, the outcome of actual or potential litigation relating to such transactions, the risk that disruptions from recent transactions will harm Johnson Controls’ business, the strength of the U.S. or other economies, automotive vehicle production levels, mix and schedules, energy and commodity prices, the availability of raw materials and component products, currency exchange rates, cancellation of or changes to commercial arrangements, and with respect to the recently announced review of strategic alternatives for the Power Solutions business, uncertainties as to the structure and timing of any transaction and whether it will be completed, the possibility that closing conditions for a transaction may not be satisfied or waived, the impact of the strategic review and any transaction on Johnson Controls and the Power Solutions business on a standalone basis if the transaction is completed, and whether the strategic benefits of any transaction can be achieved. A detailed discussion of risks related to Johnson Controls' business is included in Item 1A of Part I of the Company's most recent Annual Report on Form 10-K for the year ended September 30, 2017 filed with the United States Securities and Exchange Commission ("SEC") on November 21, 2017 and available at www.sec.gov and www.johnsoncontrols.com under the "Investors" tab. The description of certain of these risks is supplemented in Item 1A of Part II of this Quarterly Report on Form 10-Q and on Form 10-Q for the quarterly period ending December 31, 2017 filed the SEC on February 2, 2018. The forward-looking statements included in this document are only made as of the date of this document, unless otherwise specified, and, except as required by law, Johnson Controls assumes no obligation, and disclaims any obligation, to update such statements to reflect events or circumstances occurring after the date of this document.

Overview

Johnson Controls International plc, headquartered in Cork, Ireland, is a global diversified technology and multi industrial leader serving a wide range of customers in more than 150 countries. The Company creates intelligent buildings, efficient energy solutions, integrated infrastructure and next generation transportation systems that work seamlessly together to deliver on the promise of smart cities and communities. The Company is committed to helping our customers win and creating greater value for all of its stakeholders through strategic focus on our buildings and energy growth platforms.

Johnson Controls was originally incorporated in the state of Wisconsin in 1885 as Johnson Electric Service Company to manufacture, install and service automatic temperature regulation systems for buildings. The Company was renamed to Johnson Controls, Inc. in 1974. In 1978, the Company acquired Globe-Union, Inc., a Wisconsin-based manufacturer of automotive batteries for both the replacement and original equipment markets. The Company entered the automotive seating industry in 1985 with the acquisition of Michigan-based Hoover Universal, Inc. In 2005, the Company acquired York International, a global supplier of heating, ventilating, air-conditioning and refrigeration equipment and services. In 2014, the Company acquired Air Distribution Technologies, Inc. ("ADTi"), one of the largest independent providers of air distribution and ventilation products in North America. On October 1, 2015, the Company formed a joint venture with Hitachi to expand its building product offerings.

In the fourth quarter of fiscal 2016, Johnson Controls, Inc. ("JCI Inc.") and Tyco completed their combination, with JCI Inc. merging with a wholly owned, indirect subsidiary of Tyco (the "Merger"). Following the Merger, Tyco changed its name to “Johnson

58


Controls International plc” and JCI Inc. is a wholly-owned subsidiary of Johnson Controls International plc. The Merger was accounted for as a reverse acquisition using the acquisition method of accounting in accordance with Accounting Standards Codification ("ASC") 805, "Business Combinations." JCI Inc. was the accounting acquirer for financial reporting purposes. Accordingly, the historical consolidated financial statements of JCI Inc. for periods prior to this transaction are considered to be the historic financial statements of the Company.

The acquisition of Tyco brings together best-in-class product, technology and service capabilities across controls, fire, security, HVAC, power solutions and energy storage, to serve various end-markets including large institutions, commercial buildings, retail, industrial, small business and residential. The combination of the Tyco and Johnson Controls buildings platforms creates immediate opportunities for near-term growth through cross-selling, complementary branch and channel networks, and expanded global reach for established businesses. The new Company benefits by combining innovation capabilities and pipelines involving new products, advanced solutions for smart buildings and cities, value-added services driven by advanced data and analytics and connectivity between buildings and energy storage through infrastructure integration.

On October 31, 2016, the Company completed the spin-off of its Automotive Experience business by way of the transfer of the Automotive Experience Business from Johnson Controls to Adient plc ("Adient") and the issuance of ordinary shares of Adient directly to holders of Johnson Controls ordinary shares on a pro rata basis. Prior to the open of business on October 31, 2016, each of the Company's shareholders received one ordinary share of Adient plc for every 10 ordinary shares of Johnson Controls held as of the close of business on October 19, 2016, the record date for the distribution. Company shareholders received cash in lieu of fractional shares of Adient, if any. Following the separation and distribution, Adient plc is now an independent public company trading on the New York Stock Exchange ("NYSE") under the symbol "ADNT." The Company did not retain any equity interest in Adient plc. Adient’s historical financial results are reflected in the Company’s consolidated financial statements as a discontinued operation.

The Building Technologies & Solutions ("Buildings") business is a global market leader in engineering, developing, manufacturing and installing building products and systems around the world, including HVAC equipment, HVAC controls, energy-management systems, security systems, fire detection systems and fire suppression solutions. The Buildings business further serves customers by providing technical services (in the HVAC, security and fire-protection space), energy-management consulting and data-driven solutions via its recently launch data-enabled business. Finally, the Company is a North American market leader in residential air conditioning and heating systems and a global market leader in industrial refrigeration products.

The Power Solutions business is a leading global supplier of lead-acid automotive batteries for virtually every type of passenger car, light truck and utility vehicle. The Company serves both automotive original equipment manufacturers ("OEMs") and the general vehicle battery aftermarket. The Company also supplies advanced battery technologies to power start-stop, hybrid and electric vehicles.

The following information should be read in conjunction with the September 30, 2017 consolidated financial statements and notes thereto, along with management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended September 30, 2017 filed with the SEC on November 21, 2017. References in the following discussion and analysis to "Three Months"(or similar language) refer to the three months ended March 31, 2018 compared to the three months ended March 31, 2017 , while "Year-to-Date" refers to the six months ended March 31, 2018 compared to the six months ended March 31, 2017 .


59


Net Sales

Three Months Ended
 March 31,
 
 
 
Six Months Ended
March 31,


(in millions)
2018
 
2017
 
Change
 
2018
 
2017

Change

 
 
 
 
 
 








Net sales
$
7,475

 
$
7,267

 
3
%
 
$
14,910

 
$
14,353


4
%

The increase in consolidated net sales for the three months ended March 31, 2018 was due to the favorable impact of foreign currency translation ($311 million) and higher sales in the Building Technologies & Solutions business ($61 million) and the Power Solutions business ($36 million), partially offset by lower sales due to business divestitures ($200 million). The increased sales in the Building Technologies & Solutions business, net of divestitures, related to higher volumes in the Global Products segment. Increased sales in the Power Solutions business resulted from the impact of higher lead costs on pricing, partially offset by lower volumes. Excluding the impact of foreign currency translation, impact of lead costs on pricing and business divestitures, consolidated net sales increased 1% as compared to the prior year. Refer to the "Segment Analysis" below within Item 2 for a discussion of net sales by segment.

The increase in consolidated net sales for the six months ended March 31, 2018 was due to the favorable impact of foreign currency translation ($483 million) and higher sales in the Building Technologies & Solutions business ($274 million) and the Power Solutions business ($188 million), partially offset by lower sales due to business divestitures ($388 million). The increased sales in the Building Technologies & Solutions business, net of divestitures, related to higher volumes across all segments. Increased sales in the Power Solutions business resulted from the impact of higher lead costs on pricing, partially offset by lower volumes. Excluding the impact of foreign currency translation, impact of lead costs on pricing and business divestitures, consolidated net sales increased 2% as compared to the prior year. Refer to the "Segment Analysis" below within Item 2 for a discussion of net sales by segment.

Cost of Sales / Gross Profit
 
Three Months Ended
March 31,
 
 
 
Six Months Ended
March 31,
 
 
(in millions)
2018
 
2017
 
Change
 
2018
 
2017
 
Change
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
$
5,255

 
$
4,986

 
5
 %
 
$
10,521

 
$
9,958

 
6
 %
Gross profit
2,220

 
2,281

 
-3
 %
 
4,389

 
4,395

 
—
 %
% of sales
29.7
%
 
31.4
%
 
 
 
29.4
%
 
30.6
%
 
 

Cost of sales for the three month period ended March 31, 2018 increased as compared to the three month period ended March 31, 2017 , and gross profit as a percentage of sales decreased by 170 basis points. Gross profit in the Building Technologies & Solutions business increased due to higher volumes and favorable mix in the Global Products and Building Solutions North America segments, partially offset by prior year nonrecurring purchase accounting adjustments ($30 million). Gross profit in the Power Solutions business was impacted by higher operating costs primarily driven by efforts to satisfy customer demand, partially offset by favorable pricing and product mix. Foreign currency translation had an unfavorable impact on cost of sales of approximately $229 million. Refer to the "Segment Analysis" below within Item 2 for a discussion of segment earnings before interest, taxes and amortization ("EBITA") by segment.

Cost of sales for the six month period ended March 31, 2018 increased as compared to the six month period ended March 31, 2017 , and gross profit as a percentage of sales decreased by 120 basis points. Gross profit in the Building Technologies & Solutions business increased due to prior year nonrecurring purchase accounting adjustments ($82 million), and higher volumes and favorable mix in the Global Products and Building Solutions North America segments, partially offset by higher operating costs. Gross profit in the Power Solutions business was impacted by higher operating costs primarily driven by efforts to satisfy customer demand, partially offset by favorable pricing and product mix. Foreign currency translation had an unfavorable impact on cost of sales of approximately $357 million. Refer to the "Segment Analysis" below within Item 2 for a discussion of segment EBITA by segment.


60

Selling, General and Administrative Expenses
 
Three Months Ended
March 31,
 
 
 
Six Months Ended
March 31,
 
 
(in millions)
2018
 
2017
 
Change
 
2018
 
2017
 
Change
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative
     expenses
$
1,588

 
$
1,726

 
-8
 %
 
$
3,005

 
$
3,296

 
-9
 %
% of sales
21.2
%
 
23.8
%
 
 
 
20.2
%
 
23.0
%
 
 

Selling, general and administrative expenses ("SG&A") for the three month period ended March 31, 2018 decreased 8% as compared to the three month period ended March 31, 2017 . The decrease in SG&A was primarily due to productivity savings and costs synergies, partially offset by net mark-to-market adjustments on pension plans which had a prior year favorable impact on SG&A of $13 million primarily due to favorable investment returns versus expectations. Foreign currency translation had an unfavorable impact on SG&A of $47 million. Refer to the "Segment Analysis" below within Item 2 for a discussion of segment EBITA by segment.

SG&A for the six month period ended March 31, 2018 decreased 9% as compared to the six month period ended March 31, 2017 . The decrease in SG&A was primarily due to a gain on sale of Scott Safety in the Building Technologies & Solutions Global Products segment ($114 million), and productivity savings and costs synergies, partially offset by net mark-to-market adjustments on pension plans which had a prior year favorable impact on SG&A of $120 million primarily due to an increase in discount rates. Foreign currency translation had an unfavorable impact on SG&A of $71 million. Refer to the "Segment Analysis" below within Item 2 for a discussion of segment EBITA by segment.

Restructuring and Impairment Costs
 
Three Months Ended
March 31,
 
 
 
Six Months Ended
March 31,
 
 
(in millions)
2018
 
2017
 
Change
 
2018
 
2017
 
Change
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring and impairment costs
$
—

 
$
99

 
*
 
$
158

 
$
177

 
-11
 %

* Measure not meaningful

Refer to Note 8, "Significant Restructuring and Impairment Costs," of the notes to consolidated financial statements for further disclosure related to the Company's restructuring plans.

Net Financing Charges

Three Months Ended
March 31,
 
 
 
Six Months Ended
March 31,


(in millions)
2018
 
2017
 
Change
 
2018
 
2017
 
Change

 
 
 
 
 
 
 
 
 
 
 
Net financing charges
$
115

 
$
116

 
-1
 %
 
$
231

 
$
252

 
-8
 %

Net financing charges were lower for the six month period ended March 31, 2018 primarily due to prior year debt exchange offer fees.


61


Equity Income

Three Months Ended
March 31,
 
 
 
Six Months Ended
March 31,


(in millions)
2018
 
2017
 
Change
 
2018
 
2017
 
Change

 
 
 
 
 
 
 
 
 
 
 
Equity income
$
44

 
$
53

 
-17
 %
 
$
104

 
$
108

 
-4
 %

The decrease in equity income for the three months ended March 31, 2018 was primarily due to lower income at partially-owned affiliates in the Power Solutions business. The decrease in equity income for the six months ended March 31, 2018 was primarily due to lower income at partially-owned affiliates in the Power Solutions business, partially offset by higher income at partially-owned affiliates in the Building Technologies & Solutions business. Refer to the "Segment Analysis" below within Item 2 for a discussion of segment EBITA by segment.

Income Tax Provision
 
Three Months Ended
March 31,
 
 
 
Six Months Ended
March 31,
 
 
(in millions)
2018
 
2017
 
Change
 
2018
 
2017
 
Change
 
 
 
 
 
 
 
 
 
 
 
 
Income tax provision
$
78

 
$
508

 
*
 
$
345

 
$
481

 
*
Effective tax rate
14
%
 
129
%
 
 
 
31
%
 
62
%
 
 

* Measure not meaningful

In calculating the provision for income taxes, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances known at each interim period. On a quarterly basis, the actual effective tax rate is adjusted, as appropriate, based upon changed facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter.

The statutory tax rate in Ireland is being used as a comparison since the Company is domiciled in Ireland. For the three months ended March 31, 2018, the Company's effective tax rate was 14% and was higher than the statutory tax rate of 12.5% primarily due to tax rate differentials, partially offset by the benefits of continuing global tax planning initiatives. For the six months ended March 31, 2018, the Company's effective tax rate was 31% and was higher than the statutory tax rate of 12.5% primarily due to the discrete net impacts of U.S. Tax Reform, final income tax effects of the completed divestiture of the Scott Safety business and tax rate differentials, partially offset by the benefits of continuing global tax planning initiatives and tax audit closures. For the three months ended March 31, 2017, the Company's effective tax rate was 129% and was higher than the statutory tax rate of 12.5% primarily due to the establishment of a deferred tax liability on the outside basis difference of the Company's investment in certain subsidiaries related to the divestiture of the Scott Safety business and tax rate differentials, partially offset by the benefits of continuing global tax planning initiatives, the jurisdictional mix of significant restructuring and impairment costs, and Tyco Merger transaction and integration costs. For the six months ended March 31, 2017, the Company's effective tax rate was 62% and was higher than the statutory tax rate of 12.5% primarily due to the establishment of a deferred tax liability on the outside basis difference of the Company's investment in certain subsidiaries related to the divestiture of the Scott Safety business, the income tax effects of pension mark-to-market gains, and tax rate differentials, partially offset by the benefits of continuing global tax planning initiatives, the jurisdictional mix of significant restructuring and impairment costs, Tyco Merger transaction and integration costs, purchase accounting impacts and a tax benefit due to changes in entity tax status. The effective tax rate for the six months ended March 31, 2018 decreased as compared to the six months ended March 31, 2017, primarily due to the discrete tax items described below and tax planning initiatives. The global tax planning initiatives related primarily to foreign tax credit planning, global financing structures and alignment of our global business functions in a tax efficient manner.

In the second quarter of fiscal 2018, the Company recorded $64 million of transaction and integration costs. These costs generated a $9 million tax benefit which was impacted by the Company’s current tax position in these jurisdictions.

On December 22, 2017, the “Tax Cuts and Jobs Act” (H.R. 1) was enacted which significantly revises U.S. corporate income tax by, among other things, lower corporate income tax rates, impose a one-time transition tax on deemed repatriated earnings of non-U.S. subsidiaries, and implement a territorial tax system and various base erosion minimum tax provisions.

62



In the first quarter of fiscal 2018, as a result of the enacted legislation, the Company recorded a discrete non-cash tax benefit of $101 million due to the remeasurement of U.S. deferred tax assets and liabilities. The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21% or the blended fiscal 2018 rate of 24.5%. This tax benefit is provisional as the Company is still analyzing certain aspects of the legislation and refining calculations, which could potentially materially affect the measurement of these amounts or give rise to new deferred tax amounts.

In the first quarter of fiscal 2018, the Company also recorded a discrete tax charge of $305 million due to the one-time transition tax on deemed repatriated earnings of certain non-U.S. subsidiaries. This charge is inclusive of relevant withholding taxes. This one-time transition tax is based on the Company’s post-1986 earnings and profits (“E&P”) not previously subjected to U.S. taxation. This tax charge is provisional as the Company has not yet finally determined its post-1986 non-U.S. E&P. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. Given the varying tax rates (15.5% on cash and 8% on other property), this amount may change when the Company completes the calculation of post-1986 non-U.S. E&P previously deferred from U.S. federal taxation and concludes on the amounts held in cash versus other specified assets.

Various impacts of the enacted legislation are still being evaluated by the Company and may materially differ from the estimated impacts recognized in the first quarter of fiscal 2018 due to future treasury regulations, tax law technical corrections, and other potential guidance, notices, rulings, refined computations, actions the Company may take as a result of the tax legislation, and other items. The SEC has issued rules that allow for a measurement period of up to one year after the enactment date of the legislation to finalize the recording of the related tax impacts. 

In the first quarter of fiscal 2018, tax audit resolutions resulted in a net $25 million benefit to income tax expense.

In the first quarter of fiscal 2018, the Company recorded $50 million of transaction and integration costs. These costs generated a $7 million tax benefit which was impacted by the Company’s current tax position in these jurisdictions.

In the first quarter of fiscal 2018, the Company completed the sale of its Scott Safety business to 3M Company. Refer to Note 3, "Acquisitions and Divestitures," of the notes to consolidated financial statements for additional information. In connection with the sale, the Company recorded a pre-tax gain of $114 million and income tax expense of $30 million.

In the first quarter of fiscal 2018, the Company recorded $158 million of significant restructuring and impairment costs. Refer to Note 8, "Significant Restructuring and Impairment Costs," of the notes to consolidated financial statements for additional information. The restructuring costs generated a $24 million tax benefit, which was impacted by the Company’s current tax position in these jurisdictions and the lower enacted U.S. tax rate.

In the second quarter of fiscal 2017, the Company recorded a discrete non-cash tax charge of $457 million related to establishment of a deferred tax liability on the outside basis difference of the Company's investment in certain subsidiaries of the Scott Safety business.

In the second quarter of fiscal 2017, the Company recorded $138 million of transaction and integration costs which generated a $31 million tax benefit.

In the second quarter of fiscal 2017, the Company recorded pension mark-to-market gains of $18 million, which resulted in tax expense of $8 million.

In the second quarter of fiscal 2017, the Company recorded $99 million of significant restructuring and impairment costs. Refer to Note 8, "Significant Restructuring and Impairment Costs," of the notes to consolidated financial statements for additional information. The restructuring costs generated a $20 million tax benefit, which was impacted by the Company’s current tax position in these jurisdictions.

In the first quarter of fiscal 2017, the Company recorded a discrete tax benefit of $101 million due to changes in entity tax status.

In the first quarter of fiscal 2017, the Company recorded pension mark-to-market gains of $117 million, which resulted in tax expense of $46 million.


63


In the first quarter of fiscal 2017, the Company recorded $130 million of transaction and integration costs which generated an $11 million tax benefit.

In the first quarter of fiscal 2017, the Company recorded $78 million of significant restructuring and impairment costs. Refer to Note 8, "Significant Restructuring and Impairment Costs," of the notes to consolidated financial statements for additional information. The restructuring costs generated a $14 million tax benefit, which was impacted by the Company’s current tax position in these jurisdictions.

Loss From Discontinued Operations, Net of Tax

Three Months Ended
March 31,
 
 
 
Six Months Ended
March 31,


(in millions)
2018
 
2017
 
Change
 
2018
 
2017

Change

 
 
 
 
 
 







Loss from discontinued operations,
net of tax
$
—

 
$
—

 
*
 
$
—

 
$
(34
)
 
*

* Measure not meaningful

Refer to Note 4, "Discontinued Operations," of the notes to consolidated financial statements for further information regarding the Company's discontinued operations.

Income Attributable to Noncontrolling Interests

Three Months Ended
March 31,
 
 
 
Six Months Ended
March 31,


(in millions)
2018
 
2017
 
Change
 
2018
 
2017

Change

 
 
 
 
 
 








Income from continuing operations
attributable to noncontrolling
interests
$
45

 
$
33

 
36
%
 
$
86

 
$
73

 
18
%
Income from discontinued
    operations attributable to
    noncontrolling interests
—

 
—

 
*

 
—

 
9

 
*


* Measure not meaningful

The increase in income from continuing operations attributable to noncontrolling interests for the three and six months ended March 31, 2018 was primarily due to higher net income related to the Johnson Controls - Hitachi ("JCH") joint venture in the Building Technologies & Solutions business and higher net income at a Power Solutions partially-owned affiliate.

Refer to Note 4, "Discontinued Operations," of the notes to consolidated financial statements for further information regarding the Company's discontinued operations.

Net Income (Loss) Attributable to Johnson Controls
 
Three Months Ended
March 31,
 
 
 
Six Months Ended
March 31,
 
 
(in millions)
2018
 
2017
 
Change
 
2018
 
2017
 
Change
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to
     Johnson Controls
$
438

 
$
(148
)
 
*
 
$
668

 
$
181

 
*

* Measure not meaningful

64



The increase in net income attributable to Johnson Controls for the three and six months ended March 31, 2018 was primarily due to lower income tax provision due to higher discrete period net tax charges in the prior year and lower SG&A. Diluted earnings (loss) per share attributable to Johnson Controls for the three months ended March 31, 2018 was $0.47 compared to $(0.16) for the three months ended March 31, 2017 . Diluted earnings per share attributable to Johnson Controls for the six months ended March 31, 2018 was $0.72 compared to $0.19 for the six months ended March 31, 2017 .

Comprehensive Income (Loss) Attributable to Johnson Controls
 
Three Months Ended
March 31,
 
 
 
Six Months Ended
March 31,
 
 
(in millions)
2018
 
2017
 
Change
 
2018
 
2017
 
Change
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
     attributable to Johnson Controls
$
598

 
$
98

 
*
 
$
887

 
$
(234
)
 
*

* Measure not meaningful

The increase in comprehensive income attributable to Johnson Controls for the three months ended March 31, 2018 was primarily due to higher net income attributable to Johnson Controls ($586 million), partially offset by a decrease in other comprehensive income attributable to Johnson Controls ($86 million) resulting primarily from unfavorable foreign currency translation adjustments. These year-over-year unfavorable foreign currency translation adjustments were primarily driven by the strengthening of the Brazilian real and Japanese yen currencies against the U.S. dollar in the prior year.

The increase in comprehensive income (loss) attributable to Johnson Controls for the six months ended March 31, 2018 was primarily due to an increase in other comprehensive income attributable to Johnson Controls ($634 million) resulting primarily from favorable foreign currency translation adjustments and higher net income attributable to Johnson Controls ($487 million). These year-over-year favorable foreign currency translation adjustments were primarily driven by the strengthening of the British pound and euro against the U.S. dollar.

Segment Analysis

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

Building Technologies & Solutions - Net Sales
 
Three Months Ended
March 31,
 
 
 
Six Months Ended
March 31,
 
 
(in millions)
2018
 
2017

Change
 
2018
 
2017
 
Change









 
 
 
 
 
 
Building Solutions North America
$
2,097

 
$
2,097

 
—
%
 
$
4,109

 
$
4,039

 
2
%
Building Solutions EMEA/LA
907

 
898

 
1
%
 
1,822

 
1,773

 
3
%
Building Solutions Asia Pacific
586

 
562

 
4
%
 
1,183

 
1,137

 
4
%
Global Products
2,040

 
2,014

 
1
%
 
3,821

 
3,808

 
—

 
$
5,630

 
$
5,571

 
1
%
 
$
10,935

 
$
10,757

 
2
%

Three Months:

•
Building Solutions North America was consistent with the prior year due to higher volumes ($13 million) and the favorable impact of foreign currency translation ($10 million), offset by the impact of prior year nonrecurring purchase accounting adjustments ($23 million). The increase in volumes was primarily attributable to higher HVAC and controls sales.


65


•
The increase in Building Solutions EMEA/LA was due to the favorable impact of foreign currency translation ($81 million), partially offset by lower volumes related to a business divestiture ($37 million), lower volumes in Europe ($17 million) and the Middle East ($11 million), and the impact of prior year nonrecurring purchase accounting adjustments ($7 million).

•
The increase in Building Solutions Asia Pacific was due to the favorable impact of foreign currency translation ($35 million), partially offset by lower volumes ($9 million) and lower volumes related to a business divestiture ($2 million).

•
The increase in Global Products was due to higher volumes ($115 million), and the favorable impact of foreign currency translation ($72 million), partially offset by lower volumes related to business divestitures ($161 million). The increase in volumes was primarily attributable to higher building management, HVAC and refrigeration equipment, and specialty products sales.

Year-to-Date:

•
The increase in Building Solutions North America was due to higher volumes ($73 million) and the favorable impact of foreign currency translation ($20 million), partially offset by the impact of prior year nonrecurring purchase accounting adjustments ($23 million). The increase in volumes was primarily attributable to higher HVAC and controls sales.

•
The increase in Building Solutions EMEA/LA was due to the favorable impact of foreign currency translation ($128 million), and higher volumes in Latin America ($11 million) and the Middle East ($9 million), partially offset by lower volumes related to a business divestiture ($80 million), lower volumes in Europe ($15 million) and the impact of prior year nonrecurring purchase accounting adjustments ($4 million).

•
The increase in Building Solutions Asia Pacific was due to the favorable impact of foreign currency translation ($49 million), higher volumes ($5 million) and the impact of prior year nonrecurring purchase accounting adjustments ($1 million), partially offset by lower volumes related to a business divestiture ($9 million).

•
The increase in Global Products was due to higher volumes ($211 million), the favorable impact of foreign currency translation ($95 million) and the impact of prior year nonrecurring purchase accounting adjustments ($6 million), partially offset by lower volumes related to business divestitures ($299 million). The increase in volumes was primarily attributable to higher building management, HVAC and refrigeration equipment, and specialty products sales.

Building Technologies & Solutions - Segment EBITA
 
Three Months Ended
March 31,
 
 
 
Six Months Ended
March 31,
 
 
(in millions)
2018
 
2017
 
Change
 
2018
 
2017
 
Change
 
 
 
 
 
 
 
 
 
 
 
 
Building Solutions North America
$
239

 
$
255

 
-6
 %
 
$
466

 
$
451

 
3
%
Building Solutions EMEA/LA
77

 
89

 
-13
 %
 
146

 
138

 
6
%
Building Solutions Asia Pacific
71

 
67

 
6
 %
 
145

 
130

 
12
%
Global Products
228

 
242

 
-6
 %
 
514

 
369

 
39
%
 
$
615

 
$
653

 
-6
 %
 
$
1,271

 
$
1,088

 
17
%

Three Months:

•
The decrease in Building Solutions North America was due to prior year nonrecurring purchase accounting adjustments ($34 million), current year integration costs ($5 million) and incremental investments ($5 million), partially offset by favorable volumes / mix ($11 million), lower operating costs ($8 million), prior year integration costs ($7 million), lower selling, general and administrative expenses ($1 million), and prior year transaction costs ($1 million).

•
The decrease in Building Solutions EMEA/LA was due to prior year nonrecurring purchase accounting adjustments ($15 million), lower volumes ($9 million), incremental investments ($3 million), lower equity income ($3 million) and current year integration costs ($1 million), partially offset by the favorable impact of foreign currency translation ($9 million), prior year transaction costs ($3 million), favorable mix ($3 million), prior year integration costs ($2 million), and lower selling, general and administrative expenses ($2 million).


66


•
The increase in Building Solutions Asia Pacific was due to favorable mix ($8 million), the favorable impact of foreign currency translation ($2 million), and prior year integration costs ($2 million), partially offset by lower volumes ($3 million), incremental investments ($2 million), prior year nonrecurring purchase accounting adjustments ($2 million), and higher selling, general and administrative expenses ($1 million), .

•
The decrease in Global Products was due to lower income due to business divestitures ($39 million), higher operating costs ($20 million), current year integration costs ($9 million), and higher selling, general and administrative expenses including planned incremental global product and channel investments, partially offset by productivity savings and an insignificant gain on a business divestiture ($8 million). These items were partially offset by favorable volumes / mix ($37 million), the favorable impact of foreign currency translation ($10 million), prior year transaction costs ($6 million), prior year integration costs ($5 million) and higher equity income ($4 million).

Year-to-Date:

•
The increase in Building Solutions North America was due to favorable volumes / mix ($16 million), prior year integration costs ($14 million), prior year transaction costs ($11 million), lower operating costs ($3 million), lower selling, general and administrative expenses ($3 million), and the favorable impact of foreign currency translation ($1 million), partially offset by current year integration costs ($14 million), prior year nonrecurring purchase accounting adjustments ($11 million) and incremental investments ($8 million).

•
The increase in Building Solutions EMEA/LA was due to the favorable impact of foreign currency translation ($13 million), prior year transaction costs ($5 million), prior year integration costs ($4 million), favorable mix ($3 million) and higher volumes ($1 million), partially offset by higher operating costs ($5 million), prior year nonrecurring purchase accounting adjustments ($3 million), current year integration costs ($3 million), incremental investments ($3 million), lower income due to a business divestiture ($2 million), and lower equity income ($2 million).

•
The increase in Building Solutions Asia Pacific was due to favorable mix ($8 million), prior year nonrecurring purchase accounting adjustments ($4 million), prior year integration costs ($3 million), lower selling, general and administrative expenses ($2 million), prior year transaction costs ($2 million) and the favorable impact of foreign currency translation ($2 million), partially offset by unfavorable pricing ($4 million) and incremental investments ($2 million).

•
The increase in Global Products was due to a gain on sale of Scott Safety ($114 million), prior year nonrecurring purchase accounting adjustments ($71 million), favorable volumes / mix ($67 million), the favorable impact of foreign currency translation ($15 million), higher equity income ($11 million), prior year integration costs ($9 million) and prior year transaction costs ($9 million). These items were partially offset by lower income due to business divestitures ($74 million), higher operating costs ($33 million), higher selling, general and administrative expenses including planned incremental global product and channel investments partially offset by productivity savings and an insignificant gain on a business divestiture ($29 million), and current year integration costs ($15 million).

Power Solutions
 
Three Months Ended
March 31,
 
 
 
Six Months Ended
March 31,
 
 
(in millions)
2018
 
2017
 
Change
 
2018
 
2017
 
Change
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
1,845

 
$
1,696

 
9
%
 
$
3,975

 
$
3,596

 
11
%
Segment EBITA
314

 
303

 
4
%
 
698

 
692

 
1
%

Three Months:

•
Net sales increased due to the favorable impact of foreign currency translation ($113 million), the impact of higher lead costs on pricing ($68 million), and favorable pricing and product mix ($31 million), partially offset by lower volumes ($63 million). The decrease in volumes was driven by changes in customer demand patterns in North America and Europe, partially offset by an increase in start-stop battery volumes. Additionally, higher start-stop volumes contributed to favorable product mix.

•
Segment EBITA increased due to favorable pricing and product mix ($29 million), lower selling, general and administrative expenses due to lower employee related expenses and cost reduction initiatives ($16 million), and the favorable impact

67


of foreign currency translation ($14 million), partially offset by lower volumes ($22 million), lower equity income ($12 million), higher operating costs primarily driven by efforts to satisfy customer demand including higher transportation costs ($7 million) and incremental investments ($7 million).

Year-to-Date:

•
Net sales increased due to the impact of higher lead costs on pricing ($199 million), the favorable impact of foreign currency translation ($191 million), and favorable pricing and product mix ($79 million), partially offset by lower volumes ($90 million). The decrease in volumes was driven by changes in customer demand patterns in North America and Europe, partially offset by an increase in start-stop battery volumes. Additionally, higher start-stop volumes contributed to favorable product mix.

•
Segment EBITA increased due to favorable pricing and product mix ($48 million), lower selling, general and administrative expenses from productivity savings and a gain on a business deconsolidation ($29 million), the favorable impact of foreign currency translation ($24 million) and prior year transaction costs ($1 million), partially offset by higher operating costs primarily driven by efforts to satisfy customer demand including higher transportation costs ($32 million), lower volumes ($30 million), incremental investments ($18 million) and lower equity income ($16 million).

Backlog

The Company's backlog relating to the Building Technologies & Solutions business is applicable to its sales of systems and services. At March 31, 2018 , the backlog was $8.9 billion. The backlog amount outstanding at any given time is not necessarily indicative of the amount of revenue to be earned during the fiscal year.

Liquidity and Capital Resources

Working Capital
 
March 31,
 
September 30,
 
 
(in millions)
2018
 
2017
 
Change
 
 
 
 
 
 
Current assets
$
12,271

 
$
12,292

 
 
Current liabilities
(10,992
)
 
(11,854
)
 
 
 
1,279

 
438

 
*

 
 
 
 
 
 
Less: Cash
(268
)
 
(321
)
 
 
Add: Short-term debt
1,111

 
1,214

 
 
Add: Current portion of long-term debt
25

 
394

 
 
Less: Assets held for sale
(22
)
 
(189
)
 
 
Add: Liabilities held for sale
—

 
72

 
 
Working capital (as defined)
$
2,125

 
$
1,608

 
32
 %
 
 
 
 
 
 
Accounts receivable - net
$
6,679

 
$
6,666

 
—
 %
Inventories
3,565

 
3,209

 
11
 %
Accounts payable
4,250

 
4,271

 
—
 %
 
 
 
 
 
 
* Measure not meaningful
 
 
 
 
 

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


68


•
The increase in working capital at March 31, 2018 as compared to September 30, 2017 , was primarily due to an increase in inventory to meet anticipated customer demand as well as the impact of foreign currency translation.

•
The Company’s days sales in accounts receivable at March 31, 2018 were 68 days, higher than 65 days at September 30, 2017 . There has been no significant adverse changes in the level of overdue receivables or changes in revenue recognition methods.

•
The Company’s inventory turns for the three months ended March 31, 2018 were lower than the comparable period ended September 30, 2017 , primarily due to changes in inventory production levels.

•
Days in accounts payable at March 31, 2018 were 72 days, slightly lower than 73 days at the comparable period ended September 30, 2017 .

Cash Flows
 
 
Six Months Ended March 31,
(in millions)
 
2018
 
2017
 
 
 
 
 
Cash provided (used) by operating activities
 
$
533

 
$
(1,519
)
Cash provided (used) by investing activities
 
1,598

 
(472
)
Cash provided (used) by financing activities
 
(2,254
)
 
1,744

Capital expenditures
 
(497
)
 
(634
)

•
The increase in cash provided by operating activities for the six months ended March 31, 2018 was primarily due to higher prior year income tax payments related to the Adient spin-off ($1.2 billion in the first quarter of fiscal 2017) and prior year operating cash outflows in the Automotive Experience business before the Adient spin-off, change in control pension payments and transaction/integration related payments.

•
The increase in cash provided by investing activities for the six months ended March 31, 2018 was primarily due to net cash proceeds received from the Scott Safety business divestiture in the current year and a decrease in capital expenditures.

•
The increase in cash used by financing activities for the six months ended March 31, 2018 was primarily due to the prior year net dividend proceeds from the Adient spin-off, higher current year repayments of long-term debt and a decrease in long-term debt borrowings, partially offset by cash transferred in the prior year to Adient related to the spin-off.

•
The decrease in capital expenditures for the six months ended March 31, 2018 primarily relates to lower capital investments in the current year in the Building Technologies & Solutions business and prior year capital investments in the Automotive Experience business before the Adient spin-off.


69


Capitalization
 
March 31,
 
September 30,
 
 
(in millions)
2018
 
2017
 
Change
 
 
 
 
 
 
Short-term debt
$
1,111

 
$
1,214

 
 
Current portion of long-term debt
25

 
394

 
 
Long-term debt
10,962

 
11,964

 
 
Total debt
12,098

 
13,572

 
-11
 %
Less: cash and cash equivalents
268

 
321

 
 
Total net debt
11,830

 
13,251

 
-11
 %
 
 
 
 
 
 
Shareholders’ equity attributable to Johnson Controls
   ordinary shareholders
20,874

 
20,447

 
2
 %
Total capitalization
$
32,704

 
$
33,698

 
-3
 %
 
 
 
 
 
 
Total net debt as a % of total capitalization
36.2
%
 
39.3
%
 
 

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

•
The Company believes its capital resources and liquidity position at March 31, 2018 are adequate to meet projected needs. The Company believes requirements for working capital, capital expenditures, dividends, stock repurchases, minimum pension contributions, debt maturities and any potential acquisitions in the remainder of fiscal 2018 will continue to be funded from operations, supplemented by short- and long-term borrowings, if required. The Company currently manages its short-term debt position in the U.S. and euro commercial paper markets and bank loan markets. In the event the Company and Tyco International Holding S.à.r.l ("TSarl") are unable to issue commercial paper, they would have the ability to draw on their $2.0 billion and $1.25 billion revolving credit facilities, respectively. Both facilities mature in August 2020. There were no draws on the revolving credit facility as of March 31, 2018 and September 30, 2017 . The Company also selectively makes use of short-term credit lines other than its revolving credit facilities at the Company and TSarl. The Company estimates that, as of March 31, 2018 , it could borrow up to $2.2 billion based on average borrowing levels during the quarter on committed credit lines. As such, the Company believes it has sufficient financial resources to fund operations and meet its obligations for the foreseeable future.

•
The Company’s debt financial covenant in its revolving credit facility require a minimum consolidated shareholders’ equity attributable to Johnson Controls of at least $3.5 billion at all times. The revolving credit facility also limits the amount of debt secured by liens that may be incurred to a maximum aggregated amount of 10% of consolidated shareholders’ equity attributable to Johnson Controls for liens and pledges. For purposes of calculating these covenants, consolidated shareholders’ equity attributable to Johnson Controls is calculated without giving effect to (i) the application of Accounting Standards Codification ("ASC") 715-60, "Defined Benefit Plans - Other Postretirement," or (ii) the cumulative foreign currency translation adjustment. TSarl's revolving credit facility contains customary terms and conditions, and a financial covenant that limits the ratio of TSarl's debt to earnings before interest, taxes, depreciation, and amortization as adjusted for certain items set forth in the agreement to 3.5x. TSarl's revolving credit facility also limits its ability to incur subsidiary debt or grant liens on its and its subsidiaries' property. As of March 31, 2018, the Company and TSarl were in compliance with all covenants and other requirements set forth in their credit agreements and the indentures, governing their notes, and expect to remain in compliance for the foreseeable future. None of the Company’s or TSarl's debt agreements limit access to stated borrowing levels or require accelerated repayment in the event of a decrease in the respective borrower's credit rating.

•
The key financial assumptions used in calculating the Company’s pension liability are determined annually, or whenever plan assets and liabilities are re-measured as required under accounting principles generally accepted in the U.S., including the expected rate of return on its plan assets. In fiscal 2018 , the Company believes the long-term rate of return will approximate 7.50%, 5.35% and 5.65% for U.S. pension, non-U.S. pension and postretirement plans, respectively. During the first six months of fiscal 2018 , the Company made approximately $37 million in total pension and postretirement contributions. In total, the

70


Company expects to contribute approximately $100 million in cash to its defined benefit pension plans in fiscal 2018 . The Company expects to contribute $5 million in cash to its postretirement plans in fiscal 2018 .

•
The Company earns a significant amount of its operating income outside of the parent company. Outside basis differences in consolidated subsidiaries are deemed to be permanently reinvested except in limited circumstances. However, in fiscal 2018, due to U.S. Tax Reform, the Company provided income tax related to the change in the Company’s assertion over the outside basis difference of certain non-U.S. subsidiaries owned directly or indirectly by U.S. subsidiaries. Under U.S. Tax Reform, the U.S. has adopted a territorial tax system that provides an exemption for dividends received by U.S. corporations from 10% or more owned non-U.S. corporations. However, certain non-U.S, U.S. state and withholding taxes may still apply when closing an outside basis difference via distribution or other transactions. The Company currently does not intend nor foresee a need to repatriate undistributed earnings or reduce outside basis differences other than as noted above or in tax efficient manners. The Company expects existing U.S. cash and liquidity to continue to be sufficient to fund the Company’s U.S. operating activities and cash commitments for investing and financing activities for at least the next twelve months and thereafter for the foreseeable future. In the U.S., should the Company require more capital than is generated by its operations, the Company could elect to raise capital in the U.S. through debt or equity issuances. The Company has borrowed funds in the U.S. and continues to have the ability to borrow funds in the U.S. at reasonable interest rates. In addition, the Company expects existing non-U.S. cash, cash equivalents, short-term investments and cash flows from operations to continue to be sufficient to fund the Company’s non-U.S. operating activities and cash commitments for investing activities, such as material capital expenditures, for at least the next twelve months and thereafter for the foreseeable future. Should the Company require more capital at the Luxembourg and Ireland holding and financing entities, other than amounts that can be provided in a tax efficient manner, the Company could also elect to raise capital through debt or equity issuances. These alternatives could result in increased interest expense or other dilution of the Company’s earnings.

•
To better align its resources with its growth strategies and reduce the cost structure of its global operations in certain underlying markets, the Company committed to a significant restructuring plan in fiscal 2018 and recorded  $158 million of restructuring and impairment costs in the consolidated statements of income. The restructuring action related to cost reduction initiatives in the Company’s Building Technologies & Solutions and Power Solutions businesses and at Corporate. The costs consist primarily of workforce reductions, plant closures and asset impairments. The Company currently estimates that upon completion of the restructuring action, the fiscal 2018 restructuring plan will reduce annual operating costs by approximately $150 million, which is primarily the result of lower cost of sales and selling, general and administrative expenses due to reduced employee-related costs, depreciation and amortization expense. The Company expects the annual benefit of these actions will be substantially realized in 2020. For fiscal 2018, the savings, net of execution costs, are expected to be approximately 45% of the expected annual operating cost reduction. The restructuring action is expected to be substantially complete in 2020. The restructuring plan reserve balance of  $119 million  at  March 31, 2018  is expected to be paid in cash.

•
To better align its resources with its growth strategies and reduce the cost structure of its global operations in certain underlying markets, the Company committed to a significant restructuring plan in fiscal 2017 and recorded $367 million of restructuring and impairment costs in the consolidated statements of income. The restructuring action related to cost reduction initiatives in the Company’s Building Technologies & Solutions and Power Solutions businesses and at Corporate. The costs consist primarily of workforce reductions, plant closures and asset impairments. The Company currently estimates that upon completion of the restructuring action, the fiscal 2017 restructuring plan will reduce annual operating costs by approximately $280 million, which is primarily the result of lower cost of sales and selling, general and administrative expenses due to reduced employee-related costs, depreciation and amortization expense. The Company expects the annual benefit of these actions will be substantially realized in fiscal 2019. For fiscal 2018, the savings, net of execution costs, are expected to be approximately 85% of the expected annual operating cost reduction. The restructuring action is expected to be substantially complete in 2018. The restructuring plan reserve balance of  $128 million  at  March 31, 2018  is expected to be paid in cash.

•
To better align its resources with its growth strategies and reduce the cost structure of its global operations to address the softness in certain underlying markets, the Company committed to a significant restructuring plan in fiscal 2016 and recorded  $288 million of restructuring and impairment costs in the consolidated statements of income. The restructuring action related to cost reduction initiatives in the Company’s Building Technologies & Solutions and Power Solutions businesses and at Corporate. The costs consist primarily of workforce reductions, plant closures, asset impairments and change-in-control payments. The Company currently estimates that upon completion of the restructuring action, the fiscal 2016 restructuring plan will reduce annual operating costs by approximately $135 million, which is primarily the result of lower cost of sales and selling, general and administrative expenses due to reduced employee-related costs, depreciation and amortization expense. The Company expects the annual benefit of these actions will be substantially realized in fiscal 2019. For fiscal 2018, the savings, net of execution costs, are expected to be approximately 75% of the expected annual operating cost reduction. The

71


restructuring action is expected to be substantially complete in 2018. The restructuring plan reserve balance of $76 million at March 31, 2018 is expected to be paid in cash.

•
Refer to Note 11, "Debt and Financing Arrangements," of the notes to consolidated financial statements for additional information on items impacting capitalization.

New Accounting Standards

Refer to Note 2, "New Accounting Standards," of the notes to consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of March 31, 2018 , the Company had not experienced any adverse changes in market risk exposures that materially affected the quantitative and qualitative disclosures presented in the Company's Annual Report on Form 10-K for the year ended September 30, 2017 .

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act"). Based upon their evaluation of these disclosure controls and procedures, the principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective as of March 31, 2018 to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms, and to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding disclosure.

Changes in Internal Control Over Financial Reporting

There have been no significant changes in the Company’s internal control over financial reporting during the three months ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

EC Lead Recycler Investigation

As previously disclosed, an investigation by the European Commission ("EC") related to European lead recyclers’ procurement practices was commenced in 2012, with the Company named as one of several companies subject to review. On June 24, 2015, the EC initiated proceedings and adopted a statement of objections alleging infringements of competition rules in Europe against the Company and certain other companies. The EC subsequently scheduled consultation meetings with the Advisory Committee on Restrictive Practices and Dominant Positions, concluded its investigation and announced its decision with respect to the matter on February 8, 2017. According to the EC's announcement, the Company will not be fined because it revealed the existence of the cartel to the EC. The Company does not anticipate any material adverse effect on its business or financial condition as a result of this matter. The Company’s policy is to comply with antitrust and competition laws and, if a violation of any such laws is found, to take appropriate remedial action and to cooperate fully with any related governmental inquiry. Competition and antitrust law investigations may continue for several years and can result in substantial fines depending on the gravity and duration of the violations. In addition, as a result of such violations we could be subject to lawsuits brought by customers or other parties alleging economic harm from such violations.


72


Laufer v. Johnson Controls, Inc., et al.

On May 20, 2016, a putative class action lawsuit, Laufer v. Johnson Controls, Inc., et al., Docket No. 2016CV003859, was filed in the Circuit Court of Wisconsin, Milwaukee County, naming Johnson Controls, Inc., the individual members of its board of directors, the Company and the Company's merger subsidiary as defendants. The complaint alleged that Johnson Controls Inc.'s directors breached their fiduciary duties in connection with the merger between Johnson Controls Inc. and the Company's merger subsidiary by, among other things, failing to take steps to maximize shareholder value, seeking to benefit themselves improperly and failing to disclose material information in the joint proxy statement/prospectus relating to the merger. The complaint further alleged that the Company aided and abetted Johnson Controls Inc.'s directors in the breach of their fiduciary duties. The complaint sought, among other things, to enjoin the merger. On August 8, 2016, the plaintiffs agreed to settle the action and release all claims that were or could have been brought by plaintiffs or any member of the putative class of Johnson Controls Inc.'s shareholders. The settlement is conditioned upon, among other things, the execution of an appropriate stipulation of settlement. On November 10, 2016, the parties filed a joint status report notifying the court they had reached such agreement. On November 22, 2016, the court ordered that a proposed stipulation of settlement be filed by March 15, 2017 and scheduled a status hearing for April 20, 2017. On March 10, 2017, the parties filed a joint letter requesting that the filing and hearing be adjourned and that the parties be allowed an additional 90 days to update the court in light of the Gumm v. Molinaroli action proceeding in federal court, discussed below. The status hearing has subsequently been rescheduled for May 2018. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the court will approve the settlement. In either event, or certain other circumstances, the settlement could be terminated. 

Gumm v. Molinaroli, et al.

On August 16, 2016, a putative class action lawsuit, Gumm v. Molinaroli, et al., Case No. 16-cv-1093, was filed in the United States District Court for the Eastern District of Wisconsin, naming Johnson Controls, Inc., the individual members of its board of directors at the time of the merger with the Company’s merger subsidiary and certain of its officers, the Company and the Company’s merger subsidiary as defendants. The complaint asserted various causes of action under the federal securities laws, state law and the Taxpayer Bill of Rights, including that the individual defendants allegedly breached their fiduciary duties and unjustly enriched themselves by structuring the merger among the Company, Tyco and the merger subsidiary in a manner that would result in a United States federal income tax realization event for the putative class of certain Johnson Controls, Inc. shareholders and allegedly result in certain benefits to the defendants, as well as related claims regarding alleged misstatements in the proxy statement/prospectus distributed to the Johnson Controls, Inc. shareholders, conversion and breach of contract. The complaint also asserted that Johnson Controls, Inc., the Company and the Company’s merger subsidiary aided and abetted the individual defendants in their breach of fiduciary duties and unjust enrichment. The complaint seeks, among other things, disgorgement of profits and damages. On September 30, 2016, approximately one month after the closing of the merger, plaintiffs filed a preliminary injunction motion seeking, among other items, to compel Johnson Controls, Inc. to make certain intercompany payments that plaintiffs contend will impact the United States federal income tax consequences of the merger to the putative class of certain Johnson Controls, Inc. shareholders and to enjoin Johnson Controls, Inc. from reporting to the Internal Revenue Service the capital gains taxes payable by this putative class as a result of the closing of the merger. The court held a hearing on the preliminary injunction motion on January 4, 2017, and on January 25, 2017, the judge denied the plaintiffs' motion. Plaintiffs filed an amended complaint on February 15, 2017, and the Company filed a motion to dismiss on April 3, 2017. Although the Company believes it has substantial defenses to plaintiffs’ claims, it is not able to predict the outcome of this action.

Refer to Note 21, "Commitments and Contingencies," of the notes to consolidated financial statements for discussion of environmental, asbestos, insurable liabilities and other litigation matters, which is incorporated by reference herein and is considered an integral part of Part II, Item 1, "Legal Proceedings."

ITEM 1A. RISK FACTORS

The following should be read in conjunction with, and supplements and amends, the factors that may affect the Company’s business or operations described under “Risk Factors” in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the year ended  September 30, 2017 , as further supplemented and amended in Part II, Item IA, of the Company's Quarterly Report on Form 10-Q for the period ended December 31, 2017 (the "First Quarter Form 10-Q"). Other than as described in this Item 1A, there have been no other material changes to our risk factors from the risk factors previously disclosed in the 2017 Annual Report or the First Quarter Form 10-Q.

73


Risks Relating to Business Operations
The following updates and replaces the similar paragraphs of the risk factors entitled “ Our businesses operate in regulated industries and are subject to a variety of complex and continually changing laws and regulations " included in the 2017 Annual Report.
Our businesses operate in regulated industries and are subject to a variety of complex and continually changing laws and regulations.
Our operations and employees are subject to various U.S. federal, state and local licensing laws, codes and standards and similar foreign laws, codes, standards and regulations. Changes in laws or regulations could require us to change the way we operate or to utilize resources to maintain compliance, which could increase costs or otherwise disrupt operations. In addition, failure to comply with any applicable laws or regulations could result in substantial fines or revocation of our operating permits and licenses. For example, we were subject to investigation by the European Commission related to European lead recyclers’ procurement practices from 2012 to 2017. Although we were not fined in connection with such investigation, competition or other regulatory investigations can continue for several years, be costly to defend and can result in substantial fines. If laws and regulations were to change or if we or our products failed to comply, our business, financial condition and results of operations could be adversely affected.
Due to the international scope of our operations, the system of laws and regulations to which we are subject is complex and includes regulations issued by the U.S. Customs and Border Protection, the U.S. Department of Commerce's Bureau of Industry and Security, the U.S. Treasury Department's Office of Foreign Assets Control and various non U.S. governmental agencies, including applicable export controls, anti-trust, customs, data privacy restrictions, currency exchange control and transfer pricing regulations, and laws regulating the foreign ownership of assets. No assurances can be made that we will continue to be found to be operating in compliance with, or be able to detect violations of, any such laws or regulations. For example, some foreign data privacy regulations are more stringent than those in the U.S. and continue to change. In May 2018, the General Data Protection Regulation (GDPR) will supersede current European Union data protection legislation, impose more stringent European Union data protection requirements, and provide for greater penalties for noncompliance. Under the GDPR, fines of up to 20 million euro or up to 4% of the annual global turnover of the infringer, whichever is greater, could be imposed. Further, existing free trade laws and regulations, such as the North American Free Trade Agreement, provide certain beneficial duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other requirements. Changes in laws or policies governing the terms of foreign trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries where we manufacture products or from where we import products or raw materials (either directly or through our suppliers) could have an impact on our competitive position, business and financial results. We cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.
Risks Relating to Strategic Transactions
The following updates and replaces the similar paragraph of the risk factor entitled “ Divestitures of some of our businesses or product lines may materially adversely affect our financial condition, results of operations or cash flows" included in the 2017 Annual Report.
Divestitures of some of our businesses or product lines may materially adversely affect our financial condition, results of operations or cash flows.
We continually evaluate the performance and strategic fit of all of our businesses and may sell businesses or product lines. For example, on October 31, 2016, we completed the spin-off of our Automotive Experience business and in the second quarter of fiscal 2017 we announced that we had signed a definitive agreement to sell our Scott Safety business, which closed on October 4, 2017. In addition, on March 12, 2018, we announced that we intend to explore strategic alternatives for our Power Solutions business. Divestitures involve risks, including difficulties in the separation of operations, services, products and personnel, the diversion of management's attention from other business concerns, the disruption of our business, the potential loss of key employees and the retention of uncertain environmental or other contingent liabilities related to the divested business. In addition, divestitures may result in significant asset impairment charges, including those related to goodwill and other intangible assets, which could have a material adverse effect on our financial condition and results of operations. We cannot assure you that we will be successful in managing these or any other significant risks that we encounter in divesting a business or product line, and any divestiture we undertake could materially and adversely affect our business, financial condition, results of operations and cash flows, and may also result in a diversion of management attention, operational difficulties and losses.

74


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Following the Tyco Merger, the Company adopted, subject to the ongoing existence of sufficient distributable reserves, the existing Tyco International plc $1 billion share repurchase program in September 2016. In December 2017, the Company's Board of Directors approved a $1 billion increase to its share repurchase authorization. The share repurchase program does not have an expiration date and may be amended or terminated by the Board of Directors at any time without prior notice. During the three and six months ended March 31, 2018 , the Company repurchased approximately $49 million and $199 million of its shares, respectively. As of March 31, 2018 , approximately $1.1 billion remains available under the share repurchase program.

From time to time, the Company uses equity swaps to reduce market risk associated with 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 equity swaps move in the opposite direction of these liabilities, allowing the Company to fix a portion of the liabilities at a stated amount.

In connection with equity swap agreements, the counterparty may purchase unlimited shares of the Company’s stock in the market or in privately negotiated transactions. Under these arrangements, the Company disclaims that the counterparty in the agreement is an "affiliated purchaser" of the Company as such term is defined in Rule 10b-18(a)(3) under the Securities Exchange Act or that the counterparty is purchasing any shares for the Company.

The following table presents information regarding the repurchase of the Company’s ordinary shares by the Company as part of the publicly announced repurchase program and purchases of the Company’s ordinary shares by counterparties under equity swap agreements during the three months ended March 31, 2018 .
Period
Total Number of
Shares Purchased
 
Average Price
Paid per Share
 
Total Number of
Shares Purchased as
Part of the Publicly
Announced Program
 
Approximate Dollar
Value of Shares that
May Yet be
Purchased under the
Programs
1/1/18 - 1/31/18
 
 
 
 
 
 
 
Purchases by Company
363,500

 
$
39.51

 
363,500

 
$
1,184,142,825

2/1/18 - 2/28/18
 
 
 
 
 
 
 
Purchases by Company
418,100

 
38.21

 
418,100

 
1,168,167,935

3/1/18 - 3/31/18
 
 
 
 
 
 
 
Purchases by Company
496,800

 
36.60

 
496,800

 
1,149,986,647

1/1/18 - 1/31/18
 
 
 
 
 
 
 
Purchases by affiliated purchaser
—

 
—

 
—

 
NA

2/1/18 - 2/28/18
 
 
 
 
 
 
 
Purchases by affiliated purchaser
—

 
—

 
—

 
NA

3/1/18 - 3/31/18
 
 
 
 
 
 
 
Purchases by affiliated purchaser
—

 
—

 
—

 
NA


During the three months ended March 31, 2018 , acquisitions of shares by the Company from certain employees in order to satisfy employee tax withholding requirements in connection with the vesting of restricted shares were not material.

ITEM 6. EXHIBITS

Reference is made to the separate exhibit index contained on page 77 filed herewith.

75


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
JOHNSON CONTROLS INTERNATIONAL PLC
 
 
Date: May 3, 2018
 
By:
/s/ Brian J. Stief
 
 
 
Brian J. Stief
 
 
Executive Vice President and
Chief Financial Officer


76



JOHNSON CONTROLS INTERNATIONAL PLC
Form 10-Q
INDEX TO EXHIBITS
 
Exhibit No.
Description
 
 
3.1
 
 
10.1
 
 
10.2*
 
 
10.3*
 
 
10.4*
 
 
31.1
 
 
31.2
 
 
32.1
 
 
101
The following materials from Johnson Controls International plc's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Position, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements.

* Management contract or compensatory plan.


77


Exhibit 3.1



Companies Act 2014



A PUBLIC COMPANY LIMITED BY SHARES




MEMORANDUM and ARTICLES OF ASSOCIATION

of

JOHNSON CONTROLS INTERNATIONAL PUBLIC LIMITED COMPANY




Incorporated on the 9 th day of May 2014




























ARTHUR COX

Dublin





1



Cert. No.: 543654

Companies Act 2014

A PUBLIC COMPANY LIMITED BY SHARES

MEMORANDUM OF ASSOCIATION

of

JOHNSON CONTROLS INTERNATIONAL PUBLIC LIMITED COMPANY

(As amended by special resolution dated 8 September 2014 and as amended by special resolution dated 17 August 2016)

1.
The name of the Company is Johnson Controls International public limited company.

2.
The Company is to be a public limited company for the purposes of Part 17 of the Companies Act 2014.

3.
The objects for which the Company is established are:

3.1 (a)
To carry on all or any of the businesses of producers, designers, manufacturers, servicers, buyers, sellers, and distributing agents of and dealers in all kinds of industrial and commercial goods, products, merchandise, services, solutions, and real and personal property of every class and description; and to do all things usually dealt in by persons carrying on any of the above mentioned businesses or likely to be required in connection with any of the said businesses.

(b)
To carry on the business of a holding company and to co-ordinate the administration, finances and activities of any subsidiary companies or associated companies, to do all lawful acts and things whatever that are necessary or convenient in carrying on the business of such a holding company and in particular to carry on in all its branches the business of a management services company, to act as managers and to direct or coordinate the management of other companies or of the business, property and estates of any company or person and to undertake and carry out all such services in connection therewith as may be deemed expedient by the Company’s board of directors and to exercise its powers as a shareholder of other companies.

3.2
To acquire shares, stocks, debentures, debenture stock, bonds, obligations and securities by original subscription, tender, purchase, exchange or otherwise and to subscribe for the same either conditionally or otherwise, and to guarantee the subscription thereof and to exercise and enforce all rights and powers conferred by or incidental to the ownership thereof.

3.3
To facilitate and encourage the creation, issue or conversion of and to offer for public subscription debentures, debenture stocks, bonds, obligations, shares, stocks, and securities and to act as trustees in connection with any such securities and to take part in the conversion of business concerns and undertakings into companies.

3.4
To purchase or by any other means acquire any freehold, leasehold or other property and in particular lands, tenements and hereditaments of any tenure, whether subject or not to any charges or incumbrances, for any estate or interest whatever, and any rights, privileges or easements over or in respect of any property, and any buildings, factories, mills, works, wharves, roads, machinery, engines, plant, live and dead stock, barges, vessels or things, and any real or personal property or rights whatsoever which may be necessary for, or may conveniently be used with, or may enhance the value or property of the Company, and to hold or to sell, let, alienate, mortgage, charge or otherwise deal with all or any such freehold, leasehold, or other property, lands, tenements or hereditaments, rights, privileges or easements.

3.5
To sell or otherwise dispose of any of the property or investments of the Company.



2


3.6
To establish and contribute to any scheme for the purchase of shares in the Company to be held for the benefit of the Company’s employees and to lend or otherwise provide money to such schemes or the Company’s employees or the employees of any of its subsidiary or associated companies to enable them to purchase shares of the Company.

3.7
To grant, convey, transfer or otherwise dispose of any property or asset of the Company of whatever nature or tenure for such price, consideration, sum or other return whether equal to or less than the market value thereof and whether by way of gift or otherwise as the Directors shall deem fit and to grant any fee, farm grant or lease or to enter into any agreement for letting or hire of any such property or asset for a rent or return equal to or less than the market or rack rent therefor or at no rent and subject to or free from covenants and restrictions as the Directors shall deem appropriate.

3.8
To acquire and undertake the whole or any part of the business, good-will and assets of any person, firm or company carrying on or proposing to carry on any of the businesses which this Company is authorised to carry on, and as part of the consideration for such acquisition to undertake all or any of the liabilities of such person, firm or company, or to acquire an interest in, amalgamate with, or enter into any arrangement for sharing profits, or for co-operation, or for limiting competition or for mutual assistance with any such person, firm or company and to give or accept by way of consideration for any of the acts or things aforesaid or property acquired, any shares, debentures, debenture stock or securities that may be agreed upon, and to hold and retain or sell, mortgage or deal with any shares, debentures, debenture stock or securities so received.

3.9
To apply for, purchase or otherwise acquire any patents, brevets d’invention, licences, concessions and the like conferring any exclusive or non-exclusive or limited rights to use or any secret or other information as to any invention which may seem capable of being used for any of the purposes of the Company or the acquisition of which may seem calculated directly or indirectly to benefit the Company, and to use, exercise, develop or grant licences in respect of or otherwise turn to account the property, rights or information so acquired.

3.10
To enter into partnership or into any arrangement for sharing profits, union of interests, co-operation, joint venture, reciprocal concession or otherwise with any person or company carrying on or engaged in or about to carry on or engage in any business or transaction which the Company is authorised to carry on or engage in or any business or transaction capable of being conducted so as directly to benefit this Company.

3.11
To invest and deal with the moneys of the Company not immediately required upon such securities and in such manner as may from time to time be determined.

3.12
To lend money to and guarantee the performance of the contracts or obligations of any company, firm or person, and the repayment of the capital and principal of, and dividends, interest or premiums payable on, any stock, shares and securities of any company, whether having objects similar to those of this Company or not, and to give all kinds of indemnities.

3.13
To engage in currency exchange and interest rate transactions including, but not limited to, dealings in foreign currency, spot and forward rate exchange contracts, futures, options, forward rate agreements, swaps, caps, floors, collars and any other foreign exchange or interest rate hedging arrangements and such other instruments as are similar to, or derived from, any of the foregoing whether for the purpose of making a profit or avoiding a loss or managing a currency or interest rate exposure or any other exposure or for any other purpose.

3.14
To guarantee, support or secure, whether by personal covenant or by mortgaging or charging all or any part of the undertaking, property and assets (both present and future) and uncalled capital of the Company, or by both such methods, the performance of the obligations of, and the repayment or payment of the principal amounts of and premiums, interest and dividends on any securities of, any person, firm or company including (without prejudice to the generality of the foregoing) any company which is for the time being the Company’s holding company as defined by the Acts or a subsidiary as therein defined of any such holding company or otherwise associated with the Company in business.






3


3.15
To borrow or secure the payment of money in such manner as the Company shall think fit, and in particular by the issue of debentures, debenture stocks, bonds, obligations and securities of all kinds, either perpetual or terminable and either redeemable or otherwise and to secure the repayment of any money borrowed, raised or owing by trust deed, mortgage, charge, or lien upon the whole or any part of the Company’s property or assets (whether present or future) including its uncalled capital, and also by a similar trust deed, mortgage, charge or lien to secure and guarantee the performance by the Company of any obligation or liability it may undertake.

3.16
To draw, make, accept, endorse, discount, execute, negotiate and issue promissory notes, bills of exchange, bills of lading, warrants, debentures and other negotiable or transferable instruments.

3.17
To subscribe for, take, purchase or otherwise acquire and hold shares or other interests in, or securities of any other company having objects altogether or in part similar to those of this Company, or carrying on any business capable of being conducted so as directly or indirectly to benefit this Company.

3.18
To hold in trust as trustees or as nominees and to deal with, manage and turn to account, any real or personal property of any kind, and in particular shares, stocks, debentures, securities, policies, book debts, claims and choses in actions, lands, buildings, hereditaments, business concerns and undertakings, mortgages, charges, annuities, patents, licences, and any interest in real or personal property, and any claims against such property or against any person or company.

3.19
To constitute any trusts with a view to the issue of preferred and deferred or other special stocks or securities based on or representing any shares, stocks and other assets specifically appropriated for the purpose of any such trust and to settle and regulate and if thought fit to undertake and execute any such trusts and to issue, dispose of or hold any such preferred, deferred or other special stocks or securities.

3.20
To give any guarantee in relation to the payment of any debentures, debenture stock, bonds, obligations or securities and to guarantee the payment of interest thereon or of dividends on any stocks or shares of any company.

3.21
To construct, erect and maintain buildings, houses, flats, shops and all other works, erections, and things of any description whatsoever either upon the lands acquired by the Company or upon other lands and to hold, retain as investments or to sell, let, alienate, mortgage, charge or deal with all or any of the same and generally to alter, develop and improve the lands and other property of the Company.

3.22
To provide for the welfare of persons in the employment of or holding office under or formerly in the employment of or holding office under the Company including Directors and ex-Directors of the Company and the wives, widows and families, dependants or connections of such persons by grants of money, pensions or other payments and by forming and contributing to pension, provident or benefit funds or profit sharing or co-partnership schemes for the benefit of such persons and to form, subscribe to or otherwise aid charitable, benevolent, religious, scientific, national or other institutions, exhibitions or objects which shall have any moral or other claims to support or aid by the Company by reason of the locality of its operation or otherwise.

3.23
To remunerate by cash payments or allotment of shares or securities of the Company credited as fully paid up or otherwise any person or company for services rendered or to be rendered to the Company whether in the conduct or management of its business, or in placing or assisting to place or guaranteeing the placing of any of the shares of the Company’s capital, or any debentures or other securities of the Company or in or about the formation or promotion of the Company.

3.24
To enter into and carry into effect any arrangement for joint working in business or for sharing of profits or for amalgamation with any other company or association or any partnership or person carrying on any business within the objects of the Company.








4


3.25
To distribute in specie or otherwise as may be resolved, any assets of the Company among its members and in particular the shares, debentures or other securities of any other company belonging to this Company or of which this Company may have the power of disposing.

3.26
To vest any real or personal property, rights or interest acquired or belonging to the Company in any person or company on behalf of or for the benefit of the Company, and with or without any declared trust in favour of the Company.

3.27
To transact or carry on any business which may seem to be capable of being conveniently carried on in connection with any of these objects or calculated directly or indirectly to enhance the value of or facilitate the realisation of or render profitable any of the Company’s property or rights.

3.28
To accept stock or shares in or debentures, mortgages or securities of any other company in payment or part payment for any services rendered or for any sale made to or debt owing from any such company, whether such shares shall be wholly or partly paid up.

3.29
To pay all costs, charges and expenses incurred or sustained in or about the promotion and establishment of the Company or which the Company shall consider to be preliminary thereto and to issue shares as fully or in part paid up, and to pay out of the funds of the Company all brokerage and charges incidental thereto.

3.30
To procure the Company to be registered or recognised in any part of the world.

3.31
To do all or any of the matters hereby authorised in any part of the world or in conjunction with or as trustee or agent for any other company or person or by or through any factors, trustees or agents.

3.32
To make gifts, pay gratuities or grant bonuses to current and former Directors (including substitute directors), officers or employees of the Company or to make gifts or pay gratuities to any person on their behalf or to charitable organisations, trusts or other bodies corporate nominated by any such person.

3.33
To do all such other things that the Company may consider incidental or conducive to the attainment of the above objects or as are usually carried on in connection therewith.

3.34
To carry on any business which the Company may lawfully engage in and to do all such things incidental or conducive to the business of the Company.

3.35
To make or receive gifts by way of capital contribution or otherwise.

The objects set forth in any sub-clause of this clause shall be regarded as independent objects and shall not, except where the context expressly so requires, be in any way limited or restricted by reference to or inference from the terms of any other sub-clause, or by the name of the Company. None of such sub-clauses or the objects therein specified or the powers thereby conferred shall be deemed subsidiary or auxiliary merely to the objects mentioned in the first sub-clause of this clause, but the Company shall have full power to exercise all or any of the powers conferred by any part of this clause in any part of the world notwithstanding that the business, property or acts proposed to be transacted, acquired or performed do not fall within the objects of the first sub-clause of this clause.
NOTE:
It is hereby declared that the word “company” in this clause, except where used in reference to this Company shall be deemed to include any partnership or other body of persons whether incorporated or not incorporated and whether domiciled in Ireland or elsewhere and the intention is that the objects specified in each paragraph of this clause shall except where otherwise expressed in such paragraph be in no way limited or restricted by reference to or inference from the terms of any other paragraph.

4.
The share capital of the Company is US$22,000,000 and €40,000 divided into 2,000,000,000 Ordinary Shares of US$0.01 each, 200,000,000 Preferred Shares of US$0.01 each and 40,000 Ordinary A Shares of €1.00 each.







5


5.
The liability of the members is limited.

6.
The shares forming the capital, increased or reduced, may be increased or reduced and be divided into such classes and issued with any special rights, privileges and conditions or with such qualifications as regards preference, dividend, capital, voting or other special incidents, and be held upon such terms as may be attached thereto or as may from time to time be provided by the original or any substituted or amended articles of association and regulations of the Company for the time being, but so that where shares are issued with any preferential or special rights attached thereto such rights shall not be alterable otherwise than pursuant to the provisions of the Company’s articles of association for the time being.



















































6


We, the several persons whose names and addresses are subscribed, wish to be formed into a company in pursuance of this memorandum of association and we agree to take the number of shares in the capital of the company set opposite our respective names.

Names, addresses and descriptions of subscribers
Number of shares taken by each subscriber
 
 
 
 
Enceladus Holding Limited
 
Arthur Cox Building
Thirty Nine Thousand,
Earlsfort Terrace, Dublin 2
Nine Hundred and Ninety
Corporate Body
Four A Ordinary Shares
 
 
AC Administration Services Limited
 
Arthur Cox Building, Earlsfort Terrace, Dublin 2.
 
Corporate Body
One A Ordinary Share
 
 
Arthur Cox Nominees Limited
 
Arthur Cox Building, Earlsfort Terrace, Dublin 2.
 
Corporate Body
One A Ordinary Share
 
 
Arthur Cox Registrars Limited
 
Arthur Cox Building, Earlsfort Terrace, Dublin 2.
 
Corporate Body
One A Ordinary Share
 
 
Arthur Cox Trust Services Limited
 
Arthur Cox Building, Earlsfort Terrace, Dublin 2
 
Corporate Body
One A Ordinary Share
 
 
DIJR Nominees Limited
 
Arthur Cox Building, Earlsfort Terrace, Dublin 2
 
Corporate Body
One A Ordinary Share
 
 
Fand Limited
 
Arthur Cox Building, Earlsfort Terrace, Dublin 2
 
Corporate Body
One A Ordinary Share
 
 
Dated 6 May 2014
 
 
 
Witness to the above signatures: JAMES HEARY
 
 
 

James Heary
Arthur Cox Building
Earlsfort Terrace
Dublin 2






7


COMPANIES ACT 2014

A PUBLIC COMPANY LIMITED BY SHARES

ARTICLES OF ASSOCIATION

-of-

JOHNSON CONTROLS INTERNATIONAL PUBLIC LIMITED COMPANY

(As adopted by special resolution dated 8 September 2014 and as amended by special resolutions dated 17
August 2016 and 7 March 2018)


PRELIMINARY

1.
The provisions set out in these Articles of Association shall constitute the whole of the regulations applicable to the Company and no “optional provision” as defined by Section 1007(2) of the Companies Act 2014 (with the exception of Sections 83 and 84 and 117(9) of the Companies Act 2014) shall apply to the Company.

2.     (a)     In these articles:

“Act” or “Acts” means the Companies Act 2014, all enactments which are to be read as one with, or construed or read together as one with, the Act and every statutory modification and re-enactment thereof for the time being in force.
“address” includes any number or address used for the purposes of communication by way of electronic mail or other electronic communication.
“Assistant Secretary” means any person appointed by the Secretary from time to time to assist the Secretary.
“Clear Days” in relation to the period of notice, means that period excluding the day when the notice is given or deemed to be given and the day for which it is given or on which it is to take effect.
“Chairman” means the Director who is elected by the Directors from time to time, or for the Specified Period such person as is appointed in accordance with article 107A, to preside as chairman at all meetings of the Board and at general meetings of the Company.
“electronic communication” has the meaning given to those words in the Electronic Commerce Act 2000.
“electronic signature” has the meaning given to those words in the Electronic Commerce Act 2000.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, of the United States of America.
“Ordinary Resolution” means a resolution passed by a simple majority of the votes cast by members of the Company as, being entitled to do so, vote in person or by proxy at a general meeting of the Company, subject to any alternative definition in the Acts.
“public announcement” means disclosure in a press release reported by a national news service or in a document publicly filed by the Company with the U.S. Securities and Exchange Commission pursuant to section 13, 14 or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder.




1


“Redeemable Shares” means redeemable shares in accordance with the Act.
“Register” means the register of members to be kept as required in accordance the Act.
“Special Resolution” means a special resolution of the Company’s members within the meaning of the Act.
“Company” means the company whose name appears in the heading to these articles.
“Directors” or “Board” means the directors from time to time and for the time being of the Company or the directors present at a meeting of the board of directors and includes any person occupying the position of director by whatever name called.
“Group” means the Company and its subsidiaries from time to time and for the time being.
“Holder” in relation to any share, means the member whose name is entered in the Register as the holder of the share or, where the context permits, the members whose names are entered in the Register as the joint holders of shares.
“Office” means the registered office from time to time and for the time being of the Company.
“seal” means the common seal of the Company.
“Secretary” means any person appointed to perform the duties of the secretary of the Company.
“articles” means the articles of association of which this article 2 forms part, as the same may be amended and may be from time to time and for the time being in force.
(b)
Expressions in these articles referring to writing shall be construed, unless the contrary intention appears, as including references to printing, lithography, photography and any other modes of representing or reproducing words in a visible form except as provided in these articles and/or where it constitutes writing in electronic form sent to the Company, and the Company has agreed to its receipt in such form. Expressions in these articles referring to execution of any document shall include any mode of execution whether under seal or under hand or any mode of electronic signature as shall be approved by the Directors. Expressions in these articles referring to receipt of any electronic communications shall, unless the contrary intention appears, be limited to receipt in such manner as the Company has approved.

(c)
Unless the contrary intention appears, words or expressions contained in these articles shall bear the same meaning as in the Acts or in any statutory modification thereof in force at the date at which these articles become binding on the Company.

(d)
A reference to a statute or statutory provision shall be construed as a reference to the laws of Ireland unless otherwise specified and includes:

(i)
any subordinate legislation made under it including all regulations, by-laws, orders and codes made thereunder;

(ii)
any repealed statute or statutory provision which it re--enacts (with or without modification); and

(iii)
any statute or statutory provision which modifies, consolidates, re-enacts or supersedes it.

(e)
The masculine gender shall include the feminine and neuter, and vice versa, and the singular number shall include the plural, and vice versa, and words importing persons shall include firms or companies.

(f)
Reference to US$, USD, or dollars shall mean the currency of the United States of America and to €, euro, EUR or cent shall mean the currency of Ireland.


2


SHARE CAPITAL AND VARIATION OF RIGHTS
3.
(a)    The share capital of the Company is US$22,000,000 and €40,000 divided into 2,000,000,000 Ordinary Shares of US$0.01 each, 200,000,000 Preferred Shares of US$0.01 each and 40,000 Ordinary A Shares of €1.00 each.

(b)
The rights and restrictions attaching to the ordinary shares shall be as follows:

(i)
subject to the right of the Company to set record dates for the purposes of determining the identity of members entitled to notice of and/or to vote at a general meeting, the right to attend and speak at any general meeting of the Company and to exercise one vote per ordinary share held at any general meeting of the Company;

(ii)
the right to participate pro rata in all dividends declared by the Company, save as provided in article 128; and

(iii)
the right, in the event of the Company’s winding up, to participate pro rata in the total assets of the Company.

The rights attaching to the ordinary shares may be subject to the terms of issue of any series or class of preferred shares allotted by the Directors from time to time in accordance with article 3(c).

(c)
The Directors are authorised to issue all or any of the authorised but unissued preferred shares from time to time in one or more classes or series, and to fix for each such class or series such voting power, full or limited, or no voting power, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board providing for the issuance of such class or series, including, without limitation, the authority to provide that any such class or series may be:

(i)
redeemable at the option of the Company, or the Holders, or both, with the manner of the redemption to be set by the Board, and redeemable at such time or times, including upon a fixed date, and at such price or prices;

(ii)
entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes of shares or any other series;

(iii)
entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Company; or

(iv)
convertible into, or exchangeable for, shares of any other class or classes of shares, or of any other series of the same or any other class or classes of shares, of the Company at such price or prices or at such rates of exchange and with such adjustments as the Directors determine,

which rights and restrictions may be as stated in such resolution or resolutions of the Directors as determined by them in accordance with this article 3(c). The Board may at any time before the allotment of any preferred share by further resolution in any way amend the designations, preferences, rights, qualifications, limitations or restrictions, or vary or revoke the designations of such preferred shares.

The rights conferred upon the Holder of any pre-existing shares in the share capital of the Company shall be deemed not to be varied by the creation, issue and allotment of preferred shares in accordance with this article 3(c).

(d)
An ordinary share shall be deemed to be a Redeemable Share on, and from the time of, the existence or creation of an agreement, transaction or trade between the Company and any third party pursuant to which the Company acquires or will acquire ordinary shares, or an interest in ordinary shares, from such third party. In these circumstances, the acquisition of such shares or interest in shares by the Company, save where acquired otherwise than for valuable consideration in accordance with the Act, shall constitute the redemption of a Redeemable Share in accordance with the Acts. No resolution, whether special or otherwise, shall be required to be passed to deem any ordinary share a Redeemable Share.

3



4.
Subject to the provisions of the Acts and the other provisions of this article, the Company may:

(a)
pursuant to the Acts, issue any shares of the Company which are to be redeemed or are liable to be redeemed at the option of the Company or the member on such terms and in such manner as may be determined by the Company in general meeting (by Special Resolution) on the recommendation of the Directors; or
(b)
subject to and in accordance with the provisions of the Acts and without prejudice to any relevant special rights attached to any class of shares, pursuant to the Acts, purchase any of its own shares (including any Redeemable Shares and without any obligation to purchase on any pro rata basis as between members or members of the same class) and may cancel any shares so purchased or hold them as treasury shares (as defined by the Acts) and may reissue any such shares as shares of any class or classes.

5.
Without prejudice to any special rights previously conferred on the Holders of any existing shares or class of shares, any share in the Company may be issued with such preferred or deferred or other special rights or such restrictions, whether in regard to dividend, voting, return of capital or otherwise, as the Company may from time to time by Ordinary Resolution determine.

6.
(a)    Without prejudice to the authority conferred on the Directors pursuant to article 3 to issue preferred shares in the capital of the Company, if at any time the share capital is divided into different classes of shares, the rights attached to any class may, whether or not the Company is being wound up, be varied or abrogated with the sanction of a Special Resolution passed at a separate general meeting of the Holders of the shares of that class, provided that, if the relevant class of Holders has only one Holder, that person present in person or by proxy, shall constitute the necessary quorum for such a meeting. To every such meeting the provisions of article 35 shall apply.

(b)
The redemption or purchase of preferred shares or any class of preferred shares shall not constitute a variation of rights of the preferred Holders where the redemption or purchase of the preferred shares has been authorised solely by a resolution of the ordinary Holders.

(c)
The issue, redemption or purchase of any of the preferred shares of US$0.01 each shall not constitute a variation of the rights of the Holders of ordinary shares.

(d)
The issue of preferred shares or any class of preferred shares which rank pari passu with, or junior to, any existing preferred shares or class of preferred shares shall not constitute a variation of the existing preferred shares or class of preferred shares.

7.
The rights conferred upon the Holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

8.
(a)    Subject to the provisions of these articles relating to new shares, the shares shall be at the disposal of the Directors, and they may (subject to the provisions of the Acts) allot, grant options over or otherwise dispose of them to such persons, on such terms and conditions and at such times as they may consider to be in the best interests of the Company and its members, but so that no share shall be issued at a discount save in accordance with the Acts, and so that, in the case of shares offered to the public for subscription, the amount payable on application on each share shall not be less than one-quarter of the nominal amount of the share and the whole of any premium thereon. To the extent permitted by the Acts, shares may also be allotted by a committee of the Directors or by any other person where such committee or person is so authorised by the Directors.












4


(b)
Subject to any requirement to obtain the approval of members under any laws, regulations or the rules of any stock exchange to which the Company is subject, the Board is authorised, from time to time, in its discretion, to grant such persons, for such periods and upon such terms as the Board deems advisable, options to purchase or subscribe for such number of shares of any class or classes or of any series of any class as the Board may deem advisable, and to cause warrants or other appropriate instruments evidencing such options to be issued.

(c)
The Directors are, for the purposes of the Acts, generally and unconditionally authorised to exercise all powers of the Company to allot and issue relevant securities (as defined by the Acts) up to the amount of Company’s authorised share capital as of the date of adoption of this article 8 and to allot and issue any shares purchased by the Company pursuant to the provisions of the Acts and held as treasury shares and this authority shall expire five years from 8 September 2014. The Company may before the expiry of such authority make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of such an offer or agreement notwithstanding that the authority hereby conferred has expired.

(d)
The Directors are hereby empowered pursuant to sections 23 and 24(1) of the 1983 Act to allot equity securities within the meaning of the said section 23 for cash pursuant to the authority conferred by paragraph (c) of this article 8 as if section 23(1) of the said 1983 Act did not apply to any such allotment. The Company may before the expiry of such authority make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of such an offer or agreement as if the power conferred by this paragraph (d) had not expired.

(e)
Nothing in these articles shall preclude the Directors from recognising a renunciation of the allotment of any shares by any allottee in favour of some other person.

9.
If by the conditions of allotment of any share the whole or part of the amount or issue price thereof shall be payable by instalments, every such instalment when due shall be paid to the Company by the person who for the time being shall be the Holder of the share.

10.
The Company may pay commission to any person in consideration of a person subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares in the Company or procuring or agreeing to procure subscriptions, whether absolute or conditional, for any shares in the Company on such terms and subject to such conditions as the Directors may determine, including, without limitation, by paying cash or allotting and issuing fully or partly paid shares or any combination of the two. The Company may also, on any issue of shares, pay such brokerage as may be lawful.

11.
Except as required by law, no person shall be recognised by the Company as holding any share upon any trust, and the Company shall not be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any share or any interest in any fractional part of a share or (except only as by these articles or by law otherwise provided) any other rights in respect of any share except an absolute right to the entirety thereof in the Holder.

12.
No person shall be entitled to a share certificate in respect of any ordinary share held by them in the share capital of the Company, whether such ordinary share was allotted or transferred to them, and the Company shall not be bound to issue a share certificate to any such person entered in the Register.

13.
The Company shall not give, whether directly or indirectly and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase or subscription made or to be made by any person of or for any shares in the Company or in its holding company, except as permitted by the Acts.

14.
(a)    The Company shall have a first and paramount lien on every share (not being a fully paid share) for all moneys (whether presently payable or not) payable at a fixed time or called in respect of that share. The Directors, at any time, may declare any share to be wholly or in part exempt from the provisions of this article. The Company’s lien on a share shall extend to all moneys payable in respect of it. The terms of any optional provisions of the Act or any replacement enactment covering substantially the same subject matter as this article 14 are disapplied.



5


(b)
The Company may sell in such manner as the Directors determine any share on which the Company has a lien if a sum in respect of which the lien exists is presently payable and is not paid within fourteen Clear Days after notice demanding payment, and stating that if the notice is not complied with the share may be sold, has been given to the Holder of the share or to the person entitled to it by reason of the death or bankruptcy of the Holder.

(c)
To give effect to a sale, the Directors may authorise some person to execute an instrument of transfer of the share sold to, or in accordance with the directions of, the purchaser. The transferee shall be entered in the Register as the Holder of the share comprised in any such transfer and he shall not be bound to see to the application of the purchase moneys nor shall his title to the share be affected by any irregularity in or invalidity of the proceedings in reference to the sale, and after the name of the transferee has been entered in the Register, the remedy of any person aggrieved by the sale shall be in damages only and against the Company exclusively.

(d)
The net proceeds of the sale, after payment of the costs, shall be applied in payment of so much of the sum for which the lien exists as is presently payable and any residue (upon surrender to the Company for cancellation of the certificate for the shares sold and subject to a like lien for any moneys not presently payable as existed upon the shares before the sale) shall be paid to the person entitled to the shares at the date of the sale.

15.
(a)    Subject to the terms of allotment, the Directors may make calls upon the members in respect of any moneys unpaid on their shares, including shares where the conditions of allotment provide for payment at fixed times, and each member (subject to receiving at least fourteen Clear Days’ notice specifying when and where payment is to be made) shall pay to the Company as required by the notice the amount called on his shares. A call may be required to be paid by instalments. A call may be revoked before receipt by the Company of a sum due thereunder, in whole or in part and payment of a call may be postponed in whole or in part. A person upon whom a call is made shall remain liable for calls made upon him notwithstanding the subsequent transfer of the shares in respect of which the call was made. The terms of any optional provisions of the Act or any replacement enactment covering substantially the same subject matter as this article 15 are disapplied.
  
(b)
A call shall be deemed to have been made at the time when the resolution of the Directors authorising the call was passed.

(c)
The joint Holders of a share shall be jointly and severally liable to pay all calls in respect thereof.

(d)
If a call remains unpaid after it has become due and payable the person from whom it is due and payable shall pay interest on the amount unpaid from the day it became due until it is paid at the rate fixed by the terms of allotment of the share or in the notice of the call or, if no rate is fixed, at the appropriate rate (as defined by the Acts) but the Directors may waive payment of the interest wholly or in part.

(e)
An amount payable in respect of a share on allotment or at any fixed date, whether in respect of nominal value or as an instalment of a call, shall be deemed to be a call and if it is not paid the provisions of these articles shall apply as if that amount had become due and payable by virtue of a call.

(f)
Subject to the terms of allotment, the Directors may make arrangements on the issue of shares for a difference between the Holders in the amounts and times of payment of calls on their shares.

(g)
The Directors, if they think fit, may receive from any member willing to advance the same all or any part of the moneys uncalled and unpaid upon any shares held by him, and upon all or any of the moneys so advanced may pay (until the same would, but for such advance, become payable) interest at such rate, not exceeding (unless the Company in general meeting otherwise directs) fifteen percent per annum, as may be agreed upon between the Directors and the member paying such sum in advance.

(h)
(i)    If a member fails to pay any call or instalment of a call on the day appointed for payment thereof, the Directors, at any time thereafter and during such times as any part of the call or instalment remains unpaid, may serve a notice on him requiring payment of so much of the call or instalment as is unpaid together with any interest which may have accrued.





6


(ii)
The notice shall name a further day (not earlier than the expiration of fourteen Clear Days from the date of service of the notice) on or before which the payment required by the notice is to be made, and shall state that in the event of non-payment at or before the time appointed the shares in respect of which the call was made will be liable to be forfeited.

(iii)
If the requirements of any such notice as aforesaid are not complied with then, at any time thereafter before the payment required by the notice has been made, any shares in respect of which the notice has been given may be forfeited by a resolution of the Directors to that effect. The forfeiture shall include all dividends or other moneys payable in respect of the forfeited shares and not paid before forfeiture. The Directors may accept a surrender of any share liable to be forfeited hereunder.

(iv)
On the trial or hearing of any action for the recovery of any money due for any call it shall be sufficient to prove that the name of the member sued is entered in the Register as the Holder, or one of the Holders, of the shares in respect of which such debt accrued, that the resolution making the call is duly recorded in the minute book and that notice of such call was duly given to the member sued, in pursuance of these articles, and it shall not be necessary to prove the appointment of the Directors who made such call nor any other matters whatsoever, but the proof of the matters aforesaid shall be conclusive evidence of the debt.

(i)
A forfeited share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit and at any time before a sale or disposition the forfeiture may be cancelled on such terms as the Directors think fit. Where for the purposes of its disposal such a share is to be transferred to any person, the Directors may authorise some person to execute an instrument of transfer of the share to that person. The Company may receive the consideration, if any, given for the share on any sale or disposition thereof and may execute a transfer of the share in favour of the person to whom the share is sold or disposed of and thereupon he shall be registered as the Holder of the share and shall not be bound to see to the application of the purchase money, if any, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, sale or disposal of the share.

(j)
A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares, but nevertheless shall remain liable to pay to the Company all moneys which, at the date of forfeiture, were payable by him to the Company in respect of the shares, without any deduction or allowance for the value of the shares at the time of forfeiture but his liability shall cease if and when the Company shall have received payment in full of all such moneys in respect of the shares.

(k)
A statutory declaration that the declarant is a Director or the Secretary of the Company, and that a share in the Company has been duly forfeited on the date stated in the declaration, shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the share.

(l)
The provisions of these articles as to forfeiture shall apply in the case of non-payment of any sum which, by the terms of issue of a share, becomes payable at a fixed time, whether on account of the nominal value of the share or by way of premium, as if the same had been payable by virtue of a call duly made and notified.

(m)
The Directors may accept the surrender of any share which the Directors have resolved to have been forfeited upon such terms and conditions as may be agreed and, subject to any such terms and conditions, a surrendered share shall be treated as if it has been forfeited.














7


TRANSFER OF SHARES
16.
(a)    The instrument of transfer of any share may be executed for and on behalf of the transferor by the Secretary, an Assistant Secretary or any such person that the Secretary or an Assistant Secretary nominates for that purpose (whether in respect of specific transfers or pursuant to a general standing authorisation), and the Secretary, Assistant Secretary or the relevant nominee shall be deemed to have been irrevocably appointed agent for the transferor of such share or shares with full power to execute, complete and deliver in the name of and on behalf of the transferor of such share or shares all such transfers of shares held by the members in the share capital of the Company. Any document which records the name of the transferor, the name of the transferee, the class and number of shares agreed to be transferred, the date of the agreement to transfer shares and the price per share, shall, once executed by the transferor or the Secretary, Assistant Secretary or the relevant nominee as agent for the transferor, and by the transferee where required by the Act, be deemed to be a proper instrument of transfer for the purposes of the Act. The transferor shall be deemed to remain the Holder of the share until the name of the transferee is entered on the Register in respect thereof, and neither the title of the transferee nor the title of the transferor shall be affected by any irregularity or invalidity in the proceedings in reference to the sale should the Directors so determine.

(b)
The Company, at its absolute discretion, may, or may procure that a subsidiary of the Company shall, pay Irish stamp duty arising on a transfer of shares on behalf of the transferee of such shares of the Company. If stamp duty resulting from the transfer of shares in the Company which would otherwise be payable by the transferee is paid by the Company or any subsidiary of the Company on behalf of the transferee, then in those circumstances, the Company shall, on its behalf or on behalf of its subsidiary (as the case may be), be entitled to (i) seek reimbursement of the stamp duty from the transferee, (ii) set-off the stamp duty against any dividends payable to the transferee of those shares and (iii) claim a first and permanent lien on the shares on which stamp duty has been paid by the Company or its subsidiary for the amount of stamp duty paid. The Company’s lien shall extend to all dividends paid on those shares.

(c)
Notwithstanding the provisions of these articles and subject to any provision of the Acts, title to any shares in the Company may also be evidenced and transferred without a written instrument in accordance with the Acts or any regulations made thereunder. The Directors shall have power to permit any class of shares to be held in uncertificated form and to implement any arrangements they think fit for such evidencing and transfer which accord with such regulations and in particular shall, where appropriate, be entitled to disapply or modify all or part of the provisions in these articles with respect to the requirement for written instruments of transfer and share certificates (if any), in order to give effect to such regulations.

17.
Subject to such of the restrictions of these articles and to such of the conditions of issue of any share warrants as may be applicable, the shares of any member and any share warrant may be transferred by instrument in writing in any usual or common form or any other form which the Directors may approve.

18.
(a)    The Directors in their absolute discretion and without assigning any reason therefor may decline to register:

(i)
any transfer of a share which is not fully paid; or

(ii)
any transfer to or by a minor or person of unsound mind;

but this shall not apply to a transfer of such a share resulting from a sale of the share through a stock exchange on which the share is listed.
(b)    The Directors may decline to recognise any instrument of transfer unless:

(i)
the instrument of transfer is accompanied by the certificate of the shares to which it relates and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer;

(ii)
the instrument of transfer is in respect of one class of share only;






8


(iii)
a fee of €10 or such lesser sum is paid to the Company;

(iv)
the instrument of transfer is in favour of not more than four transferees; and

(v)
it is lodged at the Office or at such other place as the Directors may appoint.

19.
If the Directors refuse to register a transfer, they shall, within two months after the date on which the transfer was lodged with the Company, send to the transferee notice of the refusal.

20.
(a)    The Directors may from time to time fix a record date for the purposes of determining the rights of members to notice of and/or to vote at any general meeting of the Company. The record date shall not precede the date upon which the resolution fixing the record date is adopted by the Directors, and the record date shall be not more than eighty nor less than ten days before the date of such meeting. If no record date is fixed by the Directors, the record date for determining members entitled to notice of or to vote at a meeting of the members shall be the close of business on the day next preceding the day on which notice is given. Unless the Directors determine otherwise, a determination of members of record entitled to notice of or to vote at a meeting of members shall apply to any adjournment or postponement of the meeting.

(b)
In order that the Directors may determine the members entitled to receive payment of any dividend or other distribution or allotment of any rights or the members entitled to exercise any rights in respect of any change, conversion or exchange of shares, or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than thirty nor less than two days prior to such action. If no record date is fixed, the record date for determining members for such purpose shall be at the close of business on the day on which the Directors adopt the resolution relating thereto.

21.
Registration of transfers may be suspended at such times and for such period, not exceeding in the whole 30 days in each year, as the Directors may from time to time determine subject to the requirements of the Acts.

22.
All instruments of transfer shall upon their being lodged with the Company remain the property of the Company and the Company shall be entitled to retain them.

23.
Subject to the provisions of these articles, whenever as a result of a consolidation of shares or otherwise any members would become entitled to fractions of a share, the Directors may sell or cause to be sold, on behalf of those members, the shares representing the fractions for the best price reasonably obtainable to any person and distribute the proceeds of sale (subject to any applicable tax and abandoned property laws) in due proportion among those members, and the Directors may authorise some person to execute an instrument of transfer of the shares to, or in accordance with the directions of, the purchaser. The transferee shall not be bound to see to the application of the purchase money nor shall his title to the shares be affected by any irregularity in or invalidity of the proceedings in reference to the sale.


TRANSMISSION OF SHARES
24.
In the case of the death of a member, the survivor or survivors where the deceased was a joint Holder, and the personal representatives of the deceased where he was a sole Holder, shall be the only persons recognised by the Company as having any title to his interest in the shares; but nothing herein contained shall release the estate of a deceased joint Holder from any liability in respect of any share which had been jointly held by him with other persons. The terms of any optional provisions of the Act or any replacement enactment covering substantially the same subject matter as articles 24 to 27 are disapplied.

25.
Any person becoming entitled to a share in consequence of the death or bankruptcy of a member may, upon such evidence being produced as may from time to time properly be required by the Directors and subject as herein provided, elect either to be registered himself as Holder of the share or to have some person nominated by him registered as the transferee thereof, but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the shares by that member before his death or bankruptcy, as the case may be.





9


26.
If the person so becoming entitled elects to be registered himself, he shall deliver or send to the Company a notice in writing signed by him stating that he so elects. If he elects to have another person registered, he shall testify his election by executing to that person a transfer of the share. All the limitations, restrictions and provisions of these regulations relating to the right to transfer and the registration of transfers of shares shall be applicable to any such notice or transfer as aforesaid as if the death or bankruptcy of the member had not occurred and the notice of transfer were a transfer signed by that member.

27.
A person becoming entitled to a share by reason of the death or bankruptcy of the Holder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered Holder of the share, except that he shall not, before being registered as a member in respect of the share, be entitled in respect of it to exercise any right conferred by membership in relation to the meetings of the Company, so, however, that the Directors may at any time give notice requiring such person to elect either to be registered himself or to transfer the share, and if the notice is not complied with within 90 days, the Directors may thereupon withhold payment of all dividends, bonuses or other moneys payable in respect of the share until the requirements of the notice have been complied with.


ALTERATION OF CAPITAL
28.
The Company may from time to time by Ordinary Resolution increase the authorised share capital by such sum, to be divided into shares of such amount, as the resolution shall prescribe.

29.
The Company may by Ordinary Resolution:

(a)
consolidate and divide all or any of its share capital into shares of larger amount than its existing shares;

(b)
subdivide its existing shares, or any of them, into shares of smaller amount than is fixed by the memorandum of association subject, nevertheless, to the Acts; or

(c)
cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and reduce the amount of its authorised share capital by the amount of the shares so cancelled.

30.
The Company may by Special Resolution or by Ordinary Resolution as may be required by the Act reduce its share capital, any capital redemption reserve fund or any share premium account or undenominated capital account in any manner and with and subject to any incident authorised, and consent required, by law.


GENERAL MEETINGS
31.
The Company shall in each year hold a general meeting as its annual general meeting in addition to any other meeting in that year, and shall specify the meeting as such in the notices calling it. Not more than fifteen months shall elapse between the date of one annual general meeting of the Company and that of the next. This article shall not apply in the case of the first general meeting, in respect of which the Company shall convene the meeting within the time periods required by the Act.

32.
Subject to the Acts, all general meetings of the Company may be held outside of Ireland.

33.
All general meetings other than annual general meetings shall be called extraordinary general meetings.

34.
The Directors may, whenever they think fit, convene an extraordinary general meeting, and extraordinary general meetings shall also be convened on such requisition, or in default may be convened by such requisitionists, as provided in the Acts. Where any enactment confers rights on the members of a company to convene a general meeting and expresses such rights to apply save where a company's articles of association or constitution provides otherwise, such rights shall not apply to the members of the Company.

35.
All provisions of these articles relating to general meetings of the Company shall, mutatis mutandis, apply to every separate general meeting of the Holders of any class of shares in the capital of the Company, except that:



10


(a)
the necessary quorum shall be two or more persons holding or representing by proxy (whether or not such Holder actually exercises his voting rights in whole, in part or at all at the relevant general meeting) at least a majority in nominal value of the issued shares of the class or, at any adjourned meeting of such Holders, one Holder holding or representing by proxy (whether or not such Holder actually exercises his voting rights in whole, in part or at all at the relevant general meeting) at least a majority in nominal value of the issued shares of the class, shall be deemed to constitute a meeting;

(b)
any Holder of shares of the class present in person or by proxy may demand a poll; and

(c)
on a poll, each Holder of shares of the class shall have one vote in respect of every share of the class held by him.

36.
A Director shall be entitled, notwithstanding that he is not a member, to attend and speak at any general meeting and at any separate meeting of the Holders of any class of shares in the Company.


NOTICE OF GENERAL MEETINGS
37.
(a)    Subject to the provisions of the Acts allowing a general meeting to be called by shorter notice, an annual general meeting and an extraordinary general meeting shall be called by not more than 60 Clear Days’ notice and not less than 21 Clear Days’ notice.

(b)
Any notice convening a general meeting shall specify the time and place of the meeting and, in the case of special business, the general nature of that business and, in reasonable prominence, that a member entitled to attend and vote is entitled to appoint a proxy to attend, speak and vote in his place and that a proxy need not be a member of the Company. It shall also give particulars of any Directors who are to retire at the meeting and of any persons who are recommended by the Directors for appointment or re-appointment as Directors at the meeting or in respect of whom notice has been duly given to the Company of the intention to propose them for appointment or re-appointment as Directors at the meeting. Provided that the latter requirement shall only apply where the intention to propose the person has been received by the Company in accordance with the provisions of these articles. Subject to any restrictions imposed on any shares, the notice of the meeting shall be given to all the members of the Company as of the record date set by the Directors and to the Directors and the Auditors.

(c)
The accidental omission to give notice of a meeting to, or the non-receipt of notice of a meeting by, any person entitled to receive notice shall not invalidate the proceedings at the meeting.

38.
Where, by any provision contained in the Acts, extended notice is required of a resolution, the resolution shall not be effective (except where the Directors of the Company have resolved to submit it) unless notice of the intention to move it has been given to the Company not less than 28 days (or such shorter period as the Acts permit) before the meeting at which it is moved, and the Company shall give to the members notice of any such resolution as required by and in accordance with the provisions of the Acts.


PROCEEDINGS AT GENERAL MEETINGS
39.
All business shall be deemed special that is transacted at an extraordinary general meeting, and also all that is transacted at an annual general meeting, with the exception of declaring a dividend, the consideration of the company’s statutory financial statements and the Directors' and Statutory Auditors' Reports, the review by the members of the Company’s affairs (to the extent required by the Acts), the election of Directors, the re-appointment of the retiring auditors and the authorisation of the directors to fix the statutory Auditors’ remuneration.

40.
At any annual general meeting of the members, only such nominations of persons for election to the Board shall be made, and only such other business shall be conducted or considered, as shall have been properly brought before the meeting. For nominations to be properly made at an annual general meeting, and proposals of other business to be properly brought before an annual meeting, nominations and proposals of other business must be: (a) specified in the Company’s notice of meeting (or any supplement thereto) given by or at the direction of the Board, (b) otherwise properly made at the annual general meeting, by or at the direction of the Board, or (c) otherwise properly requested to be brought before the annual general meeting by a member of the Company in accordance with these articles. For nominations of persons for election to the Board or proposals of other business to be properly requested by a member to be made at an annual general

11


meeting, a member must (i) be a member at the time of giving of notice of such annual general meeting by or at the direction of the Board and at the time of the annual general meeting, (ii) be entitled to vote at such annual general meeting and (iii) comply with the procedures set forth in these articles as to such business or nomination. The immediately preceding sentence shall be the exclusive means for a member to make nominations or other business proposals (other than matters properly brought under Rule 14a-8 under the Exchange Act and included in the Company’s notice of meeting) before an annual general meeting of members.

41.
At any extraordinary general meeting of the members, only such business shall be conducted or considered, as shall have been properly brought before the meeting pursuant to the Company’s notice of meeting. To be properly brought before an extraordinary general meeting, proposals of business must be (a) specified in the Company’s notice of meeting (or any supplement thereto) given by or at the direction of the Board, (b) otherwise properly brought before the extraordinary general meeting, by or at the direction of the Board, or (c) otherwise properly brought before the meeting by any members of the Company pursuant to the valid exercise of power granted to them under the Acts.

42.
Nominations of persons for election to the Board may be made at an extraordinary general meeting of members at which directors are to be elected pursuant to the Company’s notice of meeting (a) by or at the direction of the Board, (b) by any members of the Company pursuant to the valid exercise of power granted to them under the Acts, or (c) provided that the Board has determined that directors shall be elected at such meeting by any member of the Company who (i) is a member at the time of giving of notice of such extraordinary general meeting and at the time of the extraordinary general meeting, (ii) is entitled to vote at the meeting and (iii) complies with the procedures set forth in these articles as to such nomination. The immediately preceding sentence shall be the exclusive means for a member to make nominations (other than matters properly brought under Rule 14a-8 under the Exchange Act and included in the Company’s notice of meeting) before an extraordinary general meeting of members.

43.
Except as otherwise provided by the Acts, the memorandum of association or these articles, the Chairman of any general meeting shall have the power to determine whether a nomination or any other business proposed to be brought before the general meeting was made or proposed, as the case may be, in accordance with these articles and, if any proposed nomination or other business is not in compliance with these articles, to declare that no action shall be taken on such nomination or other proposal and such nomination or other proposal shall be disregarded.

44.
No business shall be transacted at any general meeting unless a quorum is present at the time when the meeting proceeds to business. The Holders of shares, present in person or by proxy (whether or not such Holder actually exercises his voting rights in whole, in part or at all at the relevant general meeting), entitling them to exercise a majority of the voting power of the Company on the relevant record date shall constitute a quorum.

45.
Any general meeting duly called at which a quorum is not present shall be adjourned and the Company shall provide notice pursuant to article 37 in the event that such meeting is to be reconvened. The terms of any optional provisions of the Act or any replacement enactment covering substantially the same subject matter as this article 45 are disapplied.

46.
The Chairman, if any, of the Board shall preside as Chairman at every general meeting of the Company, or if there is no such Chairman, or if he is not present within fifteen minutes after the time appointed for the holding of the meeting or is unwilling to act, the Directors present shall elect one of their number to be Chairman of the meeting.

47.
If at any meeting no Director is willing to act as Chairman or if no Director is present within fifteen minutes after the time appointed for holding the meeting, the members present shall choose one of their number to be Chairman of the meeting.

48.
The Chairman may, with the consent of any meeting at which a quorum is present, and shall if so directed by the meeting, adjourn the meeting from time to time and from place to place without notice other than by announcement of the time and place of the adjourned meeting by the Chairman of the meeting. The Chairman of the meeting may at any time without the consent of the meeting adjourn the meeting to another time and/or place if, in his opinion, it would facilitate the conduct of the business of the meeting to do so or if he is so directed by the Board. Save as aforesaid, it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting. The terms of any optional provisions of the Act or any replacement enactment covering substantially the same subject matter as this article 48 are disapplied.




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49.
At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands) demanded in accordance with the Acts, including by:

(a)
the Chairman; or

(b)
by at least three members present in person or by proxy; or

(c)
by any member or members present in person or by proxy and representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting; or

(d)
by a member or members holding shares in the Company conferring the right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

Unless a poll is so demanded, a declaration by the Chairman that a resolution has, on a show of hands, been carried or carried unanimously, or by a particular majority, or lost, and an entry to that effect in the book containing the minutes of the proceedings of the Company, shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against such resolution.
The demand for a poll may be withdrawn.
50.
Except as provided in article 51, if a poll is duly demanded it shall be taken in such manner as the Chairman directs, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded.

51.
A poll demanded on the election of the Chairman or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the Chairman of the meeting directs, and any business other than that on which a poll has been demanded may be proceeded with pending the taking of the poll.

52.
Where there is an equality of votes, whether on a show of hands or on a poll, the Chairman of the meeting at which the show of hands takes place or at which the poll is demanded shall be entitled to a casting vote in addition to any other vote he may have.

53.
Unless the Directors otherwise determine, no member shall be entitled to vote at any general meeting or any separate meeting of the Holders of any class of shares in the Company, either in person or by proxy, or to exercise any privilege as a member in respect of any share held by him unless all monies then payable by him in respect of that share have been paid.


ADVANCE NOTICE OF MEMBER BUSINESS AND NOMINATIONS
54.
Without qualification or limitation, subject to article 67, for any nominations or any other business to be properly brought before an annual general meeting by a member pursuant to article 40, the member must have given timely notice thereof (including, in the case of nominations, the completed and signed questionnaire, representation and agreement required by article 68), and timely updates and supplements thereof, in writing to the Secretary, and such other business must otherwise be a proper matter for member action.

55.
To be timely, a member’s notice for any nominations or any other business to be properly brought before an annual general meeting by a member pursuant to article 40 shall be delivered to the Secretary at the Office by close of business on that day that is not less than 120 days prior to the first anniversary of the day of release to shareholders of the Company’s proxy statement issued pursuant to section 14(a) of the Exchange Act in respect of the preceding year’s annual general meeting; provided, however, that in the event that the date of the annual general meeting is changed by more than 30 days from the date contemplated at the time of the previous year’s proxy statement, notice by the member must be so delivered by close of business on the day that is not less than the later of (a) 150 days prior to the day of the contemplated annual general meeting or (b) ten days after the day on which public announcement of the date of the contemplated annual general meeting is first made by the Company; provided, further, that with respect to the first annual general meeting of the Company, notice by the member must be so delivered by close of business on the day that is not less than ten days after the day on which public announcement of the date of such meeting is first made by the Company. In no event shall any adjournment or postponement of an annual general meeting, or the public announcement thereof, commence a new time period for the giving of a member’s notice as described above.

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56.
Notwithstanding anything in article 55 to the contrary, in the event that the number of directors to be elected to the Board is increased by the Board, and there is no public announcement by the Company naming all of the nominees for director or specifying the size of the increased Board at least 130 days prior to the first anniversary of the day of release to shareholders of the Company’s proxy statement issued pursuant to section 14(a) of the Exchange Act in respect of the preceding year’s annual general meeting, a member’s notice required by articles 54-57 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the Office not later than the close of business on the day that is ten days after the day on which such public announcement is first made by the Company.

57.
In addition, to be considered timely, a member’s notice shall further be updated and supplemented, if necessary, so that the information provided or required to be provided in such notice shall be true and correct as of the record date for the meeting and as of the date that is ten business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to the Secretary at the Office not later than five business days after the record date for the meeting in the case of the update and supplement required to be made as of the record date, and not later than eight business days prior to the date for the meeting or any adjournment or postponement thereof in the case of the update and supplement required to be made as of ten business days prior to the meeting or any adjournment or postponement thereof.

58.
Subject to article 67, in the event the Company calls an extraordinary general meeting of members for the purpose of electing one or more directors to the Board, any member may nominate a person or persons (as the case may be) for election to such position(s) as specified in the Company’s notice of meeting, provided that the member gives timely notice thereof (including the completed and signed questionnaire, representation and agreement required by article 68), and timely updates and supplements thereof, in writing, to the Secretary.

59.
To be timely, a member’s notice for any nomination to be properly brought before such an extraordinary general meeting shall be delivered to the Secretary at the Office by close of business on the day that is not less than 120 days prior to the date of such extraordinary general meeting or, if the first public announcement of the date of such extraordinary general meeting is less than 130 days prior to the date of such extraordinary general meeting, by close of business on the day that is ten days after the day on which public announcement of the date of the extraordinary general meeting and of the nominees proposed by the Board to be elected at such meeting is first made by the Company. In no event shall any adjournment or postponement of an extraordinary general meeting, or the public announcement thereof, commence a new time period for the giving of a member’s notice as described above.

60.
In addition, to be considered timely, a member’s notice shall further be updated and supplemented, if necessary, so that the information provided or required to be provided in such notice shall be true and correct as of the record date for the meeting and as of the date that is ten business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to the Secretary at the Office not later than five business days after the record date for the meeting in the case of the update and supplement required to be made as of the record date, and not later than eight business days prior to the date for the meeting, any adjournment or postponement thereof in the case of the update and supplement required to be made as of ten business days prior to the meeting or any adjournment or postponement thereof.

61.
To be in proper form, a member’s notice (whether given pursuant to articles 54-57 or articles 58-60) to the Secretary must include the following, as applicable:















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62.
As to the member giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, a member’s notice must set forth: (i) the name and address of such member, as they appear on the Company’s books, of such beneficial owner, if any, and of their respective affiliates or associates or others acting in concert therewith, (ii) (A) the class or series and number of shares of the Company which are, directly or indirectly, owned beneficially and of record by such member, such beneficial owner and their respective affiliates or associates or others acting in concert therewith, (B) any option, warrant, convertible security, share appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Company or with a value derived in whole or in part from the value of any class or series of shares of the Company, or any derivative or synthetic arrangement having the characteristics of a long position in any class or series of shares of the Company, or any contract, derivative, swap or other transaction or series of transactions designed to produce economic benefits and risks that correspond substantially to the ownership of any class or series of shares of the Company, including due to the fact that the value of such contract, derivative, swap or other transaction or series of transactions is determined by reference to the price, value or volatility of any class or series of shares of the Company, whether or not such instrument, contract or right shall be subject to settlement in the underlying class or series of shares of the Company, through the delivery of cash or other property, or otherwise, and without regard to whether the member, the beneficial owner, if any, or any affiliates or associates or others acting in concert therewith, may have entered into transactions that hedge or mitigate the economic effect of such instrument, contract or right, or any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the Company (any of the foregoing, a “Derivative Instrument”) directly or indirectly owned beneficially by such member, the beneficial owner, if any, or any affiliates or associates or others acting in concert therewith, (C) any proxy, contract, arrangement, understanding, or relationship pursuant to which such member has a right to vote any class or series of shares of the Company, (D) any agreement, arrangement, understanding, relationship or otherwise, including any repurchase or similar so-called “stock borrowing” agreement or arrangement, involving such member, directly or indirectly, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of any class or series of the shares of the Company by, manage the risk of share price changes for, or increase or decrease the voting power of, such member with respect to any class or series of the shares of the Company, or which provides, directly or indirectly, the opportunity to profit or share in any profit derived from any decrease in the price or value of any class or series of the shares of the Company (any of the foregoing, a “Short Interest”), (E) any rights to dividends on the shares of the Company owned beneficially by such member that are separated or separable from the underlying shares of the Company, (F) any proportionate interest in shares of the Company or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such member is a general partner or, directly or indirectly, beneficially owns an interest in a general partner of such general or limited partnership, (G) any performance-related fees (other than an asset-based fee) that such member is entitled to based on any increase or decrease in the value of shares of the Company or Derivative Instruments, if any, including without limitation any such interests held by members of such member’s immediate family sharing the same household, (H) any significant equity interests or any Derivative Instruments or Short Interests in any principal competitor of the Company held by such member, and (I) any direct or indirect interest of such member in any contract with the Company, any affiliate of the Company or any principal competitor of the Company (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement), and (iii) any other information relating to such member and beneficial owner, if any, that would be required to be disclosed in a proxy statement and form or proxy or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in a contested election pursuant to section 14 of the Exchange Act and the rules and regulations promulgated thereunder.

63.
If the notice relates to any business other than a nomination of a director or directors that the member proposes to bring before the meeting, a member’s notice must, in addition to the matters set forth in article 62 above, also set forth: (i) a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest of such member and beneficial owner, if any, in such business, (ii) the text of the proposal or business (including the text of any resolutions proposed for consideration and, in the event that such proposal or business includes a proposal to amend these articles, the text of the proposed amendment), and (iii) a description of all agreements, arrangements and understandings between such member and beneficial owner, if any, and any other person or persons (including their names) in connection with the proposal of such business by such member.









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64.
As to each person, if any, whom the member proposes to nominate for election or re-election to the Board, a member’s notice must, in addition to the matters set forth in article 62 above, also set forth: (i) all information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested election pursuant to section 14 of the Exchange Act and the rules and regulations promulgated thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected) and (ii) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such member and beneficial owner, if any, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K under the Exchange Act if the member making the nomination and any beneficial owner on whose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the nominee were a director or executive officer of such registrant.

65.
With respect to each person, if any, whom the member proposes to nominate for election or re-election to the Board, a member’s notice must, in addition to the matters set forth in articles 62 and 64 above, also include a completed and signed questionnaire, representation and agreement required by article 68 of these articles. The Company may require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as an independent director of the Company or that could be material to a reasonable member’s understanding of the independence, or lack thereof, of such nominee.

66.
Notwithstanding the provisions of these articles, a member shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in articles 54-68; provided, however, that any references in these articles to the Exchange Act or the rules promulgated thereunder are not intended to and shall not limit the separate and additional requirements set forth in these articles with respect to nominations or proposals as to any other business to be considered pursuant to articles 39-43.

67.
Nothing in these articles shall be deemed to affect any rights (i) of members to request inclusion of proposals in the Company’s proxy statement pursuant to Rule 14a-8 under the Exchange Act, (ii) of the holders of any series of preferred shares if and to the extent provided for under law, the memorandum of association or these articles or (iii) of members of the Company to bring business before an extraordinary general meeting pursuant to the valid exercise of power granted to them under the Acts. Subject to Rule 14a-8 under the Exchange Act, nothing in these articles shall be construed to permit any member, or give any member the right, to include or have disseminated or described in the Company’s proxy statement any nomination of director or directors or any other business proposal.

68.
Subject to the rights of members of the Company to propose nominations at an extraordinary general meeting pursuant to the valid exercise of power granted to them under the Acts, to be eligible to be a nominee for election or re-election as a director of the Company, a person must deliver (in accordance with the time periods prescribed for delivery of notice under articles 54-67) to the Secretary at the Office a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be provided by the Secretary upon written request), and a written representation and agreement (in the form provided by the Secretary upon written request) that such person (A) is not and will not become a party to (1) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Company, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the Company or (2) any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director of the Company, with such person’s fiduciary duties under applicable law, (B) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Company with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed therein, and (C) in such person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a director of the Company, and will comply with all applicable corporate governance, conflict of interest, confidentiality and share ownership and trading policies and guidelines of the Company publicly disclosed from time to time.



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VOTES OF MEMBERS
69.
Subject to any special rights or restrictions as to voting for the time being attached by or in accordance with these articles to any class of shares, on a show of hands every member present in person and every proxy shall have one vote, but so that no one member shall on a show of hands have more than one vote in respect of the aggregate number of shares of which he is the Holder, and on a poll every member who is present in person or by proxy shall have one vote for each share of which he is the Holder.

70.
When there are joint Holders, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint Holders; and for this purpose, seniority shall be determined by the order in which the names stand in the Register.

71.
A member of unsound mind, or in respect of whom an order has been made by any court having jurisdiction (whether in Ireland or elsewhere) in matters concerning mental disorder, may vote, whether on a show of hands or on a poll, by his committee, receiver, guardian or other person appointed by that court and any such committee, receiver, guardian or other person may vote by proxy on a show of hands or on a poll. Evidence to the satisfaction of the Directors of the authority of the person claiming to exercise the right to vote shall be received at the Office or at such other address as is specified in accordance with these articles for the receipt of appointments of proxy, not less than forty-eight hours before the time appointed for holding the meeting or adjourned meeting at which the right to vote is to be exercised and in default the right to vote shall not be exercisable. The terms of any optional provisions of the Act or any replacement enactment covering substantially the same subject matter as this article 71 are disapplied.

72.
No objection shall be raised to the qualification of any voter except at the meeting or adjourned meeting at which the vote objected to is given or tendered, and every vote not disallowed at such meeting shall be valid for all purposes. Any such objection made in due time shall be referred to the Chairman of the meeting, whose decision shall be final and conclusive.

73.
Votes may be given either personally or by proxy.

74.
(a)     Every member entitled to attend and vote at a general meeting may appoint a proxy to attend, speak and vote on his behalf and may appoint more than one proxy to attend, speak and vote at the same meeting. The appointment of a proxy shall be in any form which the Directors may approve, subject to compliance with any requirements as to form under the Acts, and shall be signed by or on behalf of the appointer. A body corporate must sign a form of proxy under its common seal or under the hand of a duly authorised officer thereof. A proxy need not be a member of the Company. The appointment of a proxy in electronic or other form shall only be effective in such manner as the Directors may approve, subject to any requirements of the Acts. An instrument or other form of communication appointing or evidencing the appointment of a proxy or a corporate representative (other than a standing proxy or representative) together with such evidence as to its due execution as the Directors may from time to time require, shall be returned to the address or addresses stated in the notice of meeting or adjourned meeting or any other information or communication by such time or times as may be specified in the notice of meeting or adjourned meeting or in any other such information or communication (which times may differ when more than one place is so specified) or, if no such time is specified, at any time prior to the holding of the relevant meeting or adjourned meeting at which the appointee proposes to vote, and, subject to the Acts, if not so delivered the appointment shall not be treated as valid.

(b)
Without limiting the foregoing, the Directors may from time to time permit appointments of a proxy to be made by means of an electronic or internet communication or facility and may in a similar manner permit supplements to, or amendments or revocations of, any such electronic or internet communication or facility to be made. For the avoidance of doubt, such appointments of proxy as made by electronic or internet communication or facility as permitted by the Directors will be deemed to be deposited at the place specified for such purpose once received by the Company. The Directors may in addition prescribe the method of determining the time at which any such electronic or internet communication or facility is to be treated as deposited at the place specified for such purpose. The Directors may treat any such electronic or internet communication or facility which purports to be or is expressed to be sent on behalf of a Holder of a share as sufficient evidence of the authority of the person sending that instruction to send it on behalf of that Holder.
75.
A body corporate which is a member of the Company may authorise such person as it thinks fit to act as its representative at any meeting of the Company or of any class of members of the Company and the person so authorised shall be entitled to exercise the same powers on behalf of the body corporate which he represents as that body corporate could exercise

17


if it were an individual member of the Company. The Company may require evidence from the body corporate of the due authorisation of such person to act as the representative of the relevant body corporate.

76.
An appointment of proxy relating to more than one meeting (including any adjournment thereof) having once been received by the Company for the purposes of any meeting shall not require to be delivered, deposited or received again by the Company for the purposes of any subsequent meeting to which it relates.

77.
Receipt by the Company of an appointment of proxy in respect of a meeting shall not preclude a member from attending and voting at the meeting or at any adjournment thereof. An appointment proxy shall be valid, unless the contrary is stated therein, as well for any adjournment of the meeting as for the meeting to which it relates.

78.
(a)     A vote given or poll demanded in accordance with the terms of an appointment of proxy or a resolution authorising a representative to act on behalf of a body corporate shall be valid notwithstanding the death or insanity of the principal, or the revocation of the appointment of proxy or of the authority under which the proxy was appointed or of the resolution authorising the representative to act or transfer of the share in respect of which the proxy was appointed or the authorisation of the representative to act was given, provided that no intimation in writing (whether in electronic form or otherwise) of such death, insanity, revocation or transfer shall have been received by the Company at the Office, before the commencement of the meeting or adjourned meeting at which the appointment of proxy is used or at which the representative acts; provided, however, that where such intimation is given in electronic form it shall have been received by the Company at least 24 hours (or such lesser time as the Directors may specify) before the commencement of the meeting.

(b)
The Directors may send, at the expense of the Company, by post, electronic mail or otherwise, to the members forms for the appointment of a proxy (with or without stamped envelopes for their return) for use at any general meeting or at any class meeting, either in blank or nominating any one or more of the Directors or any other persons in the alternative.
79.
The instrument appointing a proxy shall, be deemed to confer authority to demand or join in demanding a poll.

80.
Subject to the Acts, a resolution in writing signed by all of the members for the time being entitled to attend and vote on such resolution at a general meeting (or being bodies corporate by their duly authorised representatives) shall be as valid and effective for all purposes as if the resolution had been passed at a general meeting of the Company duly convened and held, and may consist of several documents in like form each signed by one or more persons, and if described as a special resolution shall be deemed to be a special resolution. Any such resolution shall be served on the Company.


DIRECTORS
81.
The number of Directors shall not be less than two nor more than 13. The continuing Directors may act notwithstanding any vacancy in their body, provided that if the number of the Directors is reduced below the prescribed minimum the remaining Director or Directors shall appoint forthwith an additional Director or additional Directors to make up such minimum or shall convene a general meeting of the Company for the purpose of making such appointment. If, at any annual general meeting of the Company, the number of Directors is reduced below the prescribed minimum due to the failure of any Directors to be re-elected, then in those circumstances, the two Directors which receive the highest number of votes in favour of re-election shall be re-elected and shall remain Directors until such time as additional Directors have been appointed to replace them as Directors. If, at any annual general meeting of the Company, the number of Directors is reduced below the prescribed minimum in any circumstances where one Director is re-elected, then that Director shall hold office until the next annual general meeting and the Director which (excluding the re-elected Director) receives the highest number of votes in favour of re-election shall be re-elected and shall remain a Director until such time as one or more additional Directors have been appointed to replace him or her. If there are no Director or Directors able or willing to act then any two members may summon a general meeting for the purpose of appointing Directors. Any additional Director so appointed shall hold office (subject to the provisions of the Acts and these articles) only until the conclusion of the annual general meeting of the Company next following such appointment unless he is re-elected during such meeting. The terms of any optional provisions of the Act or any replacement enactment covering substantially the same subject matter as this article 81 are disapplied.




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82.
Each Director, not being an employee, shall be paid a fee for their services and each Director who is an employee of the Company or the Group shall be paid remuneration (to include benefits in kind) for their employment. The fee or remuneration paid to each Director shall be at such rate and on such basis as may from time to time be determined by the Board. The Directors may also be paid all travelling, hotel and other expenses properly incurred by them in attending and returning from meetings of the Directors or any committee of the Directors or general meetings of the Company or in connection with the business of the Company. The amount, rate or basis of the fees, remuneration or expenses paid to the Directors shall not require approval or ratification by the Company in general meeting. The terms of any optional provisions of the Act or any replacement enactment covering substantially the same subject matter as this article 82 are disapplied

83.
If any Director shall be called upon to perform extra services which in the opinion of the Directors are outside the scope of the ordinary duties of a Director, the Company may remunerate such Director either by a fixed sum or by a percentage of profits or otherwise as may be determined by a resolution passed at a meeting of the Directors and such remuneration may be either in addition to or in substitution for any other remuneration to which he may be entitled as a Director.

84.
No shareholding qualification for Directors shall be required. A Director (whether or not a member of the Company) shall be entitled to attend and speak at general meetings.

85.
Unless the Company otherwise directs, a Director of the Company may be or become a Director or other officer of, or otherwise interested in, any company promoted by the Company or in which the Company may be interested as Holder or otherwise, and no such Director shall be accountable to the Company for any remuneration or other benefits received by him as a Director or officer of, or from his interest in, such other company.


BORROWING POWERS
86.
Subject to the Acts, the Directors may exercise all the powers of the Company to borrow or raise money, and to mortgage or charge its undertaking, property, assets and uncalled capital or any part thereof and to issue debentures, debenture stock and other securities whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party, without any limitation as to amount.


POWERS AND DUTIES OF THE DIRECTORS
87.
Subject always to article 107A, the business of the Company shall be managed by the Directors, who may pay all expenses incurred in promoting and registering the Company and may exercise all such powers of the Company as are not, by the Acts or by these articles, required to be exercised by the Company in general meeting, subject, nevertheless, to any of these articles and to the provisions of the Acts. The terms of any optional provisions of the Act or any replacement enactment covering substantially the same subject matter as articles 87 to 97 are disapplied.

88.
The Directors may from time to time and at any time by power of attorney appoint any company, firm or person or body of persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Directors under these articles) and for such period and subject to such conditions as they may think fit, and any such power of attorney may contain such provisions for the protection of persons dealing with any such attorney as the Directors may think fit, and may also authorise any such attorney to delegate all or any of the powers, authorities and discretions vested in him.












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89.
The Company may exercise the powers conferred by the Acts with regard to having an official seal for use abroad and such powers shall be vested in the Directors.

90.
A Director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the Company shall declare the nature of his interest at a meeting of the Directors in accordance with the Acts.

91.
A Director may vote in respect of any contract, appointment or arrangement in which he is interested, and he shall be counted in the quorum present at the meeting.

92.
A Director may hold and be remunerated in respect of any other office or place of profit under the Company or any other company in which the Company may be interested (other than the office of auditor of the Company or any subsidiary thereof) in conjunction with his office of Director for such period and on such terms as to remuneration and otherwise as the Directors may determine, and no Director or intending Director shall be disqualified by his office from contracting or being interested, directly or indirectly, in any contract or arrangement with the Company or any such other company either with regard to his tenure of any such other office or place of profit or as vendor, purchaser or otherwise nor shall any Director so contracting or being so interested be liable to account to the Company for any profits and advantages accruing to him from any such contract or arrangement by reason of such Director holding that office or of the fiduciary relationship thereby established.

93.
The Directors may exercise the voting powers conferred by shares of any other company held or owned by the Company in such manner in all respects as they think fit and in particular they may exercise their voting powers in favour of any resolution appointing the Directors or any of them as Directors or officers of such other company or providing for the payment of remuneration or pensions to the Directors or officers of such other company.

94.
Any Director may act by himself or his firm in a professional capacity for the Company, and he or his firm shall be entitled to remuneration for professional services as if he were not a Director, but nothing herein contained shall authorise a Director or his firm to act as auditor to the Company.

95.
All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for money paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, by such person or persons and in such manner as the Directors shall from time to time by resolution determine.

96.
The Directors shall cause minutes to be made in books provided for the purpose:

(a)
of all appointments of officers made by the Directors;
(b)
of the names of the Directors present at each meeting of the Directors and of any committee of the Directors; and
(c)
of all resolutions and proceedings at all meetings of the Company and of the Directors and of committees of Directors.
97.
The Directors may procure the establishment and maintenance of or participate in, or contribute to any non-contributory or contributory pension or superannuation fund, scheme or arrangement or life assurance scheme or arrangement for the benefit of, and pay, provide for or procure the grant of donations, gratuities, pensions, allowances, benefits or emoluments to any persons (including Directors or other officers) who are or shall have been at any time in the employment or service of the Company or of any company which is or was a subsidiary of the Company or of the predecessor in business of the Company or any such subsidiary or holding Company and the wives, widows, families, relatives or dependants of any such persons. The Directors may also procure the establishment and subsidy of or subscription to and support of any institutions, associations, clubs, funds or trusts calculated to be for the benefit of any such persons as aforesaid or otherwise to advance the interests and well being of the Company or of any such other Company as aforesaid, or its members, and payments for or towards the insurance of any such persons as aforesaid and subscriptions or guarantees of money for charitable or benevolent objects or for any exhibition or for any public, general or useful object. Provided that any Director shall be entitled to retain any benefit received by him under this article, subject only, where the Acts require, to disclosure to the members and the approval of the Company in general meeting.




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DISQUALIFICATION OF DIRECTORS
98.
The office of a Director shall be vacated ipso facto if the Director:

(a)
is restricted or disqualified to act as a Director under the Acts; or
(b)
resigns his office by notice in writing to the Company or in writing offers to resign and the Directors resolve to accept such offer; or
(c)
is removed from office under article 103.
The terms of any optional provisions of the Act or any replacement enactment covering substantially the same subject matter as this article 98 are disapplied.

APPOINTMENT, ROTATION AND REMOVAL OF DIRECTORS
99.
At every annual general meeting of the Company, all of the Directors shall retire from office unless re-elected by Ordinary Resolution at the annual general meeting. A Director retiring at a meeting shall retain office until the close or adjournment of the meeting. The terms of any optional provisions of the Act or any replacement enactment covering substantially the same subject matter as articles 99 to 107A are disapplied.

100.
Every Director shall be eligible to stand for re-election at an annual general meeting.

101.
If a Director offers himself for re-election, he shall be deemed to have been re-elected, unless at such meeting the Ordinary Resolution for the re-election of such Director has been defeated.

102.
The Company may from time to time by Special Resolution increase or reduce the maximum number of Directors.

103.
The Company may, by Ordinary Resolution, of which extended notice has been given in accordance with the Acts, remove any Director before the expiration of his period of office notwithstanding anything in these articles or in any agreement between the Company and such Director. Such removal shall be without prejudice to any claim such Director may have for damages for breach of any contract of service between him and the Company.

104.
The Company may, by Ordinary Resolution, appoint another person in place of a Director removed from office under article 103 and without prejudice to the powers of the Directors under article 81 the Company in general meeting by Ordinary Resolution may appoint any person to be a Director either to fill a casual vacancy or as an additional Director, subject to the maximum number of Directors set out in article 81.

105.
The Directors may appoint a person who is willing to act to be a Director, either to fill a vacancy or as an additional Director, provided that the appointment does not cause the number of Directors to exceed any number fixed by or in accordance with these articles as the maximum number of Directors. A Director so appointed shall hold office only until the next following annual general meeting. If not re-appointed at such annual general meeting, such Director shall vacate office at the conclusion thereof.

106.
The Directors are not entitled to appoint alternate directors and the terms of any optional provisions of the Act or any replacement enactment covering substantially the same subject matter as this article 106 are disapplied.

107.
The Directors may appoint any person to fill the following positions:

(a)
Chairman of the Board:




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If the Directors have elected a Director to be the Chairman or Executive Chairman, the Chairman or the Executive Chairman, as the case may be, shall preside at all meetings of the Board and at general meetings of the Company.
(b)
Vice Chairman:
If the Directors have elected a Director to be the Vice-Chairman, the Vice-Chairman shall have such duties as the Chairman shall, from time to time, determine and shall, unless the Directors determine otherwise, fulfil the role of the Chairman in the temporary absence or incapacity of the Chairman.
(c)    Secretary:
It shall be the duty of the Secretary to make and keep records of the votes, doings and proceedings of all meetings of the members and Board of the Company, and of its Committees, and to authenticate records of the Company. The Secretary shall be appointed by the Directors for such term, at such remuneration and upon such conditions as they may think fit; and any Secretary so appointed may be removed by them.
A provision of the Acts or these articles requiring or authorising a thing to be done by or to a Director and the Secretary shall not be satisfied by its being done by or to the same person acting both as Director and as, or in place of, the Secretary.
(d)    Assistant Secretaries:
The Assistant Secretaries shall have such duties as the Secretary shall determine.
(c)
Subject always to article 107A, such other officers as the Directors may, from time to time, determine, including but not limited to, chief executive officer, president, vice president, Treasurer, controller and assistant treasurer.
Subject always to article 107A, the powers and duties of all other officers are at all times subject to the control of the Directors, and any other officer may be removed at any time at the pleasure of the Board.
In addition to the Board’s power to delegate to committees pursuant to article 112, the Board may, subject always to article 107A, delegate any of its powers to any individual Director or member of the management of the Company or any of its subsidiaries as it sees fit; any such individual shall, in the exercise of the powers so delegated, conform to any regulations that may be imposed on them by the Board subject always to article 107A.
Nothing in this article 107 shall permit the appointment, removal or replacement of a Chairman, Executive Chairman, Chief Executive Officer, President or Chief Operating Officer during the Specified Period (as defined in article 107A) otherwise than as provided for in article 107A and no power or right may be exercised under this article 107 during the Specified Period (otherwise than as provided for in article 107A) that would have the impact or effect of materially modifying or diminishing the roles, functions and/or powers of the position of Chairman, President, Chief Operating Officer and/or Chief Executive Officer as they exist at the Merger Effective Time, or in the case of the position of Executive Chairman, as defined by the Board of Directors at or prior to the Merger Effective Time.
107A.    
(a)
Effective as of the Merger Effective Time, Mr. Alex Molinaroli shall become and serve as chief executive officer of the Company (“Chief Executive Officer”) and the Chairman of the Company.     
(b)
Effective as of the Merger Effective Time, Mr. George Oliver shall become and serve as president of the Company (“President”) and chief operating officer of the Company (“Chief Operating Officer”).





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(c)
Mr. Molinaroli shall cease to be Chief Executive Officer, and Mr. Oliver shall cease to be President and Chief Operating Officer and shall be the successor to Mr. Molinaroli as Chief Executive Officer, in each case with effect from the date that is 18 months after the Merger Effective Time or any such earlier date as of which Mr. Molinaroli ceases for any reason to serve in the position of Chief Executive Officer (the “First Succession Date”).
  
(d)
Mr. Molinaroli shall continue to serve as Chairman with executive functions such that he shall act as executive chairman (“Executive Chairman”) with effect from the First Succession Date (subject to the provisions of this article 107A).
 
(e)
    Mr. Molinaroli shall cease to be Executive Chairman (including the office of Chairman) and Mr. Oliver shall be the successor to Mr. Molinaroli as Chairman, in each case with effect from the date that is 12 months after the First Succession Date or any such earlier date as of which Mr. Molinaroli ceases for any reason to serve in the position of Executive Chairman (the “Second Succession Date”), at which point Mr. Oliver shall continue to serve as Chief Executive Officer in addition to his position as Chairman (subject to the provisions of this article 107A).

(f)
During the period beginning at the Merger Effective Time and ending on the date that is 3 months after the Second Succession Date (the “Specified Period”):

(i)
no person shall be appointed, removed or replaced as Chief Executive Officer, Chairman, Executive Chairman, President or Chief Operating Officer save as provided for in article 107A (a) to (e); and

(ii)
no amendment or modification to or, except in accordance with its existing terms, termination of any employment or similar agreement with Messrs. Molinaroli and/or Oliver in effect as of the Merger Effective Time shall occur;

(iii)
no material modification or diminution of the roles, functions and/or powers of the position of Chairman, President, Chief Operating Officer and/or Chief Executive Officer as they exist at the Merger Effective Time, or in the case of the position of Executive Chairman, as defined by the Board of Directors at or prior to the Merger Effective Time, shall occur,

otherwise than by the affirmative vote of at least 75 per cent of the total number of Non-Executive Directors.
(g)
In the event that during the Specified Period any of the individuals named in article 107A (a) to (f) shall be unable (whether by reason of death, permanent disability, retirement or otherwise) or unwilling to be appointed to or continue in such office, other than as expressly set forth in article 107A (a) to (e) with respect to Mr. Molinaroli at the Merger Effective Time, the succession of Mr. Oliver as Chief Executive Officer on the First Succession Date or with respect to the succession of Mr. Oliver as Chairman on the Second Succession Date, the vacancy created thereby shall be filled only by the affirmative vote of at least 75 per cent of the total number of Non-Executive Directors.

(h)
Any appointment or cessation in office provided for in article 107A (a) to (e) shall be automatically effective from the time and date provided for such appointment or cessation in office in accordance with article 107A (a) to (e) and no further resolution, notice or other action shall be required to make such appointment or cessation in office effective.

(i)
The Board shall not, without the affirmative vote of at least 75 per cent of the total number of Non-Executive Directors, propose any business at a general meeting amending, deleting or otherwise adversely impacting the operation or effect of this article 107A (in whole or in part) nor propose any scheme of arrangement which has a similar impact or effect.

(j)
Nothing in this article 107A shall limit any rights of shareholders under section 146 of the Act or article 99, including the rights of shareholders to remove and/or replace and/or not re-elect, under section 146 of the Act or article 99, any Director, including a Chairman, Executive Chairman or any President or Chief Executive Officer that is a Director.




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(k)
This article 107A (including any references to this article 107A in the articles) shall come into effect at the Merger Effective Time and shall cease to have effect on the date that is 3 months after the Second Succession Date.

(l)
In the event of any conflict between this article 107A and any other provision of these articles, article 107A shall take precedence.

(m)
“Merger Effective Time” means the time and date of the filing of articles of merger with respect to the business combination through merger of Jagara Merger Sub LLC with and into Johnson Controls, Inc., with Johnson Controls, Inc. being the surviving corporation, or if such later time and date agreed between the Company and Johnson Controls, Inc. in writing as specified in such articles of merger in respect of such business combination through merger.

(n)
“Non-Executive Director” means a Director who is not the Chairman or an employee of the Company or a subsidiary of the Company.


PROCEEDINGS OF DIRECTORS
108.
(a)    The Directors may meet together for the dispatch of business, adjourn and otherwise regulate their meetings as they may think fit. The quorum necessary for the transaction of the business of the Directors shall be a majority of the Directors in office at the time when the meeting is convened. Questions arising at any meeting shall be decided by a majority of votes, save as otherwise provided in article 107A. Each director present and voting shall have one vote. The terms of any optional provisions of the Act or any replacement enactment covering substantially the same subject matter as this article 108 are disapplied.

(b)
Any Director may participate in a meeting of the Directors by means of telephonic or other such communication whereby all persons participating in the meeting can hear each other speak, and participation in a meeting in this manner shall be deemed to constitute presence in person at such meeting and any director may be situated in any part of the world for any such meeting.

109.
The Chairman or a majority of the Directors may, and the Secretary on the requisition of the Chairman or a majority of the Directors shall, at any time summon a meeting of the Directors. Any provision of an enactment permitting the Secretary to summon a meeting of the Directors on the requisition of a Director acting alone shall not apply to the Company.

110.
The continuing Directors may act notwithstanding any vacancy in their number but, if and so long as their number is reduced below the number fixed by or pursuant to these articles as the minimum number of Directors, the continuing Directors or Director may act for the purpose of increasing the number of Directors to that number or of summoning a general meeting of the Company but for no other purpose.

111.
The Directors may elect a Chairman of their meetings and determine the period for which he is to hold office. Any Director may be elected no matter by whom he was appointed but if no such Chairman is elected, or if at any meeting the Chairman is not present within five minutes after the time appointed for holding the same, the Directors present may choose one of their number to be Chairman of the meeting. The terms of any optional provisions of the Act or any replacement enactment covering substantially the same subject matter as this article 111 are disapplied.

112.
Subject always to article 107A, the Board may from time to time designate committees of the Board, with such powers and duties as the Board may decide to confer on such committees, and shall, for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Adequate provision shall be made for notice to members of all meetings; a majority of the members shall constitute a quorum unless the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committees.




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113.
A committee may elect a chairman of its meeting. If no such chairman is elected, or if at any meeting the chairman is not present within five minutes after the time appointed for holding the same, the members present may choose one of their number to be chairman of the meeting.

114.
All acts done by any meeting of the Directors or of a committee of Directors or by any person acting as a Director shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any such Director or person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a Director.

115.
Notwithstanding anything in these articles or in the Acts which might be construed as providing to the contrary, notice of every meeting of the Directors shall be given to all Directors either by mail not less than 48 hours before the date of the meeting, by telephone, email, or any other electronic means on not less than 24 hours’ notice, or on such shorter notice as person or persons calling such meeting may deem necessary or appropriate and which is reasonable in the circumstances. Any director may waive any notice required to be given under these articles, and the attendance of a director at a meeting shall be deemed to be a waiver by such Director.

116.
Subject to article 107A, a resolution or other document in writing (in electronic form or otherwise) signed (whether by electronic signature, advanced electronic signature or otherwise as approved by the Directors) by (a) all of the Directors entitled to receive notice of a meeting of Directors or of a committee of Directors or (b) a majority of the Directors where notice in accordance with article 115 of the resolution or other document in writing has been given to all Directors entitled to receive notice of a meeting of Directors or of a committee of Directors, shall be as valid as if it had been passed at a meeting of Directors or (as the case may be) a committee of Directors duly convened and held, and may consist of several documents in the like form each signed by one or more Directors, and such resolution or other document or documents when duly signed may be delivered or transmitted (unless the Directors shall otherwise determine either generally or in any specific case) by facsimile transmission, electronic mail or some other similar means of transmitting the contents of documents. The terms of any optional provisions of the Act or any replacement enactment covering substantially the same subject matter as this article 116 are disapplied.


THE SEAL
117.
(a)    The Directors shall ensure that the Seal (including any official securities seal kept pursuant to the Acts) shall be used only by the authority of the Directors or of a committee authorised by the Directors and that every instrument to which the seal shall be affixed shall be signed by a Director or some other person appointed by the Directors for that purpose. The terms of any optional provisions of the Act or any replacement enactment covering substantially the same subject matter as this article 117 are disapplied.

(b)
The Company may exercise the powers conferred by the Acts with regard to having an official seal for use abroad and such powers shall be vested in the Directors.


DIVIDENDS AND RESERVES
118.
The Company in general meeting may declare dividends, but no dividends shall exceed the amount recommended by the Directors. The terms of any optional provisions of the Act or any replacement enactment covering substantially the same subject matter as articles 118 to 128 are disapplied.

119.
The Directors may from time to time pay to the members such interim dividends as appear to the Directors to be justified by the profits of the Company.

120.
No dividend or interim dividend shall be paid otherwise than in accordance with the provisions of the Acts.

121.
The Directors may, before recommending any dividend, set aside out of the profits of the Company such sums as they think proper as a reserve or reserves which shall, at the discretion of the Directors, be applicable for any purpose to which the profits of the Company may be properly applied and pending such application may at the like discretion either be employed in the business of the Company or be invested in such investments as the Directors may lawfully determine. The Directors may also, without placing the same to reserve, carry forward any profits which they may think it prudent not to divide.

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122.
Subject to the rights of persons, if any, entitled to shares with special rights as to dividend, all dividends shall be declared and paid according to the amounts paid or credited as paid on the shares in respect whereof the dividend is paid. All dividends shall be apportioned and paid proportionately to the amounts paid or credited as paid on the shares during any portion or portions of the period in respect of which the dividend is paid; but if any share is issued on terms providing that it shall rank for dividend as from a particular date, such share shall rank for dividend accordingly.

123.
The Directors may deduct from any dividend payable to any member all sums of money (if any) immediately payable by him to the Company in relation to the shares of the Company.

124.
Any general meeting declaring a dividend or bonus and any resolution of the Directors declaring an interim dividend may direct payment of such dividend or bonus or interim dividend wholly or partly by the distribution of specific assets and in particular of paid up shares, debentures or debenture stocks of any other company or in any one or more of such ways, and the Directors shall give effect to such resolution, and where any difficulty arises in regard to such distribution, the Directors may settle the same as they think expedient, and in particular may fix the value for distribution of such specific assets or any part thereof and may determine that cash payments shall be made to any members upon the footing of the value so fixed, in order to adjust the rights of all the parties, and may vest any such specific assets in trustees as may seem expedient to the Directors.

125.
Any dividend or other moneys payable in respect of any share may be paid by cheque or warrant sent by post, at the risk of the person or persons entitled thereto, to the registered address of the Holder or, where there are joint Holders, to the registered address of that one of the joint Holders who is first named on the members Register or to such person and to such address as the Holder or joint Holders may in writing direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent and payment of the cheque or warrant shall be a good discharge to the Company. Any joint Holder or other person jointly entitled to a share as aforesaid may give receipts for any dividend or other moneys payable in respect of the share. Any such dividend or other distribution may also be paid by any other method (including payment in a currency other than US$, electronic funds transfer, direct debit, bank transfer or by means of a relevant system) which the Directors consider appropriate and any member who elects for such method of payment shall be deemed to have accepted all of the risks inherent therein. The debiting of the Company’s account in respect of the relevant amount shall be evidence of good discharge of the Company’s obligations in respect of any payment made by any such methods.

126.
No dividend shall bear interest against the Company.

127.
If the Directors so resolve, any dividend which has remained unclaimed for twelve years from the date of its declaration shall be forfeited and cease to remain owing by the Company. The payment by the Directors of any unclaimed dividend or other moneys payable in respect of a share into a separate account shall not constitute the Company a trustee in respect thereof.

128.
(a)    For the purposes of this article 128, the “Effective Time” shall mean the time at which the Merger becomes effective and “Merger” means the transaction pursuant to which the Company acquires by way of merger governed by the laws of the Swiss Confederation under the principle of universal succession the entire business, including all of the assets, liabilities, rights and obligations, howsoever arising, of Tyco International Ltd., a company incorporated pursuant to the laws of the Swiss Confederation.

(b)
Without limitation or prejudice to the Company’s obligations pursuant to the documents and laws effecting the Merger, the Directors are authorised to take all actions necessary to discharge any liabilities owed by Tyco International Ltd. assumed by the Company pursuant to or in connection with the Merger due from time to time, including (without limitation) the obligation to discharge any liability in respect of the dividend declared by Tyco International Ltd. on 5 March 2014, including (without limitation) in respect of (a) any instalment of such liability due to be paid (but unpaid) prior to the Effective Time and (b) any instalment of such liability due to be paid after the Effective Time (including the instalment to be discharged on or around February 2015), and, unless the Company is otherwise so notified by the relevant holder(s) in a manner satisfactory to the Directors, the entitlement to the payment of such liability attaching to each share in Tyco International Ltd. immediately prior to the Effective Date shall be recognised and deemed to attach to each Ordinary Share in the Company issued at the Effective Time pursuant to the Merger (including in respect of an instalment due to be paid after the Effective Time), and the entitlement to be paid any such liability shall be deemed to transfer and/or be transmitted with each transfer and/or transmission of such Ordinary Shares in the Company up to and including the relevant record date for determining the entitlement to any such liability, and the payment of any such liability to the holder of Ordinary Shares in the Company on the relevant record date for determining the entitlement to such liability shall constitute

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the full discharge of such a liability by the Company and any such payment shall be treated by the Company as the payment of a liability created by the dividend declared by Tyco International Ltd. on 5 March 2014 assumed by the Company as a liability at the Effective Time and shall not be deducted from the distributable reserves of the Company or otherwise deemed to be a dividend or distribution by the Company.

(c)
Notwithstanding article 3(b)(ii), subject to the Act, the Directors are authorised to pay (at their sole discretion) an interim dividend to the holder of each Ordinary Share issued after the Effective Time (excluding, for the avoidance of doubt, any Ordinary Share issued at the Effective Time pursuant to the Merger) which remains in issue on a record date referred to in paragraph (b) of this article 128 equal to the amount of the liability that the holder of such Ordinary Share would have been entitled to be paid on such record date in accordance with paragraph (b) of this article 128 had such Ordinary Share been issued at the Effective Time pursuant to the Merger, and any such dividend or payment shall not create any liability to make an equivalent payment to any holder of Ordinary Shares issued at the Effective Time pursuant to the Merger. For the avoidance of doubt, nothing in this paragraph (c) shall limit or restrict the ability of the Directors or the Company to declare or pay dividends or interim dividends pursuant to articles 118 to 127 from time to time, including (without limitation) on all of the Ordinary Shares from time to time.

ACCOUNTS

129.
(a)    The Company shall cause to be kept accounting records, whether in the form of documents, electronic form or otherwise, that:

(i)
correctly record and explain the transactions of the Company;

(ii)
will at any time enable the financial position of the Company to be determined with reasonable accuracy;

(iii)
will enable the Directors to ensure that any balance sheet, profit and loss account or income and expenditure account of the Company complies with the requirements of the Acts; and

(iv)
will enable the accounts of the Company to be readily and properly audited.

Books of account shall be kept on a continuous and consistent basis and entries therein shall be made in a timely manner and be consistent from year to year. Accounting records shall not be deemed to be kept if there are not kept such accounting records as are necessary to give a true and fair view of the state of the Company’s affairs and to explain its transactions.
The Company may send by post, electronic mail or any other means of electronic communication a summary financial statement to its members or persons nominated by any member. The Company may meet, but shall be under no obligation to meet, any request from any of its members to be sent additional copies of its full report and accounts or summary financial statement or other communications with its members.
(b)
The books of account shall be kept at the Office or, subject to the provisions of the Acts, at such other place as the Directors think fit and shall be open at all reasonable times to the inspection of the Directors.






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(c)
In accordance with the provisions of the Acts, the Directors shall cause to be prepared and to be laid before the annual general meeting of the Company from time to time such profit and loss accounts, balance sheets, group accounts and reports as are required by the Acts to be prepared and laid before such meeting.
(d)
A copy of every balance sheet (including every document required by law to be annexed thereto) which is to be laid before the annual general meeting of the Company together with a copy of the Directors’ report and Auditors’ report shall be sent by post, electronic mail or any other means of communication (electronic or otherwise), not less than twenty-one Clear Days before the date of the annual general meeting, to every person entitled under the provisions of the Acts to receive them; provided that in the case of those documents sent by electronic mail or any other means of electronic communication, such documents shall be sent with the consent of the recipient, to the address of the recipient notified to the Company by the recipient for such purposes.
130.
The Directors shall determine from time to time whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of members, not being Directors, and no member (not being a Director) shall have any right of inspecting any account or book or document of the Company except as conferred by the Acts or authorised by the Directors or by the Company in general meeting. No member shall be entitled to require discovery of or any information respecting any detail of the Company’s trading, or any matter which is or may be in the nature of a trade secret, mystery of trade, or secret process which may relate to the conduct of the business of the Company and which in the opinion of the Directors it would be inexpedient in the interests of the members of the Company to communicate to the public.


CAPITALISATION OF PROFITS

131.
Without prejudice to any powers conferred on the Directors as aforesaid and subject to the Directors’ authority to issue and allot shares under articles 8(c) and 8(d), the Directors may resolve to capitalise any part of the amount for the time being standing to the credit of any of the Company’s reserve accounts (including any capital redemption reserve fund, share premium account or other reserve account not available for distribution) or to the credit of the profit and loss account which is not available for distribution by applying such sum in paying up in full unissued shares to be allotted as fully paid bonus shares to those members of the Company who would have been entitled to that sum if it were distributable and had been distributed by way of dividend (and in the same proportions). Whenever such a resolution is passed in pursuance of this article, the Directors shall make all appropriations and applications of the amounts resolved to be capitalised thereby and all allotments and issues of fully paid shares or debentures, if any. Any such capitalisation will not require approval or ratification by the members of the Company. The terms of any optional provisions of the Act or any replacement enactment covering substantially the same subject matter as this article 131 are disapplied.

132.
Without prejudice to any powers conferred on the Directors by these articles, and subject to the Directors’ authority to issue and allot shares under articles 8(c) and 8(d), the Directors may resolve that any sum for the time being standing to the credit of any of the Company’s reserve accounts (including any reserve account available for distribution) or to the credit of the profit and loss account be capitalised and applied on behalf of the members who would have been entitled to receive that sum if it had been distributed by way of dividend (and in the same proportions) either in or towards paying up amounts for the time being unpaid on any shares held by them respectively, or in paying up in full unissued shares or debentures of the Company of a nominal amount equal to the sum capitalised (such shares or debentures to be allotted and distributed and credited as fully paid up to and amongst such Holders in the proportions aforesaid) or partly in one way and partly in another, so, however, that the only purposes for which sums standing to the credit of the capital redemption reserve fund or the share premium account shall be applied shall be those permitted by the Acts.

133.
The Directors may from time to time at their discretion, subject to the provisions of the Acts and, in particular, to their being duly authorised pursuant to the Acts, to allot the relevant shares, offer to the Holders of Ordinary Shares the right to elect to receive in lieu of any dividend or proposed dividend or part thereof an allotment of additional Ordinary Shares credited as fully paid. In any such case the following provisions shall apply.







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(i)
The basis of allotment shall be determined by the Directors so that, as nearly as may be considered convenient in the Directors’ absolute discretion, the value (calculated by reference to the average quotation) of the additional Ordinary Shares (excluding any fractional entitlement) to be allotted in lieu of any amount of dividend shall equal such amount. For such purpose the “average quotation” of an Ordinary Share shall be the average of the five amounts resulting from determining whichever of the following ((A), (B) or (C) specified below) in respect of Ordinary Shares shall be appropriate for each of the first five business days on which Ordinary Shares are quoted “ex” the relevant dividend and as determined from the information published by the New York Stock Exchange reporting the business done on each of these five business days:
(A)
if there shall be more than one dealing reported for the day, the average of the prices at which such dealings took place; or

(B)
if there shall be only one dealing reported for the day, the price at which such dealing took place; or

(C)
if there shall not be any dealing reported for the day, the average of the closing bid and offer prices for the day;

and if there shall be only a bid (but not an offer) or an offer (but not a bid) price reported, or if there shall not be any bid or offer price reported, for any particular day then that day shall not count as one of the said five business days for the purposes of determining the average quotation. If the means of providing the foregoing information as to dealings and prices by reference to which the average quotation is to be determined is altered or is replaced by some other means, then the average quotation shall be determined on the basis of the equivalent information published by the relevant authority in relation to dealings on the New York Stock Exchange or its equivalent.
(ii)
The Directors shall give notice in writing (whether in electronic form or otherwise) to the Holders of Ordinary Shares of the right of election offered to them and shall send with or following such notice forms of election and specify the procedure to be followed and the place at which, and the latest date and time by which, duly completed forms of election must be lodged in order to be effective. The Directors may also issue forms under which Holders may elect in advance to receive new Ordinary Shares instead of dividends in respect of future dividends not yet declared (and, therefore, in respect of which the basis of allotment shall not yet have been determined).
(iii)
The dividend (or that part of the dividend in respect of which a right of election has been offered) shall not be payable on Ordinary Shares in respect of which the right of election as aforesaid has been duly exercised (the “Subject Ordinary Shares”) and in lieu thereof additional Ordinary Shares (but not any fraction of a share) shall be allotted to the Holders of the Subject Ordinary Shares on the basis of allotment determined aforesaid and for such purpose the Directors shall capitalise, out of such of the sums standing to the credit of any of the Company’s reserves (including any capital redemption reserve fund or share premium account) or to the credit of the profit and loss account as the Directors may determine, a sum equal to the aggregate nominal amount of additional Ordinary Shares to be allotted on such basis and apply the same in paying up in full the appropriate number of unissued Ordinary Shares for allotment and distribution to and amongst the holders of the Subject Ordinary Shares on such basis.
134.
(a)    The additional Ordinary Shares allotted pursuant to articles 131, 132 or 133 shall rank pari passu in all respects with the fully paid Ordinary Shares then in issue save only as regards participation in the relevant dividend or share election in lieu.

(b)
The Directors may do all acts and things considered necessary or expedient to give effect to any capitalisation pursuant to articles 131, 132 or 133 with full power to the Directors to make such provisions as they think fit where shares would otherwise have been distributable in fractions (including provisions whereby, in whole or in part, fractional entitlements are disregarded and the benefit of fractional entitlements accrues to the Company rather than to the holders concerned). The Directors may authorise any person to enter on behalf of all the Holders interested into an agreement with the Company providing for such capitalisation and matters incidental thereto and any agreement made under such authority shall be effective and binding on all concerned.



29


(c)
The Directors may on any occasion determine that rights of election shall not be offered to any Holders of Ordinary Shares who are citizens or residents of any territory where the making or publication of an offer of rights of election or any exercise of rights of election or any purported acceptance of the same would or might be unlawful, and in such event the provisions aforesaid shall be read and construed subject to such determination.

AUDIT

135.
Statutory auditors shall be appointed and their duties regulated in accordance with the Acts.


NOTICES

136.
Any notice to be given, served, sent or delivered pursuant to these articles shall be in writing (whether in electronic form or otherwise).

137.
(a)    A notice or document to be given, served, sent or delivered in pursuance of these articles may be given to, served on or delivered to any member by the Company;

(i)    by handing same to him or his authorised agent;
(ii)    by leaving the same at his registered address;
(iii)    by sending the same by the post in a pre-paid cover addressed to him at his registered address;
(iv)
by sending the same to the member by electronic means, to the maximum extent permitted by any optional provisions of the Acts notwithstanding article 1, to the address of the member notified to the Company by the member for such purpose (or if not so notified, then to the address of the member last known to the Company); or
(v)
by sending, with the consent of the member, the same by means of electronic mail or other means of electronic communication approved by the Directors, with the consent of the member, to the address of the member notified to the Company by the member for such purpose (or if not so notified, then to the address of the member last known to the Company).
(b)
For the purposes of these articles and the Act, a document shall be deemed to have been sent to a member if a notice is given, served, sent or delivered to the member and the notice specifies the website or hotlink or other electronic link at or through which the member may obtain a copy of the relevant document.
(c)
Where a notice or document is given, served or delivered pursuant to sub-paragraph (a)(i) or (ii) of this article, the giving, service or delivery thereof shall be deemed to have been effected at the time the same was handed to the member or his authorised agent, or left at his registered address (as the case may be).
(d)
Where a notice or document is given, served or delivered pursuant to sub-paragraph (a)(iii) of this article, the giving, service or delivery thereof shall be deemed to have been effected at the expiration of twenty-four hours after the cover containing it was posted. In proving service or delivery it shall be sufficient to prove that such cover was properly addressed, stamped and posted.
(e)
Where a notice or document is given, served or delivered pursuant to sub-paragraph (a)(iv) or (a)(v)of this article, the giving, service or delivery thereof shall be deemed to have been effected at the expiration of 48 hours after despatch.



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(f)
Every legal personal representative, committee, receiver, curator bonis or other legal curator, assignee in bankruptcy, examiner or liquidator of a member shall be bound by a notice given as aforesaid if sent to the last registered address of such member, or, in the event of notice given or delivered pursuant to sub-paragraph (a)(iv) or (a)(v), if sent to the address notified by the Company by the member for such purpose notwithstanding that the Company may have notice of the death, lunacy, bankruptcy, liquidation or disability of such member.
(g)
Notwithstanding anything contained in this article the Company shall not be obliged to take account of or make any investigations as to the existence of any suspension or curtailment of postal services within or in relation to all or any part of any jurisdiction or other area other than Ireland.
(h)
Any requirement in these articles for the consent of a member in regard to the receipt by such member of electronic mail or other means of electronic communications approved by the Directors, including the receipt of the Company’s audited accounts and the directors’ and auditor’s reports thereon, shall be deemed to have been satisfied where the Company has written to the member informing him/her of its intention to use electronic communications for such purposes and the member has not, within four weeks of the issue of such notice, served an objection in writing on the Company to such proposal. Where a member has given, or is deemed to have given, his/her consent to the receipt by such member of electronic mail or other means of electronic communications approved by the Directors, he/she may revoke such consent at any time by requesting the Company to communicate with him/her in documented form; provided, however, that such revocation shall not take effect until five days after written notice of the revocation is received by the Company.
(i)
Without prejudice to the provisions of sub-paragraphs (a)(i) and (a)(ii) of this article, if at any time by reason of the suspension or curtailment of postal services in any territory, the Company is unable effectively to convene a general meeting by notices sent through the post, a general meeting may be convened by a public announcement and such notice shall be deemed to have been duly served on all members entitled thereto at noon on the day on which the said public announcement is made. In any such case the Company shall put a full copy of the notice of the general meeting on its website.
138.
A notice may be given by the Company to the joint Holders of a share by giving the notice to the joint Holder whose name stands first in the Register in respect of the share and notice so given shall be sufficient notice to all the joint Holders.

139.
(a)    Every person who becomes entitled to a share shall before his name is entered in the Register in respect of the share, be bound by any notice in respect of that share which has been duly given to a person from whom he derives his title.

(b)
A notice may be given by the Company to the persons entitled to a share in consequence of the death or bankruptcy of a member by sending or delivering it, in any manner authorised by these articles for the giving of notice to a member, addressed to them at the address, if any, supplied by them for that purpose. Until such an address has been supplied, a notice may be given in any manner in which it might have been given if the death or bankruptcy had not occurred.
140.
The signature (whether electronic signature, an advanced electronic signature or otherwise) to any notice to be given by the Company may be written (in electronic form or otherwise) or printed.

141.
A member present, either in person or by proxy, at any meeting of the Company or the Holders of any class of shares in the Company shall be deemed to have received notice of the meeting and, where requisite, of the purposes for which it was called.


WINDING UP

142.
If the Company shall be wound up and the assets available for distribution among the members as such shall be insufficient to repay the whole of the paid up or credited as paid up share capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid up or credited as paid up at the commencement of the winding up on the shares held by them respectively. And if in a winding up the assets available for distribution among the members shall be more than sufficient to repay the whole of the share capital paid up or credited as paid up at the commencement of the winding up, the excess shall be distributed among the members in proportion to

31


the capital at the commencement of the winding up paid up or credited as paid up on the said shares held by them respectively. Provided that this article shall not affect the rights of the Holders of shares issued upon special terms and conditions.

143.
(a)    In case of a sale by the liquidator under section 260 of the Act, the liquidator may by the contract of sale agree so as to bind all the members for the allotment to the members directly of the proceeds of sale in proportion to their respective interests in the Company and may further by the contract limit a time at the expiration of which obligations or shares not accepted or required to be sold shall be deemed to have been irrevocably refused and be at the disposal of the Company, but so that nothing herein contained shall be taken to diminish, prejudice or affect the rights of dissenting members conferred by the said section.

(b)
The power of sale of the liquidator shall include a power to sell wholly or partially for debentures, debenture stock, or other obligations of another company, either then already constituted or about to be constituted for the purpose of carrying out the sale.

144.
If the Company is wound up, the liquidator, with the sanction of a Special Resolution and any other sanction required by the Acts, may divide among the members in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not), and, for such purpose, may value any assets and determine how the division shall be carried out as between the members or different classes of members. The liquidator, with the like sanction, may vest the whole or any part of such assets in trustees upon such trusts for the benefit of the contributories as, with the like sanction, he determines, but so that no member shall be compelled to accept any assets upon which there is a liability.


INDEMNITY

145.
(a)    Subject to the provisions of and so far as may be admitted by the Acts, every Director and the Secretary of the Company shall be entitled to be indemnified by the Company against all costs, charges, losses, expenses and liabilities incurred by him in the execution and discharge of his duties or in relation thereto including any liability incurred by him in defending any proceedings, civil or criminal, which relate to anything done or omitted or alleged to have been done or omitted by him as an officer or employee of the Company and in which judgement is given in his favour (or the proceedings are otherwise disposed of without any finding or admission of any material breach of duty on his part) or in which he is acquitted or in connection with any application under any statute for relief from liability in respect of any such act or omission in which relief is granted to him by the Court.

(b)
The Directors shall have power to purchase and maintain for any Director, the Secretary or any employees of the Company or its subsidiaries insurance against any such liability as referred to in the Acts.

(c)
As far as is permissible under the Acts, the Company shall indemnify any current or former executive officer of the Company (excluding any present or former Directors of the Company or Secretary of the Company), or any person who is serving or has served at the request of the Company as a director or executive officer of another company, joint venture, trust or other enterprise, including any Company subsidiary (each individually, a “Covered Person”), against any expenses, including attorney’s fees, judgements, fines, and amounts paid in settlement actually and reasonably incurred by him or her in connection with any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, to which he or she was or is threatened to be made a party, or is otherwise involved (a “proceeding”), by reason of the fact that he or she is or was a Covered Person; provided, however, that this provision shall not indemnify any Covered Person against any liability arising out of (a) any fraud or dishonesty in the performance of such Covered Person’s duty to the Company, or (b) such Covered Party’s conscious, intentional or wilful breach of the obligation to act honestly and in good faith with a view to the best interests of the Company. Notwithstanding the preceding sentence, this section shall not extend to any matter which would render it void pursuant to the Acts or to any person holding the office of auditor in relation to the Company.




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(d)
In the case of any threatened, pending or completed action, suit or proceeding by or in the name of the Company, the Company shall indemnify each Covered Person against expenses, including attorneys’ fees, actually and reasonably incurred in connection with the defence or the settlement thereof, except no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for fraud or dishonesty in the performance of his or her duty to the Company, or for conscious, intentional or wilful breach of his or her obligation to act honestly and in good faith with a view to the best interests of the Company, unless and only to the extent that the High Court of Ireland or the court in which such action or suit was brought shall determine upon application that despite the adjudication of liability, but in view of all the circumstances of the case, such Covered Person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. Notwithstanding the preceding sentence, this section shall not extend to any matter which would render it void pursuant to the Acts or to any person holding the office of auditor in relation to the Company.

(e)
Any indemnification under this article (unless ordered by a court) shall be made by the Company only as authorised in the specific case upon a determination that indemnification of the Covered Person is proper in the circumstances because such person has met the applicable standard of conduct set forth in this article. Such determination shall be made by any person or persons having the authority to act on the matter on behalf of the Company. To the extent, however, that any Covered Person has been successful on the merits or otherwise in defence of any proceeding, or in defence of any claim, issue or matter therein, such Covered Person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith, without necessity of authorisation in the specific case.

(f)
As far as permissible under the Acts, expenses, including attorneys’ fees, incurred in defending any proceeding for which indemnification is permitted pursuant to this article shall be paid by the Company in advance of the final disposition of such proceeding upon receipt by the Board of an undertaking by the particular indemnitee to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Company pursuant to these articles.

(g)
It being the policy of the Company that indemnification of the persons specified in this article shall be made to the fullest extent permitted by law, the indemnification provided by this article shall not be deemed exclusive (a) of any other rights to which those seeking indemnification or advancement of expenses may be entitled under these articles, any agreement, any insurance purchased by the Company, vote of members or disinterested directors, or pursuant to the direction (however embodied) of any court of competent jurisdiction, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, or (b) of the power of the Company to indemnify any person who is or was an employee or agent of the Company or of another company, joint venture, trust or other enterprise which he or she is serving or has served at the request of the Company, to the same extent and in the same situations and subject to the same determinations as are hereinabove set forth. As used in this article, references to the “Company” include all constituent companies in a scheme of arrangement, consolidation or merger in which the Company or a predecessor to the Company by scheme of arrangement, consolidation or merger was involved. The indemnification provided by this article shall continue as to a person who has ceased to be a Covered Person and shall inure to the benefit of their heirs, executors, and administrators.


UNTRACED HOLDERS

146.
(a)    The Company shall be entitled to sell at the best price reasonably obtainable any share or stock of a member or any share or stock to which a person is entitled by transmission if and provided that:

(i)
for a period of twelve years (not less than three dividends having been declared and paid) no cheque or warrant sent by the Company through the post in a prepaid letter addressed to the member or to the person entitled by transmission to the share or stock at his address on the Register or other last known address given by the member or the person entitled by transmission to which cheques and warrants are to be sent has been cashed and no communication has been received by the Company from the member or the person entitled by transmission; and

33


(ii)
at the expiration of the said period of twelve years the Company has given notice by advertisement in a leading Dublin newspaper and a newspaper circulating in the area in which the address referred to in paragraph (a) of this article is located of its intention to sell such share or stock; and
(iii)
the Company has not during the further period of three months after the date of the advertisement and prior to the exercise of the power of sale received any communication from the member or person entitled by transmission.
(b)
To give effect to any such sale the Company may appoint any person to execute as transferor an instrument of transfer of such share or stock and such instrument of transfer shall be as effective as if it had been executed by the registered Holder of or person entitled by transmission to such share or stock. The Company shall account to the member or other person entitled to such share or stock for the net proceeds of such sale by carrying all monies in respect thereof to a separate account which shall be a permanent debt of the Company and the Company shall be deemed to be a debtor and not a trustee in respect thereof for such member or other person. Monies carried to such separate account may either be employed in the business of the Company or invested in such investments (other than shares of the Company or its holding company if any) as the Directors may from time to time think fit.

(c)
To the extent necessary in order to comply with any laws or regulations to which the Company is subject in relation to escheatment, abandonment of property or other similar or analogous laws or regulations (“Applicable Escheatment Laws”), the Company may deal with any share of any member and any unclaimed cash payments relating to such share in any manner which it sees fit, including (but not limited to) transferring or selling such share and transferring to third parties any unclaimed cash payments relating to such share.

(d)
The Company may only exercise the powers granted to it in sub-paragraph (a) above in circumstances where it has complied with, or procured compliance with, the required procedures (as set out in the Applicable Escheatment Laws) with respect to attempting to identify and locate the relevant member of the Company.

(e)
Any stock transfer form to be executed by the Company in order to sell or transfer a share pursuant to sub-paragraph (a) may be executed in accordance with article 16(a).


DESTRUCTION OF DOCUMENTS

147.
The Company may implement such document destruction policies as it so chooses in relation to any type of documents (whether in paper, electronic or other formats), and in particular (without limitation to the foregoing) may destroy:

(a)
any dividend mandate or any variation or cancellation thereof or any notification of change of name or address, at any time after the expiry of two years from the date such mandate variation, cancellation or notification was recorded by the Company;

(b)
any instrument of transfer of shares which has been registered, at any time after the expiry of six years from the date of registration; and

(c)
any other document on the basis of which any entry in the Register was made, at any time after the expiry of six years from the date an entry in the Register was first made in respect of it,

and it shall be presumed conclusively in favour of the Company that every share certificate (if any) so destroyed was a valid certificate duly and properly sealed and that every instrument of transfer so destroyed was a valid and effective instrument duly and properly registered and that every other document destroyed hereunder was a valid and effective document in accordance with the recorded particulars thereof in the books or records of the Company provided always that:



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(i)
the foregoing provisions of this article shall apply only to the destruction of a document in good faith and without express notice to the Company that the preservation of such document was relevant to a claim;
(ii)
nothing contained in this article shall be construed as imposing upon the Company any liability in respect of the destruction of any such document earlier than as aforesaid or in any case where the conditions of proviso (a) above are not fulfilled; and
(iii)
references in this article to the destruction of any document include references to its disposal in any manner.


SALE, LEASE OR EXCHANGE OF ASSETS

148.
The Directors are hereby expressly authorised to sell, lease or exchange all or substantially all of the Company’s property and assets, including the Company’s goodwill and its corporate franchises, upon such terms and conditions and for such consideration, which may consist in whole or in part of money or other property, including shares of stock in, and/or other securities of, any other company or companies, as the Directors deem expedient and for the best interests of the Company subject to authorisation by an Ordinary Resolution of members and any additional vote required by article 149. Notwithstanding authorisation or consent to a proposed sale, lease or exchange of the Company’s property and assets by the members, the Board may abandon such sale, lease or exchange without further action of the members, subject to the rights, if any, of third parties under any contract relating thereto. Notwithstanding the foregoing, no resolution adopted by the members shall be required for a sale, lease or exchange of property and assets of the Company to a subsidiary. For the purposes of this article 148:

(a)
the property and assets of the Company include the property and assets of any subsidiary of the Company; and

(b)
“subsidiary” means any entity wholly owned and controlled, directly or indirectly, by the Company and includes, without limitation, companies, partnerships, limited partnerships, limited liability partnerships, limited liability companies, and/or statutory trusts.


BUSINESS COMBINATION

149.
(a)    Notwithstanding anything to the contrary contained in these articles, the Company shall not engage in any business combination with any Interested Member for a period of three years following the time that such member became an Interested Member, unless:

(i)
prior to such time the Directors approved either the business combination or the transaction which resulted in the member becoming an Interested Member;
(ii)
upon consummation of the transaction which resulted in the member becoming an Interested Member, the Interested Member owned at least 85% of the voting shares of the Company outstanding at the time the transaction commenced, excluding for purposes of determining the voting shares outstanding (but not the outstanding voting shares owned by the Interested Member) those shares owned (A) by persons who are directors and also officers and (B) employee shares plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
(iii)
at or subsequent to such time the business combination is approved by the Directors and authorised by way of Special Resolution without the Interested Member.
(b)
The Directors shall have the power and duty to determine, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this article, including, without limitation, (i) whether a Person is an Interested Member, (ii) the number of shares or other securities beneficially owned

35


by any Person, (iii) whether a Person is an Affiliate or Associate of another, and (iv) the fair market value of the Company’s securities or securities of any subsidiary of the Company, and the good faith determination of the Directors on such matters shall be conclusive and binding for all the purposes of this article.

(c)
As used in this article only, the term:

(i)
“Affiliate” means a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, another person.
(ii)
“Associate”, when used to indicate a relationship with any person, means: (A) any company, partnership, unincorporated association or other entity of which such person is a director, officer or partner or is, directly or indirectly, the owner of 20% or more of any class of voting shares; (B) any trust or other estate in which such person has at least a 20% beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; and (C) any relative or spouse of such person, or any relative of such spouse, who has the same residence as such person.
(iii)
“Business combination”, when used in reference to any company and any Interested Member of such company, means:
(A)
any scheme of arrangement, merger or consolidation of the Company or any direct or indirect majority-owned subsidiary of the Company with (1) the Interested Member, or (2) any other company, partnership, unincorporated association or other entity if the scheme of arrangement, merger or consolidation is caused by the Interested Member;

(B)
any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), except proportionately as a member of such company, to or with the Interested Member, whether as part of a dissolution or otherwise, of assets of the Company or of any direct or indirect majority-owned subsidiary of the Company which assets have an aggregate market value equal to 10% or more of either the aggregate market value of all the assets of the Company determined on a consolidated basis or the aggregate market value of all the outstanding shares of the Company;

(C)
any transaction which results in the issuance or transfer by the Company or by any direct or indirect majority-owned subsidiary of the Company of any shares of the Company or of such subsidiary to the Interested Member, except: (1) pursuant to the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into shares of such company or any such subsidiary which securities were outstanding prior to the time that the Interested Member became such; (2) pursuant to a dividend or distribution paid or made, or the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into shares of such company or any such subsidiary which security is distributed, pro rata to all holders of a class or series of shares of such company subsequent to the time the Interested Member became such; (3) pursuant to an exchange offer by the Company to purchase shares made on the same terms to all holders of said shares; or (4) any issuance or transfer of shares by the Company; provided however, that in no case under items (3) and (4) of this subparagraph shall there be an increase in the Interested Member’s proportionate share of the shares of any class or series of the Company or of the voting shares of the Company;

(D)
any transaction involving the Company or any direct or indirect majority-owned subsidiary of the Company which has the effect, directly or indirectly, of increasing the proportionate share of the shares of any class or series, or securities convertible into the shares of any class or series, of the Company or of any such subsidiary which is owned by the Interested Member, except as a result of immaterial changes due to fractional share adjustments or as a result of any purchase or redemption of any shares of shares not caused, directly or indirectly, by the Interested Member; or




36


(E)
any receipt by the Interested Member of the benefit, directly or indirectly (except proportionately as a member of such company), of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in subparagraphs (A)-(D) of this paragraph) provided by or through the Company or any direct or indirect majority-owned subsidiary.

(iv)
“Control”, including the terms “controlling”, “controlled by” and “under common control with”, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting shares, by contract or otherwise. A person who is the owner of 20% or more of the outstanding voting shares of any company, partnership, unincorporated association or other entity shall be presumed to have control of such entity, in the absence of proof by a preponderance of the evidence to the contrary. Notwithstanding the foregoing, a presumption of control shall not apply where such person holds voting shares, in good faith and not for the purpose of circumventing this article, as an agent, bank, broker, nominee, custodian or trustee for one or more owners who do not individually or as a group have control of such entity.

(v)
“Interested Member” means any Person, including its Affiliates and Associates (other than the Company and any direct or indirect majority-owned subsidiary of the Company), that is, or was at any time within the three-year period immediately prior to the date in question, the Owner of 15% or more of the outstanding voting shares of the Company; provided, however, that the term “Interested Member” shall not include any person whose ownership of shares in excess of the 15% limitation set forth herein is the result of action taken solely by the Company; provided that such person shall be an Interested Member if thereafter such person acquires additional voting shares of the Company, except as a result of further corporate action not caused, directly or indirectly, by such person. For the purpose of determining whether a person is an Interested Member, the voting shares of the Company deemed to be outstanding shall include shares deemed to be owned by the person through application of (viii) of this subsection but shall not include any other unissued shares of such company which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.

(vi)
“Person” means any individual, company, partnership, unincorporated association or other entity.

(vii)
“Shares” means, with respect to any company, capital shares and, with respect to any other entity, any equity interest.

(viii)
“Voting shares” means, with respect to any company, shares of any class or series entitled to vote generally in the election of directors and, with respect to any entity that is not a company, any equity interest entitled to vote generally in the election of the governing body of such entity. Every reference to a percentage of voting shares shall refer to such percentage of the votes of such voting shares.

(ix)
“Owner”, including the terms “own” and “owned”, when used with respect to any Shares, means a person that individually or with or through any of its Affiliates or Associates:

(A)
beneficially owns such Shares, directly or indirectly; or

(B)
has (1) the right to acquire such Shares (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise; provided, however, that a person shall not be deemed the Owner of Shares tendered pursuant to a tender or exchange offer made by such person or any of such person’s affiliates or associates until such tendered Shares are accepted for purchase or exchange; or (2) the right to vote such shares pursuant to any agreement, arrangement or understanding; provided, however, that a person shall not be deemed the Owner of any Shares because of such person’s right to vote such Shares if the agreement, arrangement or understanding to vote such shares arises solely from a revocable proxy or consent given in response to a proxy or consent solicitation made to 10 or more persons; or



37


(C)
has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except voting pursuant to a revocable proxy or consent as described in item (2) of subparagraph (B) of this paragraph), or disposing of such Shares with any other person that beneficially owns, or whose Affiliates or Associates beneficially own, directly or indirectly, such Shares.
























































38


Names, addresses and descriptions of subscribers

Enceladus Holding Limited
Arthur Cox Building     
Earlsfort Terrace, Dublin 2     
Corporate Body     


AC Administration Services Limited
Arthur Cox Building,
Earlsfort Terrace, Dublin 2.
Corporate Body     


Arthur Cox Nominees Limited
Arthur Cox Building,
Earlsfort Terrace, Dublin 2.
Corporate Body     


Arthur Cox Registrars Limited
Arthur Cox Building,
Earlsfort Terrace, Dublin 2.
Corporate Body     


Arthur Cox Trust Services Limited
Arthur Cox Building,
Earlsfort Terrace, Dublin 2
Corporate Body     


DIJR Nominees Limited
Arthur Cox Building,
Earlsfort Terrace, Dublin 2
Corporate Body     


Fand Limited
Arthur Cox Building,
Earlsfort Terrace, Dublin 2
Corporate Body     


Dated 6 May 2014


Witness to the above signatures: JAMES HEARY

James Heary
Arthur Cox Building
Earlsfort Terrace
Dublin 2




39


Companies Act 2014








A PUBLIC COMPANY LIMITED BY SHARES













MEMORANDUM AND ARTICLES OF ASSOCIATION

OF

JOHNSON CONTROLS INTERNATIONAL PUBLIC LIMITED COMPANY

















Arthur Cox
Arthur Cox Building
Earlsfort Terrace
Dublin




Exhibit 10.1


    

CONSENT TO COMMITMENT INCREASE
Dated as of March 23, 2018
Citibank, N.A.,
as Administrative Agent
1615 Brett Road, Building #3
New Castle, Delaware 19720
Attention:      Bank Loan Syndications Department
Tyco International Holding S.a.r.l.
Ladies and Gentlemen:
Reference is made to the Multi-Year Senior Unsecured Credit Agreement dated as of March 10, 2016 (as amended or modified from time to time, the “ Credit Agreement ”) among Tyco International Holding S.à r.l., a private limited liability company incorporated under the laws of Luxembourg (the “ Borrower ”), the Lenders (as defined in the Credit Agreement) party thereto and Citibank, N.A., as administrative agent for the Lenders (the “ Administrative Agent ”). Terms defined in the Credit Agreement are used herein with the same meaning unless otherwise defined herein, and all references to Sections herein are references to Sections of the Credit Agreement.
Pursuant to Section 2.15 of the Credit Agreement, the Borrower delivered to the Administrative Agent a Commitment Increase Notice dated as of March 1, 2018 (the “ Commitment Increase Notice ”), requesting that the aggregate amount of the Commitments be increased, and, subject to the terms and conditions of this consent (this “ Consent ”), the Borrower and the Lenders party hereto hereby agree to increase the aggregate amount of the Commitments to $1,250,000,000.
Each Lender executing this Consent agrees to increase its Commitment to the amount so indicated on the attached Schedule I. This agreement to increase the Commitments is subject in all respects to the terms of the Credit Agreement and is irrevocable.
The increase of Commitments shall become effective as of the date first above written when, and only when, the Administrative Agent shall have received counterparts of this Consent executed by the Borrower and each of the Increasing Lenders. The increase of Commitments is further subject to the delivery to the Administrative Agent of (a) a certified copy of resolutions of the board of managers of the Borrower approving the Commitment Increase and (b) a certificate of the Borrower (which may take the form of the certifications set forth in the Commitment Increase Notice) certifying that as of the date of this Consent (i) the representations and warranties of the Borrower set forth in Article III of the Credit Agreement or any other Loan Document, or which are contained in any certificate or notice delivered at any time by the Borrower under or in connection therewith, and the representations and warranties of each Subsidiary Guarantor set forth in Article III of its Subsidiary Guaranty, were true and correct in all material respects on and as of the date of the Commitment Increase Notice and are true and correct in all material respects on the Increase Date, before and after giving effect to the Commitment Increase, or, if any such representation or warranty was made as of a specific date, such representation and warranty was

NYDOCS02/1136971                  TSaRL Consent to Commitment Increase



true and correct in all material respects on and as of such date and (ii) at the time of and immediately after giving effect to the Commitment Increase, no Default shall have occurred and be continuing.
This Consent may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Consent by facsimile or electronic communication (.pdf file) shall be effective as delivery of a manually executed counterpart of this Consent.
This Consent shall be governed by, and construed in accordance with, the laws of the State of New York.






















NYDOCS02/1136971                  TSaRL Consent to Commitment Increase



IN WITNESS WHEREOF, the parties hereto have caused this Consent to be executed by their respective officers thereunto duly authorized, as of the date first above written.
TYCO INTERNATIONAL HOLDING S.À R.L.


By /s/ Peter Schieser
Name: Peter Schieser
Title: General Manager


CITIBANK, N.A., as Administrative Agent

By /s/ Susan M. Olsen
Name: Susan M. Olsen
Title: Vice President










































NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Consent to the forgoing Consent:
CITIBANK, N.A.

By /s/ Susan M. Olsen
Name: Susan M. Olsen
Title: Vice President

Lender’s Incremental Commitment Amount: $16,250,000








































NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Consent to the forgoing Consent:
Wells Fargo Bank, National Association

By /s/ Charles Reed
Name: Charles Reed
Title: Managing Director

Lender’s Incremental Commitment Amount: $40,000,000








































NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Consent to the forgoing Consent:

Bank of America, N.A.

By /s/ Michael Contreras
Name: Michael Contreras
Title: Vice President

Lender’s Incremental Commitment Amount: $15,625,000








































NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Consent to the forgoing Consent:

BARCLAYS BANK PLC

By /s/ Craig Malloy
Name: Craig Malloy
Title: Director

Lender’s Incremental Commitment Amount: $15,625,000








































NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Consent to the forgoing Consent:

JPMORGAN CHASE BANK, N.A.

By /s/ Robert P. Kellas
Name: Robert P. Kellas
Title: Executive Director

Lender’s Incremental Commitment Amount: $15,625,000








































NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Consent to the forgoing Consent:

BANCO BILBAO VIZCAYA ARGENTARIA, S.A. NEW YORK BRANCH

By /s/ Brian Crowley
Name: Brian Crowley
Title: Managing Director

By /s/ Miriam Trautmann
Name: Miriam Trautmann
Title: Senior Vice President

Lender’s Incremental Commitment Amount: $10,625,000



































NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Consent to the forgoing Consent:

Commerzbank AG, New York Branch, as a Lender

By /s/ Michael Ravelo
Name: Michael Ravelo
Title: Managing Director

By /s/ Mark Coglitore
Name: Mark Coglitore
Title: Associate

Lender’s Incremental Commitment Amount: $10,625,000





































NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Consent to the forgoing Consent:

CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK

By /s/ Kaye Ea
Name: Kaye Ea
Title: Managing Director

By /s/ Gordon Yip
Name: Gordon Yip
Title: Director

Lender’s Incremental Commitment Amount: $10,625,000





































NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Consent to the forgoing Consent:

Danske Bank A/S

By /s/ Alistair Welch
Name: Alistair Welch
Title: Director

Lender’s Incremental Commitment Amount: $10,625,000








































NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Consent to the forgoing Consent:

GOLDMAN SACHS BANK USA

By /s/ Ryan Durkin
Name: Ryan Durkin
Title: Authorized Signatory

Lender’s Incremental Commitment Amount: $10,625,000








































NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Consent to the forgoing Consent:

For and on behalf of
ING Bank N.V., Dublin Branch

Lender’s Incremental Commitment Amount:          $10,625,000 increase
$53,125,000 total commitment amount

By /s/ Sean Hassett
Name: Sean Hassett
Title: Director

By /s/ Shaun Hawley
Name: Shaun Hawley
Title: Director






















NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Consent to the forgoing Consent:

The Bank of New York Mellon

By /s/ John Smathers
Name: John Smathers
Title: Director

Lender’s Incremental Commitment Amount: $10,625,000








































NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Consent to the forgoing Consent:

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

By /s/ Eric Hill
Name: Eric Hill
Title: Authorized Signatory

Lender’s Incremental Commitment Amount: $10,625,000








































NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Consent to the forgoing Consent:

TORONTO DOMINION (TEXAS) LLC

By /s/ Annie Dorval
Name: Annie Dorval
Title: Authorized Signatory

Lender’s Incremental Commitment Amount: $10,625,000








































NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Consent to the forgoing Consent:

U.S. Bank National Association

By /s/ Caroline V. Krider
Name: Caroline V. Krider
Title: Senior Vice President

Lender’s Incremental Commitment Amount: $10,625,000








































NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Consent to the forgoing Consent:

UniCredit Bank AG, New York Branch

By /s/ Ken Hamilton
Name: Ken Hamilton
Title: Managing Director

By /s/ Priya Trivedi
Name: Priya Trivedi
Title: Associate Director

Lender’s Incremental Commitment Amount: $10,625,000




















NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Consent to the forgoing Consent:

BNP PARIBAS

By /s/ Kwang Kyun Choi
Name: Kwang Kyun Choi
Title: Vice President

By /s/ Melissa Dyki
Name: Melissa Dyki
Title: Director

Lender’s Incremental Commitment Amount: $7,500,000






















NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Consent to the forgoing Consent:

DEUTSCHE BANK AG NEW YORK BRANCH

By /s/ Ming K. Chu
Name: Ming K. Chu
Title: Director

By /s/ Sanjeev Punjabi
Name: Sanjeev Punjabi
Title: Managing Director

Lender’s Incremental Commitment Amount: $5,625,000



































NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Consent to the forgoing Consent:

Standard Chartered Bank

By /s/ Daniel Mattern
Name: Daniel Mattern
Title: Associate Director

Lender’s Incremental Commitment Amount: $5,625,000






















NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Consent to the forgoing Consent:

THE BANK OF NOVA SCOTIA

By /s/ Mauricio Saishio
Name: Mauricio Saishio
Title: Director

Lender’s Incremental Commitment Amount: $5,625,000






















NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Consent to the forgoing Consent:

WESTPAC BANKING CORPORATION

By /s/ Su-Lin Watson
Name: Su-Lin Watson
Title: Director

Lender’s Incremental Commitment Amount: $5,625,000






















NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Schedule I
Commitments
Citibank, N.A.
$78,750,000
Wells Fargo Bank, National Association
$102,500,000
Bank of America, N.A.
$78,125,000
Barclays Bank PLC
$78,125,000
JPMorgan Chase Bank, N.A.
$78,125,000
Banco Bilbao Vizcaya Argentaria, S.A. New York Branch
$53,125,000
Commerzbank AG New York Branch
$53,125,000
Credit Agricole Corporate and Investment Bank
$53,125,000
Danske Bank A/S
$53,125,000
Goldman Sachs Bank USA
$53,125,000
ING Bank N.V., Dublin Branch
$53,125,000
The Bank of New York Mellon
$53,125,000
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
$53,125,000
Toronto Dominion (Texas) LLC
$53,125,000
U.S. Bank National Association
$53,125,000
UniCredit Bank AG, New York Branch
$53,125,000
Intesa Sanpaolo Bank Luxembourg SA
$42,500,000
Industrial and Commercial Bank of China Limited, New York Branch
$35,000,000
BNP Paribas
$30,000,000
Deutsche Bank AG New York Branch
$28,125,000

NYDOCS02/1136971                  TSaRL Consent to Commitment Increase




Standard Chartered Bank
$28,125,000
The Bank of Nova Scotia
$28,125,000
Westpac Banking Corporation
$28,125,000
The Northern Trust Company
$22,500,000
First Hawaiian Bank
$7,500,000
TOTAL
$1,250,000,000






NYDOCS02/1136971                  TSaRL Consent to Commitment Increase



Exhibit 10.2


Johnson Controls International plc
2012 Share and Incentive Plan
(Amended and Restated as of March 8, 2017) (the “Plan”)

Restricted Share Unit Award Agreement
Terms and Conditions for Restricted Share Units

RESTRICTED SHARE UNIT AWARD made in County Cork, Ireland as of March 8, 2018 (the “Grant Date”) pursuant to the Plan. Capitalized terms that are not defined herein have the meaning ascribed to them in the Plan.

1. Grant of Award. Johnson Controls International plc (the “Company”) has granted you Restricted Share Units, as described in the grant notification letter that was issued to you (“Grant Letter”), subject to the provisions of these Terms and Conditions. The Company will hold the Restricted Share Units in a bookkeeping account on your behalf until they become payable or are forfeited or cancelled.

2. Payment Amount. Each Restricted Share Unit represents the right to receive, upon vesting, one (1) ordinary Share.

3. Form and Timing of Payment. Unless otherwise set forth herein, vested Restricted Share Units will be paid solely in Shares. Payment shall occur within forty-five (45) days after the vesting date, subject to your payment in full of all taxes due, if any, with respect to such Restricted Share Units.

4. Dividends. You will be credited with a Dividend Equivalent Unit (DEU) for any cash or share dividends distributed by the Company on the Company’s ordinary shares for each Restricted Share Unit that is unvested on the record date. DEUs will be calculated at the same dividend rate paid to other holders of ordinary shares. DEUs will vest in accordance with the vesting schedule applicable to the underlying Restricted Share Units and shall be payable at the same time that the underlying Restricted Share Units are payable as provided herein.

5. Vesting. Except as otherwise provided herein, your Restricted Share Units will vest in full on the earlier of (1) the one (1) year anniversary of the Grant Date, and (2) the date of the Annual General Meeting of shareholders in respect of fiscal 2019, provided in each case that you are a member of the Company’s Board of Directors on such date (or your term of service ends on such date). No credit will be given for periods following Termination of Directorship.

6. Termination of Directorship. Except as set forth in paragraphs 7 and 8, so long as your Termination of Directorship is for reasons other than Cause, your Restricted Share Units will accelerate and vest pro rata (in full month increments) based on the number of full months that you have served as a Director since the Grant Date and ending on the date of your Termination of Directorship divided by the original number of full months in the vesting period; provided that if your Termination of Directorship coincides with the next Annual General Meeting of Shareholders following the Grant Date (and results from your not standing for reelection), your Restricted Share Units shall vest in full.  Any unearned portion of your Award will immediately be forfeited and your rights with respect to such Restricted Share Units will end.


1


7. Death or Disability. If your Termination of Directorship is a result of your Death or Disability, your Award will become fully vested as of your Termination of Directorship. If you are deceased, the Company will make a payment to your estate.

8. Change in Control. In the event of a Change in Control, as defined in the Plan, and your Termination of Directorship occurs in connection with such Change in Control, Restricted Share Units will immediately become fully vested as of your Termination of Directorship.

9. Forfeiture of Award. If your services as a Director of the Company have been terminated for Cause, then any unvested Restricted Share Units shall be immediately rescinded and you will forfeit any rights you have with respect to such Units.

10. Withholdings; Tax Recovery. Unless the Company’s Compensation Committee approves an alternative method by which the Participant shall pay such withholding taxes, the Company shall, prior to any issuance or delivery of Shares on your Restricted Share Units, withhold  from the Shares otherwise deliverable to you a number of Shares having a Fair Market Value necessary to satisfy applicable tax requirements.

11. Transfer of Award. You may not transfer any interest in Restricted Share Units except by will or the laws of descent and distribution. Any other attempt to dispose of your interest in Restricted Share Units will be null and void.

12. Successors. All obligations of the Company under this Award shall be binding on any successor to the Company. The terms of this Award and the Plan shall be binding upon and inure to your benefit and the benefit of your heirs, executors, administrators or legal representatives.

13. Securities Compliance. The Company may place a legend or legends upon the certificates for Shares issued under the Plan and may issue “stop transfer” instructions to its transfer agent in respect of such Shares as it determines to be necessary or appropriate to (a) prevent a violation of, or to obtain an exemption from, the registration requirements of the Securities Act of 1933, as amended, applicable state securities laws or other legal requirements, or (b) implement the provisions of the Plan, this Award or any other agreement between you and the Company with respect to such Shares.

14. Legal Compliance . The granting of this Award and the issuance of Shares under this Award shall be subject to all applicable laws, rules, and regulations and to such approvals by any governmental agencies or national securities exchanges as may be required. The Company will not be required to deliver any Shares until all applicable federal and state laws and regulations have been complied with and all legal matters in connection with the issuance and delivery of the Shares have been approved by the appropriate counsel of the Company.

15. Governing Law; Arbitration . This Award, and the interpretation of this Award Agreement, shall be governed by (a) the internal laws of Ireland (without reference to conflict of law principles thereof that would direct the application of the laws of another jurisdiction) with respect to the validity and authorization of any Shares issued under this Award, and (b) the internal laws of the State of Wisconsin (without reference to conflict of law principles thereof that would direct the application of the laws of another jurisdiction) with respect to all other matters. Arbitration will be conducted per the provisions in the Plan.




2


16. Plan Terms Govern. The redemption of Restricted Share Units, the disposition of any Shares received for Restricted Share Units, and the treatment of any gain on the disposition of these Shares are subject to the terms of the Plan and any rules that the Committee may prescribe. The Plan document, as may be amended from time to time, is incorporated by reference into these Terms and Conditions. Except with respect to the choice of law provision, in the event of any conflict between the terms of the Plan and the terms of these Terms and Conditions, the terms of the Plan will control. By accepting the Award, you acknowledge receipt of the Plan and the prospectus, as in effect on the date of these Terms and Conditions. These Terms and Conditions and the Plan constitute the entire understanding between you and the Company regarding the Restricted Share Units. These Terms and Conditions supersede any prior agreements, commitments or negotiations concerning the Restricted Share Units.

17. Data Privacy and Sharing . As a condition of the granting of the Award, you acknowledge and agree that it is necessary for some of your personal identifiable information to be provided to certain employees of the Company, the third party data processor that administers the Plan and the Company’s designated third party broker in the United States. These transfers will be made pursuant to a contract that requires the processor to provide adequate levels of protection for data privacy and security interests in accordance with the “legitimate interest” provisions of the EU General Data Protection Regulation (GDPR) (Regulation (EU) 2016/679 and the implementing legislation of your home country (or any successor or superseding regulation). By acknowledging the Award, you acknowledge having been informed of the processing of your personal identifiable information described in the preceding paragraph and consent to the Company collecting and transferring to the Company's Shareholder Services Department, and its independent benefit plan administrator and third party broker, your personal data that are necessary to administer the Award and the Plan. You understand that your personal information may be transferred, processed and stored outside of your home country in a country that may not have the same data protection laws as your home country, for the purposes mentioned in this Award.

In compliance with the GDPR you will be provided with:

•
the identity and the contact details of the controller (usually the administrator and/or the Company) and, where applicable, of the controller's representative;
•
the contact details of the data protection officer, where applicable;
•
that the purposes of the processing of personal data is for the grant, administration and vesting of the Award and the legal basis for the processing is that this is required for the performance of this Award Agreement and for compliance with its terms and the Award or to cover the legitimate interests of the data controller and the data processor;
•
the recipients or categories of recipients of the personal data, if any;
•
the controller intends to transfer personal data to a third country or international organization subject to the existence of an adequacy decision by the Commission, or reference to the appropriate or suitable safeguards (reliance on the US/EU Privacy Shield or adoption of the EU Model Clauses) and you may obtain a copy of these or details of where they are made available on the administrator’s portal;
•
the period for which the personal data will be stored, or if that is not possible, the criteria used to determine that period;
•
the right to request from the controller access to and rectification or erasure, in certain circumstances but this could impact the Award, of personal data or restriction of processing concerning the data subject or to object to processing as well as the right to data portability;
•
the right to lodge a complaint with a supervisory authority;
•
the provision of personal data is a requirement for the performance of this Award Agreement and the terms of the Award.

3


18. No Contract or Promise of Future Grants. By accepting the Award, you agree to be bound by these Terms and Conditions and acknowledge that the Award is granted at the sole discretion of the Company and is not considered part of any contract of service as a Board member with the Company or other compensation. Nothing in these Terms and Conditions or the Plan gives you any right to continue in the service as a Board member with the Company or any of its Subsidiaries or to interfere in any way with the right of the Company to terminate your Directorship at any time. If your service as a Board member with the Company is terminated for any reason, whether lawfully or unlawfully, you agree that you will not be entitled by way of damages for breach of contract, dismissal or compensation for loss of office or otherwise to any sum, shares or other benefits to compensate you for the loss or diminution in value of any actual or prospective rights, benefits or expectation under or in relation to the Plan.

19. Electronic Delivery . The Company or its Affiliates may, in its or their sole discretion, decide to deliver any documents related to current or future participation in the Plan or related to this Award by electronic means. You hereby consent to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company. You hereby agree that all on-line acknowledgements shall have the same force and effect as a written signature.

20. Limitations. Payment of your Restricted Share Units is not secured by a trust, insurance contract or other funding medium, and you do not have any interest in any fund or specific asset of the Company by reason of this Award or the account established on your behalf. You have no rights as a stockholder of the Company pursuant to the Restricted Share Units until Shares are actually delivered to you.

21. Severability. The invalidity or unenforceability of any provision of these Terms and Conditions will not affect the validity or enforceability of the other provisions of the Agreement, which will remain in full force and effect. Moreover, if any provision is found to be excessively broad in duration, scope or covered activity, the provision will be construed so as to be enforceable to the maximum extent compatible with applicable law.

22. Sections 409A and 457A. The award is intended to be an exempt “short-term deferral” under Sections 409A and 457A of the Internal Revenue Code of the United States. The Committee may make such modifications to these Terms and Conditions as it deems necessary or appropriate to ensure that the Award is exempt from Sections 409A and 457A to the extent applicable.

















4


By accepting this Award, you agree to the following:

(i) you have carefully read, fully understand and agree to all of the terms and conditions described in these Terms and Conditions and the Plan; and

(ii) you understand and agree that these Terms and Conditions and the Plan constitute the entire understanding between you and the Company regarding the Award, and that any prior agreements, commitments or negotiations concerning the Restricted Share Units are replaced and superseded.

You will be deemed to consent to the application of the terms and conditions set forth in these Terms and Conditions and the Plan unless you contact Johnson Controls International plc, c/o Johnson Controls, Inc., Attn: Shareholder Services, 5757 N Green Bay Ave, Milwaukee, WI 53209 in writing within thirty (60) days of the date of these Terms and Conditions. Notification of your non-consent will nullify this grant unless otherwise agreed to in writing by you and the Company.

The Company has caused this Award to be executed by one of its authorized officers as of the date of grant.

 
JOHNSON CONTROLS INTERNATIONAL PLC
 
 
 
/s/ John Donofrio
 
John Donofrio
 
Executive Vice President and General Counsel
 
 



5


Exhibit 10.3



JOHNSON CONTROLS INTERNATIONAL PLC
EFFECTIVE DEFERRED COMPENSATION PLAN


Frozen Effective as of January 1, 2018


ARTICLE 1.
PURPOSE AND DURATION

Section 1.1. Purpose. The Johnson Controls International plc Executive Deferred Compensation Plan (formerly the Johnson Controls, Inc. Executive Deferred Compensation Plan) (the “Plan”) permits certain employees of the Company and its Affiliates to defer amounts otherwise payable or shares deliverable under separate bonus or equity plans or programs maintained by the Company or an Affiliate.

Section 1.2. Effective Date and September 2, 2016 Restatement . The Plan was originally effective on October 1, 2001, as a consolidation of the deferral features of various separate plans. The Plan has been amended several times since it was originally effective, including being amended and restated effective as of September 2, 2016 (the “Amended and Restated Effective Date”) to reflect the merger of Johnson Controls, Inc. with and into a subsidiary of Tyco International plc.

Section 1.3. January 1, 2018 Restatement to Freeze Plan . Notwithstanding anything in the Plan to the contrary, effective January 1, 2018, the Plan will cease to accept new Participants and will not permit new deferrals of compensation, provided, however, that Deferrals relating to Deferrable Compensation awarded or issued prior to January 1, 2018, and with respect to which a deferral election was made prior to January 1, 2018, may still be credited to Participants’ Accounts. The terms of the Plan will otherwise continue to apply to Participants’ Accounts until such Accounts are distributed, or the Plan is terminated, according to the terms of the Plan.


ARTICLE 2.
DEFINITIONS AND CONSTRUCTION

Section 2.1. Definitions . Wherever used in the Plan, the following terms shall have the meanings set forth below and, where the meaning is intended, the initial letter of the word is capitalized:

(a) “Account” means the record keeping account or accounts maintained to record the interest of each Participant under the Plan. An Account is established for record keeping purposes only and not to reflect the physical segregation of assets on the Participant’s behalf, and may consist of such subaccounts or balances as the Administrator may determine to be necessary or appropriate.

(b) “Act” means the Securities Act of 1933, as interpreted by regulations and rules issued pursuant thereto, all as amended and in effect from time to time. Any reference to a specific provision of the Act shall be deemed to include reference to any successor provision thereto.


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(c) “Administrator” means the Employee Benefits Policy Committee of the Company.

(d) “Affiliate” means each entity that is required to be included in the Company’s controlled group of corporations within the meaning of Code Section 414(b), or that is under common control with the Company within the meaning of Code Section 414(c); provided that for purposes of determining when a Participant has incurred a Separation from Service, the phrase “at least 50 percent” shall be used in place of the phrase “at least 80 percent” in each place that phrase appears in the regulations issued thereunder.

(e) “Affiliated Company” or “Affiliated Companies” shall include any company or companies controlled by, controlling or under common control with the Company.

(f) “Beneficiary” means the person(s) or entity(ies) designated by a Participant to be his beneficiary for purposes of this Plan as provided in Section 9.2.

(g) “Board” means the Board of Directors of the Company.

(h) “Change of Control” has the meaning ascribed in Section 8.2 or Section 8.4, as applicable.

(i) “Code” means the Internal Revenue Code of 1986, as interpreted by regulations and rulings issued pursuant thereto, all as amended and in effect from time to time. Any reference to a specific provision of the Code shall be deemed to include reference to any successor provision thereto.

(j) “Committee” means the Compensation and Human Resources Committee of the Board, which shall consist of not less than two members of the Board, each of whom is also a director of the Company and qualifies as a “non-employee director” for purposes of Rule 16b-3 of the Exchange Act.

(k) “Company” means Johnson Controls International plc, an Irish public limited company, and its successors as provided in Section 9.8.

(l) “Deferrable Compensation” means the following types of compensation that may be deferred under the Plan:

(1)
Annual Incentive Awards : All or a portion of a Participant’s performance cash award made under a plan of the Company, or with the consent of the Administrator, any other annual bonus plan maintained by an Affiliate. For 2016, the term “Annual Incentive Awards” also includes cash awards payable under a plan of Johnson Controls, Inc., to the extent the deferral election with respect to such amounts are effective under Code Section 409A.
 
(2)
Long-Term Incentive Awards : All or a portion of a Participant’s multi-year performance cash award under a plan of the Company, or, with the consent of the Administrator, any other long-term bonus plan maintained by an Affiliate. For 2016, the term “Long-Term Incentive Awards” also includes the cash award payable under a plan of Johnson Controls, Inc., to the extent

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the deferral election with respect to such amounts are effective under Code Section 409A.

(3)
Shares : The Shares that would have otherwise been issued to a Participant under any equity award (other than share options or share appreciation rights) granted under any plan of the Company (including granted under any plan of Johnson Controls, Inc. prior to the Amended and Restated Effective Date), but only to the extent the Committee (with respect to those Participants who are Company officers), or the Administrator (with respect to all other Participants), designates such equity award as being eligible for deferral hereunder.

(4)
Other Incentive Compensation : Any other incentive award or compensation that the Committee (with respect to those Participants who are Company officers), or the Administrator (with respect to all other Participants), designates is eligible for deferral hereunder.

(m) “Deferral” means the amount credited, in accordance with a Participant’s election or as required by the Plan, to the Participant’s Account in lieu of the payment in cash thereof, or the issuance of Shares with respect thereto. Deferrals include the following:

(1)
Annual Incentive Deferrals : A deferral of all or a portion of a Participant’s Annual Incentive Award, as described in subsection (l)(1).

(2)
Long-Term Incentive Deferrals : A deferral of all or a portion of a Participant’s Long-Term Incentive Award, as described in subsection (l)(2).

(3)
Share Deferrals : A deferral of Shares , as described in subsection (l)(3).

(4)
Other Incentive Compensation : A deferral of any other type of Deferrable Compensation, as described in subsection (l)(4).

(n) “ERISA” means the Employee Retirement Income Security Act of 1974, as interpreted by regulations and rulings issued pursuant thereto, all as amended and in effect from time to time. Any reference to a specific provision of ERISA shall be deemed to include reference to any successor provision thereto.

(o) “Exchange Act” means the Securities Exchange Act of 1934, as interpreted by regulations and rules issued pursuant thereto, all as amended and in effect from time to time. Any reference to a specific provision of the Exchange Act shall be deemed to include reference to any successor provision thereto.

(p) “Fair Market Value” means with respect to a Share, except as otherwise provided herein, the closing sales price on the New York Stock Exchange as of 4:00 p.m. EST on the date in question (or the immediately preceding trading day if the date in question is not a trading day), and with respect to any other property, such value as is determined by the Administrator.

(q) “Investment Options” means the investment options offered under the Johnson Controls Savings and Investment (401k) Plan (excluding the Company stock fund) or any successor plan

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thereto, the Share Unit Account, and any other alternatives made available by the Administrator, which shall be used for the purpose of measuring hypothetical investment experience attributable to a Participant’s Account.

(r) “Participant” means (i) unless otherwise determined by the Committee or Administrator, an employee of the Company or any Affiliate who is employed in the United States and is participating in the Company’s Stock Ownership Program, and (ii) any other employee of the Company or any Affiliate who is selected for participation by the Committee or Administrator, provided there shall be no new Participants after December 31, 2017. Notwithstanding the foregoing, the Committee shall limit the foregoing group of eligible employees to a select group of management and highly compensated employees, as determined by the Committee in accordance with ERISA. Where the context so requires, a Participant also means a former employee entitled to receive a benefit hereunder.

(s) “Person” means any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act).

(t) “Plan Year” means the fiscal year of the Company.

(u) “Separation from Service” means a Participant’s cessation of service from the Company and all Affiliates within the meaning of Code Section 409A, including the following rules:

(1)
If a Participant takes a leave of absence from the Company or an Affiliate for purposes of military leave, sick leave or other bona fide leave of absence, the Participant’s employment will be deemed to continue for the first six (6) months of the leave of absence, or if longer, for so long as the Participant’s right to reemployment is provided by either by statute or by contract; provided that if the leave of absence is due to the Participant’s medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of six (6) months or more, and such impairment causes the Participant to be unable to perform the duties of his position with the Company or an Affiliate or a substantially similar position of employment, then the leave period may be extended for up to a total of twenty-nine (29) months. If the period of the leave exceeds the time periods set forth above and the Participant’s right to reemployment is not provided by either statute or contract, the Participant will be considered to have incurred a Separation from Service on the first day following the time periods set forth above.













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(2)
A Participant will be presumed to have incurred a Separation from Service when the level of bona fide services performed by the Participant for the Company and its Affiliates permanently decreases to a level equal to twenty percent (20%) or less of the average level of services performed by the Participant for the Company or its Affiliates during the immediately preceding thirty-six (36) month period (or such lesser period of service).

(3)
The Participant will be presumed not to have incurred a Separation from Service while the Participant continues to provide bona fide services to the Company or an Affiliate in any capacity (whether as an employee or independent contractor) at a level that is at least fifty percent (50%) or more of the average level of services performed by the Participant for the Company or its Affiliates during the immediately preceding thirty-six (36) month period (or such lesser period of service).

(4)
If a Participant ceases to provide services as an employee to the Company or an Affiliate, but immediately thereafter continues to provide services as an independent contractor to any such entity without incurring a Separation from Service as described in the subparagraphs above, then such Participant will not incur a Separation from Service until the expiration of the contract (or, if applicable, all contracts) under which services are performed for the Company and any Affiliate if the expiration is a good-faith and complete termination of the contractual relationship.

(v) “Share” means an ordinary share of the Company.

(w) “Share Unit Account” means the account described in Article 7, which is deemed invested in Shares.

(x) “Share Units” means the hypothetical Shares that are credited to the Share Unit Account in accordance with Article 7.

(y) “Valuation Date” means each day when the United States financial markets are open for business, as of which the Administrator will determine the value of each Account and will make allocations to Accounts.

Section 2.2. Construction . Wherever any words are used in the masculine, they shall be construed as though they were used in the feminine in all cases where they would so apply; and wherever any words are use in the singular or the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. Titles of articles and sections are for general information only, and the Plan is not to be construed by reference to such items.









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Section 2.3. Severability . In the event any provision of the Plan is held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.


ARTICLE 3.
PARTICIPATION

Section 3.1. Effective Date . Each individual for whom an Account is maintained under the Plan as of the Amended and Restated Effective Date shall continue in participation hereunder on the day following the Amended and Restated Effective Date.

Section 3.2. New Participants . Prior to January 1, 2018, each employee of the Company or an Affiliate who qualifies as a Participant shall automatically become a Participant on the date he makes (or is deemed to make) a deferral election under Article 4. No employee may become a Participant pursuant to this Section 3.2 on or after January 1, 2018.


ARTICLE 4.
DEFERRALS OF COMPENSATION

Section 4.1. Deferral Elections . Prior to January 1, 2018, a Participant may elect to defer all or part of his Deferrable Compensation pursuant to one or more of the following provisions, as applicable to such compensation, subject to any limitations or other requirements imposed by the Committee (with respect to Participants who are Company officers) or the Administrator (with respect to all other Participants). A Participant’s election to defer an award shall be effective only for the award to which the election relates, and shall not carry over from award to award. As of the end of the applicable election period, the Participant’s deferral election shall be irrevocable except as provided in Section 4.2.

(a)      Calendar Year . A Participant may make a deferral election during the calendar year preceding the calendar year for which an award is made.

(b)     Forfeitable Rights . With respect to a cash or equity award which is subject to a risk of forfeiture, a Participant may make a deferral election prior to or within the first thirty (30) days following the grant date; provided , the election may apply only to the portion of the award that vests on or after the first anniversary of the award grant date. This election shall be available even if the terms of the award provide that the award will vest prior to the first anniversary of the award grant date in the event of the Participant’s death, disability (as defined in Code Section 409A) or a change of control event (as defined in Code Section 409A); provided that, if the award so vests prior to the first anniversary of the grant date, then if and to the extent required by Code Section 409A, such deferral election shall be cancelled.

(c)     Initial Eligibility . A Participant may make a deferral election within the first thirty (30) days of becoming a Participant; provided such Participant has not previously been eligible for participation in any other deferred compensation plan that is required to be aggregated with this Plan for purposes of Code Section 409A. Such election shall only be effective with respect to compensation for services to be performed subsequent to the date of the election.
  

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(d)     Performance-Based Compensation . With respect to a performance-based award (whether cash or equity), a Participant may make a deferral election within the first 180 days of the performance period for which the award is made. Notwithstanding the foregoing:

(1)
if the Company determines that an award qualifies as performance-based compensation within the meaning of Code Section 409A, the Company may specify a later election period, which in all events must end 180 days prior to the end of the performance period for such award; provided that any election made hereunder shall not be applicable to compensation that is readily ascertainable at the time of the election, or

(2)
if the Company determines that an award does not qualify as performance-based compensation within the meaning of Code Section 409A, or determines that, at the time of the election described above, the compensation payable under such award will be readily ascertainable, then the Company may specify an earlier election period consistent with the requirements of Code Section 409A.

(e)     Other Deferrals Rules . A Participant may make a deferral election at such other times not described above as may be permitted by the Administrator consistent with the requirements of Code Section 409A.

(f)     No Deferrals After 2017 . Notwithstanding anything to the contrary in the Plan, no deferral elections may be made with respect to Deferrable Compensation issued or awarded after December 31, 2017.

Section 4.2. Cancellation of Deferral Elections . If the Administrator determines that a Participant’s deferral elections must be cancelled in order for the Participant to receive a hardship distribution under the Johnson Controls Savings and Investment (401k) Plan (or any successor plan thereto), or any other 401(k) plan maintained by the Company or an Affiliate, then the Participant’s deferral election(s) shall be cancelled if permitted under Code Section 409A. A Participant whose deferral election(s) are cancelled pursuant to this Section 4.2 may make a new deferral election under Section 4.1, and pursuant to the requirements of Code Section 409A, with respect to future incentive awards, unless otherwise prohibited by the Administrator.

Section 4.3. Administration of Deferral Elections . All deferral elections must be made in the form and manner and within such time periods as the Administrator prescribes in order to be effective.


ARTICLE 5.
HYPOTHETICAL INVESTMENT OPTIONS

Section 5.1.    Investment Election.






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(a)     Investment Elections . Unless otherwise determined by the Administrator, amounts credited to a Participant’s Account shall reflect the investment experience of the Investment Options selected by the Participant. The Participant may make an initial investment election at the time of enrollment in the Plan in whole increments of one percent (1%). A Participant may also elect to reallocate his or her Account, and may elect to allocate any future Deferrals, among the various Investment Options in whole increments of one percent (1%) from time to time as prescribed by the Administrator. Notwithstanding the foregoing, unless otherwise determined by the Administrator, Share Deferrals or Other Incentive Compensation measured in relation to a Share shall be automatically invested in the Share Unit Account and may be re-allocated out of such Investment Option only after the Share Deferrals or Other Incentive Compensation are either vested or earned, subject to any additional restrictions on re-allocation as may be imposed by the Company. Such investment elections shall remain in effect until changed by the Participant. All investment elections shall become effective as soon as practicable after receipt of such election by the Administrator, and must be made in the form and manner and within such time periods as the Administrator prescribes in order to be effective. In the absence of an effective election, the Participant’s Account (to the extent the Plan does not require Deferrals to be allocated to the Share Unit Account) shall be deemed invested in the default fund specified for the Johnson Controls Inc. Savings and Investment (401k) Plan (or any successor plan thereto).
(b)     Crediting of Investment Return . On each Valuation Date, the Administrator (or its designee) shall credit the deemed investment experience with respect to the selected (or required) Investment Options to each Participant’s Account. Notwithstanding anything herein to the contrary, the Company retains the right to allocate actual amounts hereunder without regard to a Participant’s request.
Section 5.2. Allocations to Investment Options . All Deferrals will be deemed invested in an Investment Option as of the date on which the deferrals would have otherwise been paid to the Participant.

Section 5.3. Securities Law Restrictions . Notwithstanding anything to the contrary herein, all elections under Article 5 or 6 by a Participant who is subject to Section 16 of the Exchange Act are subject to review by the Administrator prior to implementation. In accordance with Section 9.3, the Administrator may restrict additional transactions, rescind transactions, or impose other rules and procedures, to the extent deemed desirable by the Administrator in order to comply with the Exchange Act, including, without limitation, application of the review and approval provisions of this Section 5.3 to Participants who are not subject to Section 16 of the Exchange Act.

Section 5.4. Accounts are For Record Keeping Purposes Only . Plan Accounts and the record keeping procedures described herein serve solely as a device for determining the amount of benefits accumulated by a Participant under the Plan, and shall not constitute or imply an obligation on the part of the Company or any Affiliate to fund such benefits.











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ARTICLE 6
DISTRIBUTION OF ACCOUNTS

Section 6.1.    Form of Distribution . A Participant, at the time he makes an initial deferral election under the Plan pursuant to any provision of Article 4, shall elect the form of distribution with respect to each of the following sub-accounts:

(a)    Annual Incentive Deferrals, including interest, earnings or losses thereon.

(b)    Long-Term Incentive Deferrals, including interest, earnings or losses thereon.

(c)    Share Deferrals, as adjusted for gains or losses thereon, that are held in the Participant’s Share Unit Account as of that date.

(d)    Other Incentive Compensation Deferrals, including interest, earnings or losses thereon.

Such election shall be made in such form and manner as the Administrator may prescribe, and shall be irrevocable. The election shall specify whether distributions shall be made in a single lump sum or from two (2) to ten (10) annual installments. In the absence of a distribution election with respect to a particular subaccount, payment shall be made in ten (10) annual installments.
Notwithstanding the foregoing, if a Participant receives a single lump sum payment of the entire balance in a particular subaccount, and an amount would otherwise be credited to such subaccount thereafter (such as upon the date the Deferrable Compensation becomes vested or earned after the Participant’s Separation from Service), then such amount shall not be allocated to such subaccount but instead be paid directly by the Company or Affiliate that is obligated to make such payment as soon as practicable after the Deferrable Compensation vests or is earned.
Section 6.2. Time of Distribution . Upon a Participant’s Separation from Service for any reason, the Participant, or his Beneficiary in the event of his death, shall be entitled to payment of the amount accumulated in such Participant’s Account in cash.
Section 6.3.    Manner of Distribution . The Participant’s Account shall be paid in cash in the following manner:
(a)     Lump Sum . If payment is to be made in a lump sum, , such lump sum shall be paid on the first distribution date (as defined below) following the six-month anniversary of the Participant’s Separation from Service. The lump sum payment shall equal the balance of the Participant’s Account as of the Valuation Date immediately preceding the distribution date.






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(b)     Installments . If payment is to be made in annual installments, the first annual payment shall be paid on the first distribution date (as defined below) following the six-month anniversary of the Participant’ Separation from Service. All subsequent installments shall be made on the anniversary of such first distribution date. The amount of the first annual payment shall equal the value of 1/10 th (or 1/9 th , 1/8 th , 1/7 th , etc. depending on the number of installments elected) of the balance of the Participant’s Account as of the Valuation Date immediately preceding the distribution date. All subsequent annual payments shall be in an amount equal to the value of 1/9 th (or 1/8 th , 1/7 th , 1/6 th , etc. depending on the number of installments elected) of the balance of the Participant’s Account as of the Valuation Date immediately preceding the distribution date. The final annual installment payment shall equal the then remaining balance of such Account as of the Valuation Date preceding such final payment date.

Notwithstanding the foregoing provisions, if the balance of a Participant’s Account as of the Valuation Date immediately preceding a distribution date is $50,000 or less when combined with the Johnson Controls Senior Executive Deferred Compensation Plan, then the entire remaining balance of the Participant’s Account shall be paid in a lump sum on such distribution date.
(c)     Distribution Date . For purposes hereof, the term “distribution date” means each January 15 or July 15, or the first business day prior such date if such date falls on a holiday or weekend.
Section 6.4.    Distribution of Remaining Account Following Participant’s Death,

(a)    In the event of the Participant’s death prior to receiving all payments due under this Article 6, the balance of the Participant’s Account shall be paid to the Participant’s Beneficiary in a lump sum in the first calendar quarter or the third calendar quarter, whichever first occurs after the Participant’s death. Notwithstanding the foregoing, in lieu of such lump sum death benefit, a Participant who has an installment payment election in effect may, prior to his or her termination of employment, elect to have any remaining installment payments continue to his or her Beneficiary in the event the Participant dies after beginning to receive such installment payments, provided that such election shall be given effect only if filed at least twelve (12) months prior to the date of the Participant’s death.

(b)    The timing of the payment(s) under Section 6.4(a) is dependent upon the Administrator receiving all information needed to authorize such payment (such as a copy of the Participant’s death certificate). To the extent the Administrator cannot make a payment because it has not received such information, then the Administrator shall make such payment(s) to the Beneficiary as soon as practicable in accordance with Section 6.4(a) after it has received all information necessary to make such payment, provided that such payment(s) due from the date of death through December 31 of the year following the year of the Participant’s death must be completed by such December 31 in order to avoid additional taxes under Code Section 409A.

Section 6.5. Tax Withholding . The Company or any Affiliate that makes a payment hereunder shall have the right to deduct from any deferral or payment made hereunder, or from any other amount due a Participant, the amount of cash and/or Fair Market Value of Shares sufficient to satisfy the Company’s or Affiliate’s foreign, federal, state or local income tax withholding obligations with respect to such deferral (or vesting thereof) or payment. In addition, if prior to the date of distribution of any amount hereunder, the Federal Insurance Contributions Act (FICA) tax imposed under Code Sections 3101, 3121(a) and 3121(v)(2), where applicable, becomes due, then the Company may distribute from the Participant’s Account balance the amount needed to pay the Participant’s portion of such tax, plus an amount equal to the withholding taxes due under federal, state or local law resulting from the payment of such FICA tax, and an additional amount to pay the additional income tax at source on wages

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attributable to the pyramiding of the Code Section 3401 wages and taxes, but no greater than the aggregate of the FICA tax amount and the income tax withholding related to such FICA tax amount.

Section 6.6.    Offset . The Company or any Affiliate shall have the right to offset from any amount payable hereunder any amount that the Participant owes to the Company or to any Affiliate without the consent of the Participant (or his Beneficiary, in the event of the Participant’s death).

Section 6.7.    Additional Payment Provisions .
  
(a)     Acceleration of Payment . Notwithstanding the foregoing:

(1)
If an amount deferred under this Plan is required to be included in a Participant’s income under Code Section 409A prior to the date such amount is actually distributed, such Participant shall receive a distribution, in a lump sum within ninety (90) days after the Plan fails to meet the requirements of Code Section 409A, of the amount required to be included in the Participant’s income as a result of such failure.

(2)
If an amount under the Plan is required to be immediately distributed in a lump sum under a domestic relations order within the meaning of Code Section 414(p)(1)(B), it may be distributed according to the terms of such order, provided the Participant holds the Administrator harmless with respect to such distribution. The Plan shall not distribute amounts required to be distributed under a domestic relations order other than in the limited circumstance specifically stated herein.

(b)     Delay in Payment . Notwithstanding the foregoing:

(1)
If a distribution required under the terms of this Plan would jeopardize the ability of the Company or an Affiliate to continue as a going concern, the Company or the Affiliate shall not be required to make such distribution. Rather, the distribution shall be delayed until the first date that making the distribution does not jeopardize the ability of the Company or of an Affiliate to continue as a going concern. Any distribution delayed under this provision shall be treated as made on the date specified under the terms of this Plan.

(2)
If the distribution will violate the terms of Section 16(b) of the Exchange Act or other Federal securities laws, or any other applicable law, then the distribution shall be delayed until the earliest date on which making the distribution will not violate such law.





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ARTICLE 7.
RULES WITH RESPECT TO SHARE UNITS

Section 7.1.    Valuation of Share Unit Account . When any amounts are to be allocated to a Share Unit Account (whether in the form of Deferrals or amounts that are deemed re-allocated from another Investment Option), such amount shall be converted to whole and fractional Share Units, with fractional units calculated to three decimal places, by dividing the amount to be allocated by the Fair Market Value of a Share on the effective date of such allocation. If any dividends or other distributions are paid on Shares while a Participant has Share Units credited to his Account, such Participant shall be credited with additional Share Units equal to (a) the amount of the cash dividend paid or Fair Market Value of other property distributed on one Share, multiplied by the number of Share Units credited to the Participant’s Share Unit Account on the date the dividend is declared, and then divided by (b) the Fair Market Value of a Share on the date the dividend is paid or distributed. Any other provision of this Plan to the contrary notwithstanding, if a dividend is paid on Shares in the form of a right or rights to purchase shares of the Company or any entity acquiring the Company, then no additional Share Units shall be credited to the Participant’s Share Unit Account with respect to such dividend, but each Share Unit credited to a Participant’s Share Unit Account at the time such dividend is paid, and each Share Unit thereafter credited to the Participant’s Share Unit Account at a time when such rights are attached to Shares, shall thereafter be valued as of any point in time on the basis of the aggregate of the then Fair Market Value of one Share plus the then Fair Market Value of such right or rights then attached to one Share.

Section 7.2. Transactions Affecting Shares . In the event of any merger, share exchange, reorganization, consolidation, recapitalization, share dividend, share split or other change in corporate structure of the Company affecting Shares, the Committee may make appropriate equitable adjustments with respect to the Share Units credited to the Share Unit Account of each Participant, including without limitation, adjusting the date as of which such units are valued and/or distributed, as the Committee determines is necessary or desirable to prevent the dilution or enlargement of the benefits intended to be provided under the Plan.

Section 7.3.    No Shareholder Rights With Respect to Share Units . Participants shall have no rights as a shareholder pertaining to Share Units credited to their Accounts.











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ARTICLE 8.
SPECIAL RULES APPLICABLE IN THE EVENT OF A
CHANGE OF CONTROL OF THE COMPANY

Section 8.1.    Acceleration of Payments . Notwithstanding any other provision of this Plan, each Participant (or any Beneficiary thereof entitled to receive payments hereunder), including Participants (or Beneficiaries) receiving installment payments under the Plan, shall receive a lump sum payment in cash of all amounts accumulated in such Participant’s Account with respect to deferrals made pursuant to elections filed prior to the Amended and Restated Effective Dateas soon as practicable (but not more than ninety (90) days) following the Change of Control; provided, however, that if a Change of Control occurs on or after January 1, 2017, then the payment shall not be made prior to the date that is five (5) years after the occurrence of events that would have constituted a Change of Control as it was defined in this Plan prior to January 1, 2016. Notwithstanding the foregoing, if the Company reasonably anticipates that any such lump sum payment would reduce or eliminate the Company’s or any of its Affiliate’s deduction for compensation to a Participant because of the compensation limit imposed under Code Section 162(m), then the Company may elect to delay payment of such amount in accordance with the requirements of Code Section 409A.

In determining the amount accumulated in a Participant’s Share Unit Account, each Share Unit shall have a value equal to the higher of (a) the highest reported sales price, regular way, of a share of the Company on the Composite Tape for New York Stock Exchange Listed Stocks (the “Composite Tape”) during the sixty (60)-day period prior to the date of the Change of Control of the Company and (b) if the Change of Control of the Company is the result of a transaction or series of transactions described in Section 8.2(a) (or the corresponding provision in the prior definition of a Change of Control, as described in Section 8.4, below), then the highest price per Share of the Company paid in such transaction or series of transactions.
Section 8.2. Definition of a Change of Control . Subject to Section 8.4, a Change of Control means any of the following events, provided that each such event would constitute a change in control event within the meaning of Code Section 409A:
(a)    The acquisition by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty-five percent (35%) or more of either (A) the then-outstanding Shares (the “Outstanding Company Shares”) or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however , that the following acquisitions shall not constitute a Change of Control: (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliated Company or (4) any acquisition by any corporation pursuant to a transaction that complies with Section 8.2(c)(1)-(3);

(b)    Any time at which individuals who, as of the Amended and Restated Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however , that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual

4850-4478-1580.23                     13


whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;

(c)    Consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company or any of its subsidiaries (each, a “Business Combination”), in each case unless, following such Business Combination, (1) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Shares and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of the then-outstanding ordinary or common shares and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Shares and the Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or an Affiliated Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, thirty-five percent (35%) or more of, respectively, the then-outstanding ordinary or common shares of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (3) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or

(d)    Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

Section 8.3. Maximum Payment Limitation .

(a)     Limit on Payments . Except as provided in subsection (b) below, if any portion of the payments or benefits described in this Plan or under any other agreement with or plan of the Company or an Affiliate (in the aggregate, “Total Payments”), would constitute an “excess parachute payment”, then the Total Payments to be made to the Participant shall be reduced such that the value of the aggregate Total Payments that the Participant is entitled to receive shall be one dollar ($1) less than the maximum amount which the Participant may receive without becoming subject to the tax imposed by Section 4999 of the Code or which the Company or an Affiliate may pay without loss of deduction under Section 280G(a) of the Code. The terms “excess parachute payment” and “parachute payment” shall have the meanings assigned to them in Section 280G of the Code, and such “parachute payments” shall be valued as provided therein. Present value shall be calculated in accordance with Section 280G(d)(4) of the Code. Within forty (40) days following delivery of notice by the Company to the Participant of its belief that there is a payment or benefit due the Participant which will result in an excess parachute payment, the Participant and the Company, at the Company’s expense, shall obtain the opinion (which need not be unqualified) of nationally recognized tax counsel selected by the Company’s or an Affiliate’s independent auditors and acceptable to the Participant in his sole discretion (which may be regular outside counsel to the Company or an Affiliate), which opinion sets forth (1) the amount of the Base Period Income, (2) the

4850-4478-1580.23                     14


amount and present value of Total Payments and (3) the amount and present value of any excess parachute payments determined without regard to the limitations of this Section. As used in this Section, the term “Base Period Income” means an amount equal to the Participant’s “annualized includible compensation for the base period” as defined in Section 280G(d)(1) of the Code. For purposes of such opinion, the value of any noncash benefits or any deferred payment or benefit shall be determined by the Company’s or an Affiliate’s independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code, which determination shall be evidenced in a certificate of such auditors addressed to the Company and the Participant. Such opinion shall be addressed to the Company and the Participant and shall be binding upon the Company and the Participant. If such opinion determines that there would be an excess parachute payment, the payments hereunder that are includible in Total Payments or any other payment or benefit determined by such counsel to be includible in Total Payments shall be reduced or eliminated as specified by the Participant in writing delivered to the Company within thirty (30) days of his receipt of such opinion or, if the Participant fails to so notify the Company, then as the Company shall reasonably determine, so that under the bases of calculations set forth in such opinion there will be no excess parachute payment. If such legal counsel so requests in connection with the opinion required by this Section, the Participant and the Company shall obtain, at the Company’s expense, and the legal counsel may rely on in providing the opinion, the advice of a firm of recognized executive compensation consultants as to the reasonableness of any item of compensation to be received by the Participant. If the provisions of Sections 280G and 4999 of the Code are repealed without succession, then this Section shall be of no further force or effect.

(b)     Employment Contract Governs . The provisions of subsection (a) above shall not apply to a Participant whose employment is governed by an employment contract that provides for Total Payments in excess of the limitation described in subsection (a) above.

Section 8.4. Prior Definition of a Change of Control . Notwithstanding anything to the contrary in Section 8.2, until January 1, 2017, a Change of Control shall have the meaning set forth in the Plan as in effect immediately prior to January 1, 2016


ARTICLE 9.
GENERAL PROVISIONS

Section 9.1. Administration .

(a)     General . The Committee shall have overall discretionary authority with respect to administration of the Plan; provided that the Administrator shall have discretionary authority and responsibility for the general operation and daily administration of the Plan and to decide claims and appeals as specified herein. If at any time the Committee shall not be in existence or not be composed of members of the Board who qualify as “non-employee directors”, then all determinations affecting Participants who are subject to Section 16 of the Exchange Act shall be made by the full Board, and all determinations affecting other Participants shall be made by the Board or an officer of the Company or other committee appointed by the Board (with the assistance of the Administrator). The Committee or Administrator may, in its discretion, delegate any or all of its authority and responsibility; provided that the Committee shall not delegate authority and responsibility with respect to non-ministerial functions that relate to the participation by Participants who are subject to Section 16 of the Exchange Act at the time any such delegated authority or responsibility is exercised. To the extent of any such delegation, any references herein to the Committee or Administrator, as applicable, shall be deemed references to such delegatee. Interpretation of the Plan shall be within the sole discretion of the Committee or the

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Administrator with respect to their respective duties hereunder. If any delegatee of the Committee or the Administrator shall also be a Participant or Beneficiary, any determinations affecting the delegatee’s participation in the Plan shall be made by the Committee or Administrator, as applicable.

(b)     Authority and Responsibility . In addition to the authority specifically provided herein, the Committee and Administrator shall have the discretionary authority to take any action or make any determination deemed necessary for the proper administration of the Plan with regard to the respective duties of each under the Plan, including but not limited to: (1) prescribe rules and regulations for the administration of the Plan; (2) prescribe forms for use with respect to the Plan; (3) interpret and apply all of the Plan’s provisions, reconcile inconsistencies or supply omissions in the Plan’s terms; (4) make appropriate determinations, including factual determinations, and calculations; and (5) prepare all reports required by law. Any action taken by the Committee shall be controlling over any contrary action of the Administrator. The Committee and the Administrator may delegate their ministerial duties to third parties and to the extent such delegation, references to the Committee or Administrator herein shall mean such delegates, if any.

(c)     Decisions Binding . The Committee’s and Administrator’s determinations shall be final and binding on all parties with an interest hereunder, unless determined to be arbitrary and capricious.

(d)     Procedures of the Committee . The Committee’s determinations must be made by not less than a majority of its members present at the meeting (in person or otherwise) at which a quorum is present, or by written consent, which sets forth the action, is signed by each member of the Committee and filed with the minutes for proceedings of the Committee. A majority of the entire Committee shall constitute a quorum for the transaction of business. The Administrator’s determinations shall be made in accordance with such procedures it establishes.

(e)     Indemnification . Service on the Committee or as an Administrator shall constitute service as a director or officer of the Company so that the Committee and Administrator members shall be entitled to indemnification, limitation of liability and reimbursement of expenses with respect to their Committee or Administrator services to the same extent that they are entitled under the Company’s charter documents and applicable law for their services as directors or officers of the Company.

















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Section 9.2.    Designation of Beneficiary . Each Participant may designate a Beneficiary in such form and manner and within such time periods as the Administrator may prescribe. A Participant can change his beneficiary designation at any time, provided that each beneficiary designation shall revoke the most recent designation, and the last designation received by the Administrator while the Participant was alive shall be given effect. If a Participant designates a Beneficiary without providing in the designation that the Beneficiary must be living at the time of distribution, the designation shall vest in the Beneficiary the distribution payable after the Participant’s death, and such distribution if not paid by the Beneficiary’s death shall be made to the Beneficiary’s estate. In the event there is no valid beneficiary designation in effect at the time of the Participant’s death, in the event the Participant’s designated Beneficiary does not survive the Participant, or in the event that the beneficiary designation provides that the Beneficiary must be living at the time of distribution and such designated Beneficiary does not survive to the distribution date, the Participant’s estate will be deemed the Beneficiary and will be entitled to receive payment. If a Participant designates his spouse as a beneficiary, such beneficiary designation automatically shall become null and void on the date the Administrator receives notice of the Participant’s divorce or legal separation.

Section 9.3.    Restrictions to Comply with Applicable Law . All transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 under the Exchange Act. The Committee and Administrator shall administer the Plan so that transactions under the Plan will be exempt from or comply with Section 16 of the Exchange Act, and shall have the right to restrict or rescind any transaction, or impose other rules and requirements, to the extent it deems necessary or desirable for such exemption or compliance to be met.

Section 9.4.    Claims Procedures .

(a)     Initial Claim . If a Participant or Beneficiary (the “claimant”) believes that he is entitled to a benefit under the Plan that is not provided, the claimant or his legal representative shall file a written claim for such benefit with the Administrator within ninety (90) days of the date the payment that is in dispute should have been made. The Administrator shall review the claim and render a decision within ninety (90) days following the receipt of the claim; provided that the Administrator may determine that an additional ninety (90)-day extension is necessary due to circumstances beyond the Administrator’s control, in which event the Administrator shall notify the claimant prior to the end of the initial period that an extension is needed, the reason therefor, and the date by which the Administrator expects to render a decision. If the claimant’s claim is denied in whole or part, the Administrator shall provide written notice to the claimant of such denial. The written notice shall include: the specific reason(s) for the denial; reference to specific Plan provisions upon which the denial is based; a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of which such material or information is necessary; and a description of the Plan’s review procedures (as set forth in subsection (b)) and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under section 502(a) of ERISA following an adverse determination upon review.









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(b)     Request for Appeal . The claimant has the right to appeal the Administrator’s decision by filing a written appeal to the Administrator within sixty (60) days after the claimant’s receipt of the Administrator’s decision, although to avoid penalties under Code Section 409A, the claimant’s appeal must be filed within one hundred eighty (180) days of the date payment could have been timely made in accordance with the terms of the Plan and pursuant to Regulations promulgated under Code Section 409A. The claimant will have the opportunity, upon request and free of charge, to have reasonable access to and copies of all documents, records and other information relevant to the claimant’s appeal. The claimant may submit written comments, documents, records and other information relating to his claim with the appeal. The Administrator will review all comments, documents, records and other information submitted by the claimant relating to the claim, regardless of whether such information was submitted or considered in the initial claim determination. The Administrator shall make a determination on the appeal within sixty (60) days after receiving the claimant’s written appeal; provided that the Administrator may determine that an additional sixty (60)-day extension is necessary due to circumstances beyond the Administrator’s control, in which event the Administrator shall notify the claimant prior to the end of the initial period that an extension is needed, the reason therefor and the date by which the Administrator expects to render a decision. If the claimant’s appeal is denied in whole or part, the Administrator shall provide written notice to the claimant of such denial. The written notice shall include: the specific reason(s) for the denial; reference to specific Plan provisions upon which the denial is based; a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of all documents, records, and other information relevant to the claimant’s claim; and a statement of the claimant’s right to bring a civil action under section 502(a) of ERISA. If the claimant does not receive a written decision within the time period(s) described above, the appeal shall be deemed denied on the last day of such period(s).

(c)     ERISA Fiduciary . For purposes of ERISA, the Committee shall be considered the named fiduciary under the Plan and the plan administrator, except with respect to claims and appeals, for which the Administrator shall be considered the named fiduciary.

Section 9.5.    Participant Rights Unsecured .

(a)     Unsecured Claim . The right of a Participant or his Beneficiary to receive a distribution hereunder shall be an unsecured claim, and neither the Participant nor any Beneficiary shall have any rights in or against any amount credited to his Account or any other specific assets of the Company or an Affiliate. The right of a Participant or Beneficiary to the payment of benefits under this Plan shall not be assigned, encumbered, or transferred, except as permitted under Section 6.7(a)(2) or 9.2. The rights of a Participant hereunder are exercisable during the Participant’s lifetime only by him or his guardian or legal representative.

(b)     Contractual Obligation . The Company or an Affiliate may authorize the creation of a trust or other arrangements to assist it in meeting the obligations created under the Plan, subject to the restrictions on funding such trust or arrangement imposed by Code Sections 409A(b)(2) or (3). However, any liability to any person with respect to the Plan shall be based solely upon any contractual obligations that may be created pursuant to the Plan. No obligation of the Company or an Affiliate shall be deemed to be secured by any pledge of, or other encumbrance on, any property of the Company or any Affiliate. Nothing contained in this Plan and no action taken pursuant to its terms shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company or an Affiliate and any Participant or Beneficiary, or any other person.


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(c)     No Right to Employment . Participation in this Plan, or any modifications thereof, or the payments of any benefits hereunder, shall not be construed as giving to any person any right to be retained in the service of the Company or any Affiliate, limiting in any way the right of the Company or any Affiliate to terminate such person’s employment at any time, evidencing any agreement or understanding that the Company or any Affiliate will employ such person in any particular position or any particular rate of compensation or guaranteeing such person any right to receive any other form or amount of remuneration from the Company or any Affiliate.

Section 9.6. Amendment or Termination of Plan .

(a)     Amendment . The Committee may at any time amend the Plan, including but not limited to modifying the terms and conditions applicable to (or otherwise eliminating) Deferrals to be made on or after the amendment date to the extent not prohibited by Code Section 409A; provided, however, that no amendment may reduce or eliminate any Account balance accrued to the date of such amendment (except as such Account balance may be reduced as a result of investment losses allocable to such Account) without a Participant’s consent except as otherwise specifically provided herein; and provided further that the Board must approve any amendment that expands the class of employees eligible for participation under the Plan, that materially increases the benefits provided under the Plan or that is required to be approved by the Board by any applicable law or the listing requirements of the national securities exchange upon which the Company’s ordinary shares are then traded. In addition, the Administrator may at any time amend the Plan to make administrative changes and changes necessary to comply with applicable law.

(b)     Termination . The Committee may terminate the Plan in accordance with the following provisions. Upon termination of the Plan, any deferral elections then in effect shall be cancelled to the extent permitted by Code Section 409A. Upon termination of the Plan, the Committee may authorize the payment of all amounts accrued under the Plan in a single sum payment without regard to any distribution election then in effect, only in the following circumstances:

(1)
The Plan is terminated pursuant to irrevocable action taken by the Committee within the thirty (30) days preceding or the twelve (12) months following a change in control event (as defined in Code Section 409A), provided that all other plans required to be aggregated with this Plan under Code Section 409A are also terminated and liquidated with respect to each participant that experienced the change in control event. In such event, the single sum payment must be distributed within twelve (12) months after such irrevocable action is taken.












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(2)
The Plan is terminated within twelve (12) months of a corporate dissolution taxed under Code Section 331, or with the approval of a bankruptcy court pursuant to 11 U.S.C. §503(b)(1)(A). In such event, the single sum payment must be distributed by the latest of: (A) the last day of the calendar year in which the Plan termination occurs, (B) the first calendar year in which the amount is no longer subject to a substantial risk of forfeiture, or (C) the first calendar year in which payment is administratively practicable.

(3)
The Plan is terminated at any other time, provided that such termination does not occur proximate to a downturn in the financial health of the Company or an Affiliate, and all other plans required to be aggregated with this Plan under Code Section 409A are also terminated and liquidated. In such event, the single sum payment shall be paid no earlier than twelve (12) months (and no later than twenty-four (24) months) after the date of the Plan’s termination. Notwithstanding the foregoing, any payment that would otherwise be paid during the twelve (12)-month period beginning on the Plan termination date pursuant to the terms of the Plan shall be paid in accordance with such terms. In addition, the Company or any Affiliate shall be prohibited from adopting a similar arrangement within three (3) years following the date of the Plan’s termination.

Section 9.7. Administrative Expenses . Costs of establishing and administering the Plan will be paid by the Company and its participating Affiliates.

Section 9.8. Successors and Assigns . This Plan shall be binding upon and inure to the benefit of the Company, its successors and assigns and the Participants and their heirs, executors, administrators, and legal representatives.

Section 9.9.    Governing Law; Limitation on Actions; Dispute Resolution .

(a)     Governing Law . This Plan is intended to be a plan of deferred compensation maintained for a select group of management or highly compensated employees as that term is used in ERISA, and shall be interpreted so as to comply with the applicable requirements thereof. In all other respects, the Plan is to be construed and its validity determined according to the laws of the State of Wisconsin (without reference to conflict of law principles thereof) to the extent such laws are not preempted by federal law.

(b)     Limitation on Actions . Any action or other legal proceeding with respect to the Plan may be brought only after the claims and appeals procedures of Section 9.4 are exhausted and only within period ending on the earlier of (1) one year after the date claimant receives notice or deemed notice of a denial upon appeal under Section 9.4(b), or (2) the expiration of the applicable statute of limitations period under applicable federal law. Any action or other legal proceeding not adjudicated under ERISA must be arbitrated in accordance with the provisions of subsection (c).







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(c)     Arbitration .

(1)
Application . Notwithstanding any employee agreement in effect between a Participant and the Company or any Affiliate, if a Participant or Beneficiary brings a claim that relates to benefits under this Plan that is not covered under ERISA, and regardless of the basis of the claim (including but not limited to, actions under Title VII, wrongful discharge, breach of employment agreement, etc.), such claim shall be settled by final binding arbitration in accordance with the rules of the American Arbitration Association (“AAA”) and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.

(2)
Initiation of Action . Arbitration must be initiated by serving or mailing a written notice of the complaint to the other party. Normally, such written notice should be provided to the other party within one year (365 days) after the day the complaining party first knew or should have known of the events giving rise to the complaint. However, this time frame may be extended if the applicable statute of limitation provides for a longer period of time. If the complaint is not properly submitted within the appropriate time frame, all rights and claims that the complaining party has or may have against the other party shall be waived and void. Any notice sent to the Company shall be delivered to:

Office of General Counsel
Johnson Controls International plc
5757 North Green Bay Avenue
P.O. Box 591
Milwaukee, WI 53201-0591

The notice must identify and describe the nature of all complaints asserted and the facts upon which such complaints are based. Notice will be deemed given according to the date of any postmark or the date of time of any personal delivery.
(3)
Compliance with Personnel Policies . Before proceeding to arbitration on a complaint, the Participant or Beneficiary must initiate and participate in any complaint resolution procedure identified in the Company’s or Affiliate’s personnel policies. If the claimant has not initiated the complaint resolution procedure before initiating arbitration on a complaint, the initiation of the arbitration shall be deemed to begin the complaint resolution procedure. No arbitration hearing shall be held on a complaint until any applicable complaint resolution procedure has been completed.







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(4)
Rules of Arbitration . All arbitration will be conducted by a single arbitrator according to the Employment Dispute Arbitration Rules of the AAA. The arbitrator will have authority to award any remedy or relief that a court of competent jurisdiction could order or grant including, without limitation, specific performance of any obligation created under policy, the awarding of punitive damages, the issuance of any injunction, costs and attorney’s fees to the extent permitted by law, or the imposition of sanctions for abuse of the arbitration process. The arbitrator’s award must be rendered in a writing that sets forth the essential findings and conclusions on which the arbitrator’s award is based.

(5)
Representation and Costs . Each party may be represented in the arbitration by an attorney or other representative selected by the party. The Company or Affiliate shall be responsible for its own costs, the AAA filing fee and all other fees, costs and expenses of the arbitrator and AAA for administering the arbitration. The claimant shall be responsible for his attorney’s or representative’s fees, if any. However, if any party prevails on a statutory claim which allows the prevailing party costs and/or attorneys’ fees, the arbitrator may award costs and reasonable attorneys’ fees as provided by such statute.

(6)
Discovery; Location; Rules of Evidence . Discovery will be allowed to the same extent afforded under the Federal Rules of Civil Procedure. Arbitration will be held at a location selected by the Company. AAA rules notwithstanding, the admissibility of evidence offered at the arbitration shall be determined by the arbitrator who shall be the judge of its materiality and relevance. Legal rules of evidence will not be controlling, and the standard for admissibility of evidence will generally be whether it is the type of information that responsible people rely upon in making important decisions.

(7)
Confidentiality . The existence, content or results of any arbitration may not be disclosed by a party or arbitrator without the prior written consent of both parties. Witnesses who are not a party to the arbitration shall be excluded from the hearing except to testify.















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ADDENDUM
SPECIAL PROVISIONS APPLICABLE TO DELAYED PAYMENTS

In connection with the merger of Johnson Controls, Inc. with and into a subsidiary of Tyco International plc on September 2, 2016, the amounts accrued through such date under the Johnson Controls, Inc. Executive Deferred Compensation Plan and the Johnson Controls, Inc. Retirement Restoration Plan became distributable thereunder pursuant to the change in control provisions of such plans. Certain of the amounts payable under both such plans to Mr. Alex Molinaroli (the “Executive”) would have been nondeductible by Johnson Controls, Inc. as a result of the application of Code Section 162(m). As such, as permitted by Code Section 409A, the Company elected to delay the distribution of such amounts until either (1) the Executive’s first taxable year in which the Company reasonably anticipates, or should reasonably anticipate, that if the payment is made during such year, the deduction of such payment will not be barred by application of Code Section 162(m) or (2) during the period beginning with the date of the Executive’s Separation from Service and ending on the later of the last day of the fiscal year of the Company in which the Executive Separates from Service or the 15 th day of the third month following the Executive’s Separation from Service. Where the payment is delayed to a date on or after the Executive’s Separation from Service, if the Executive is a specified employee (within the meaning of Code Section 409A and the Company’s policies in regard thereto) as of the date of such Separation from Service, then payment will not be made under the date that is six months after the date of the Executive’s Separation from Service. The deferred amounts described herein will otherwise be subject to the provisions of this Plan, including the right of the Executive to direct the investment of such amounts and the right of the Executive to designate a Beneficiary to receive such amounts in the event of the Executive’s death.

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Exhibit 10.4


JOHNSON CONTROLS INTERNATIONAL PLC     RETIREMENT RESTORATION PLAN
As Amended and Restated Effective January 1, 2018
ARTICLE 1
PURPOSE AND DURATION

Section 1.1.     Purpose . The purpose of the Johnson Controls International plc Retirement Restoration Plan (formerly, the Johnson Controls, Inc. Retirement Restoration Plan) (the “Plan”) is to restore retirement benefits to certain participants in a Retirement Plan whose benefits under such plan are or will be limited by reason of Code Sections 401(a)(17), 401(k), 401(m), 402(g) and/or 415, and/or by reason of the election of such employees to defer income or reduce salary pursuant to this Plan or to defer annual incentive payments pursuant to the Johnson Controls International plc Executive Deferred Compensation Plan. This Plan is completely separate from the tax-qualified plans maintained by the Company and its subsidiaries and is not funded or qualified for special tax treatment under the Code. The Plan is intended to be an unfunded plan covering a select group of management and highly compensated employees for purposes of ERISA.

Section 1.2.     Duration of the Plan . The Plan became effective as of January 1, 1980. The Plan has been amended and restated several times since it was originally effective, most recently as of January 1, 2018. Notwithstanding the effective date of this amended and restated Plan, the Administrator may implement administrative changes necessary to effectuate the Plan changes prior to such date (such as provide enrollment forms in 2017 consistent with the changes described in the Plan). The Plan shall remain in effect until terminated pursuant to Article 8.

ARTICLE 2
DEFINITIONS

Section 2.1.     Definitions . Wherever used in the Plan, the following terms shall have the meanings set forth below and, where the meaning is intended, the initial letter of the word is capitalized:

(a) “Account” means the record keeping account or accounts maintained to record the interest of each Participant under Article 4. An Account is established for record keeping purposes only and not to reflect the physical segregation of assets on the Participant’s behalf, and may consist of such subaccounts or balances as the Administrator may determine to be necessary or appropriate.

(b) “Administrator” means the Corporate Benefits Department of the Company; provided that , where either applicable law or the Charter of the Committee requires action to be taken by the Committee, then the term Administrator shall refer to the Committee to the extent needed.
  
(c) “Affiliate” means each entity that is required to be included in the Company’s controlled group of corporations within the meaning of Code Section 414(b), or that is under common control with the Company within the meaning of Code Section 414(c); provided that for purposes of determining when a Participant has incurred a Separation from Service, the phrase “at least 50 percent” shall be used in place of “at least 80 percent” each place it appears in the regulations thereunder.

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(d) “Beneficiary” means the person or persons designated by the Participant to receive payments under the Plan in the event of the Participant’s death as provided in Section 4.3.

(e) “Board” means the Board of Directors of the Company.

(f) “Cause” means a Participant’s (1) substantial failure or refusal to perform duties and responsibilities of his or her job as required by the Employer, (2) violation of any fiduciary duty owed to the Company or any Affiliate, (3) conviction of or plea of no contest to a felony or misdemeanor, (4) dishonesty, (5) theft, (6) violation of Company or Employer rules or policy, or (7) other egregious conduct, that has or could have a serious and detrimental impact on the Company, any of its Affiliates or any of their employees. The Administrator, in its sole and absolute discretion, shall determine whether Cause exists. Examples of “Cause” may include, but are not limited to, excessive absenteeism, misconduct, insubordination, violation of Company policy, dishonesty, and deliberate unsatisfactory performance (e.g., Employee refuses to improve deficient performance).

(g) “Code” means the Internal Revenue Code of 1986, as interpreted by regulations and rulings issued pursuant thereto, all as amended and in effect from time to time. Any reference to a specific provision of the Code shall be deemed to include any rulings and regulations promulgated thereunder and reference to any successor provision thereto.

(h) “Committee” means the Compensation Committee of the Board. If at any time the Committee shall not be in existence, or not be composed of members of the Board who qualify as “non-employee directors,” then all determinations affecting Participants who are subject to Section 16 of the Exchange Act shall be made by the full Board, and the term Committee shall refer to the Board to the extent needed.

(i) “Company” means Johnson Controls International plc, an Irish public limited company, and its successors as provided in Article 10.

(j) “Employer” means the Company or the Affiliate that employs a Participant.

(k) “ERISA” means the Employee Retirement Income Security Act of 1974, as interpreted by regulations and rulings issued pursuant thereto, all as amended and in effect from time to time. Any reference to a specific provision of ERISA shall be deemed to include any rulings and regulations promulgated thereunder and reference to any successor provision thereto.

(l) “Exchange Act” means the Securities Exchange Act of 1934, as interpreted by regulations and rules issued pursuant thereto, all as amended and in effect from time to time. Any reference to a specific provision of the Exchange Act shall be deemed to include any rulings and regulations promulgated thereunder and reference to any successor provision thereto.









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(m) “Fair Market Value” means, with respect to a Share, the closing sales price of a Share on the New York Stock Exchange as of 4:00 p.m. EST on the date in question (or the immediately preceding trading day if the date in question is not a trading day), and with respect to any other property, such value as is determined by the Administrator.

(n) “Measurement Funds” means the investment options offered under the Savings Plan (excluding the Company stock fund), the Share Unit Account, and any other alternatives made available by the Administrator. These Measurement Funds are used solely to calculate the earnings that are credited to a Participant’s Account in accordance with Section 5.2 below, and do not represent any beneficial interest on the part of the Participant in any asset or other property of the Company or its Affiliates. The determination of an increase or decrease in the performance of each Measurement Fund shall be made by the Administrator in its reasonable discretion. Measurement Funds may be replaced, new funds may be added, or both, from time to time in the discretion of the Administrator; provided that if the Measurement Funds hereunder correspond with funds available for investment under the Savings Plan, then, unless the Administrator determines otherwise in its discretion, any addition, removal or replacement of investment funds under the Savings Plan shall automatically result in a corresponding change to the Measurement Funds hereunder.

(o) “Participant” means an employee of the Company or an Affiliate who is described in an applicable Appendix hereto; provided that the Committee shall limit the foregoing group of eligible employees to a select group of management and highly compensated employees, as determined by the Committee in accordance with ERISA. Where the context so requires, a Participant also means a former employee or Beneficiary entitled to receive a benefit hereunder.

(p) “Retirement Plan” means the Savings Plan or any other Code Section 401(k) plan maintained by the Company or an Affiliate.

(q) “Savings Plan” means the Johnson Controls Savings and Investment (401(k)) Plan, a defined contribution plan, and any successor to such plan maintained by the Company or an Affiliate.

(r) “Separation from Service” means a Participant’s cessation of service from the Company and all Affiliates within the meaning of Code Section 409A, as determined by the Administrator, subject to the following rules:

(i)
If a Participant takes a leave of absence from the Company or an Affiliate for purposes of military leave, sick leave or other bona fide leave of absence, the Participant’s service will be deemed to continue for the first six (6) months of the leave of absence, or if longer, for so long as the Participant’s right to reemployment is provided either by statute or by contract; provided that if the leave of absence is due to the Participant’s medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of six (6) months or more, and such impairment causes the Participant to be unable to perform the duties of his or her position with the Company or an Affiliate or a substantially similar position of employment, then the leave period may be extended for up to a total of twenty-nine (29) months. If the period of the leave exceeds the time periods set forth above and the Participant’s right to reemployment is not provided by either statute or contract, the Participant will be considered to have incurred a Separation from Service on the first day following the end of the applicable time period set forth above.

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(ii)
A Participant will be presumed to have incurred a Separation from Service when the level of bona fide services performed by the Participant for the Company and its Affiliates permanently decreases to a level equal to twenty percent (20%) or less of the average level of services performed by the Participant for the Company and its Affiliates during the immediately preceding thirty-six (36) month period (or such lesser period of service).

(iii)
The Participant will be presumed not to have incurred a Separation from Service while the Participant continues to provide bona fide services to the Company or an Affiliate in any capacity (whether as an employee or independent contractor) at a level that at least fifty percent (50%) of the average level of services performed by the Participant for the Company and its Affiliates during the immediately preceding thirty-six (36) month period (or such lesser period of service).

(iv)
If a Participant ceases to provide services as an employee to the Company or an Affiliate, but immediately thereafter continues to provide services as an independent contractor to any such entity without incurring a Separation from Service as described in the subparagraphs above, then such Participant will not incur a Separation from Service until the expiration of the contract (or, if applicable, all contracts) under which services are performed for the Company and any Affiliate if the expiration is a good-faith and complete termination of the contractual relationship.

(s) “Share” means an ordinary share of the Company.

(t) “Share Unit Account” means the portion of the Participant’s Account that is deemed invested in Shares.

(u) “Share Units” means the hypothetical Shares that are credited to the Share Unit Accounts in accordance with Article 6.

(v) “Trading Day” means each day when the United States financial markets are open for business.

(w) “Valuation Date” means the day selected by the Administrator on which to value a Participant’s Account prior to a distribution. The Valuation Date may be any Trading Day within the one week prior to the date a distribution is made, as determined in the Administrator’s sole discretion.













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ARTICLE 3
ADMINISTRATION

Section 3.1.     Authority of the Administrator . The Administrator shall have discretionary authority and responsibility for the general operation and daily administration of the Plan, including, in addition to the authority specifically provided to the Administrator in this Plan, to (a) interpret and apply all of the Plan’s provisions, (b) prescribe forms for use with respect to the Plan, (c) reconcile inconsistencies or supply omissions in the Plan’s terms, (d) make appropriate determinations, including factual determinations, and calculations, (e) prepare all reports required by law, and (f) determine the eligibility of an employee to participate in the Plan; provided, however, that only the Committee shall have the authority and responsibilities specified in Section 3.2 below.

Section 3.2.     Authority of the Committee . In addition to the authority specifically provided to the Committee in this Plan, the Committee shall have the sole authority to amend the Plan, make all determinations affecting Participants who are subject to Section 16 of the Exchange Act, and make any other determinations that applicable law or the Charter of the Committee requires to be made by the Committee. In addition, any action taken by the Committee shall be controlling over any contrary action of the Administrator.

Section 3.3.     Delegation . The Committee or Administrator may, in its discretion, delegate any or all of its authority and responsibility to third parties; provided that the Committee shall not delegate authority and responsibility with respect to non-ministerial functions that relate to the participation by Participants who are subject to Section 16 of the Exchange Act at the time any such delegated authority or responsibility is exercised. To the extent of any such delegation, any references herein to the Committee or Administrator, as applicable, shall be deemed references to such delegate.
 
Section 3.4.     Interpretation; Decisions Binding . Interpretation of the Plan shall be within the sole discretion of the Committee or the Administrator with respect to their respective duties hereunder. If any member of, or delegate of, the Committee or the Administrator shall also be a Participant or Beneficiary, then such individual may not participate in any determinations affecting the individual’s benefits under the Plan. The Committee’s and the Administrator’s determinations shall be final and binding on all parties with an interest hereunder, unless determined to be arbitrary and capricious.

Section 3.5.     Procedures for Administration . The Committee’s determinations must be made by not less than a majority of its members present at the meeting (in person or otherwise) at which a quorum is present, or by written majority consent, which sets forth the action, is signed by the members of the Committee and filed with the minutes for proceedings of the Committee. A majority of the entire Committee shall constitute a quorum for the transaction of business. The Administrator’s determinations shall be made in accordance with such procedures it establishes.











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Section 3.6.     Restrictions to Comply with Section 16 . All transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 under the Exchange Act. The Committee and the Administrator shall administer the Plan so that transactions under the Plan will be exempt from or comply with Section 16 of the Exchange Act, and shall have the right to restrict or rescind any transaction, or impose other rules and requirements, to the extent it deems necessary or desirable for such exemption or compliance to be met.

Section 3.7.     Accelerated Vesting . The Committee (with respect to Participants who are officers of the Company) and an executive officer of the Company (with respect to Participants who are not officers of the Company) shall have the discretion to vest any Participant in his or her Account hereunder, in whole or in part, upon the Participant’s termination of employment from the Company and its Affiliates for any reason.

ARTICLE 4
PLAN BENEFITS

Section 4.1.     Eligibility for and Amount of Benefits .

(a)     In General . Participants shall be eligible for a benefit in accordance with the terms of the applicable Appendix.

(b)     Employees Acquired in a Merger or Acquisition . In the event an individual becomes an employee of the Company or an Affiliate due to a merger or acquisition, such employee shall not be eligible to participate in the Plan until such time that participation is approved by the Company via amendment of the Plan, corporate resolution or pursuant to the terms of the applicable purchase agreement, even if such employee would otherwise be eligible to participate in the Plan under the terms of an Appendix.

Section 4.2.     Payment of Benefits . Upon a Participant’s Separation from Service for any reason, the Participant shall be entitled to payment of the vested balance of the Participant’s Account in cash in the manner specified in the applicable Appendix.

Section 4.3.     Death Benefit .

(a)     Payment upon Death . In the event of the Participant’s death prior to receiving all payments due under this Plan, the vested balance of the Participant’s Account shall be paid to the Participant’s Beneficiary in a cash lump sum. If the Participant’s death occurs between January 1 and June 30, payment will be made to the Participant’s Beneficiary between July 1 and September 30 of the same year. If the Participant’s death occurs between July 1 and December 31, payment will be made to the Participant’s Beneficiary between January 1 and March 31 of the following year.

(b)     Requirements for Payment . The timing of the payment(s) under Section 4.3(a) is dependent upon the Administrator receiving all information needed to authorize such payment (such as a copy of the Participant’s death certificate). To the extent the Administrator cannot make a payment because it has not received such information, the Administrator shall make such payment(s) to the Beneficiary as soon as practicable in accordance with Section 4.3(a) after it has received all information necessary to make such payment, provided that such payment(s) due from the date of death through December 31 of the year following the year of the Participant’s death must be completed by such December 31 in order to avoid additional taxes under Code Section 409A.

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Section 4.4.     Tax Withholding . The Employer that is liable to make a payment hereunder shall have the right to deduct from any deferral or payment made hereunder, or from any other amount due a Participant, the amount of cash sufficient to satisfy the Employer’s foreign, federal, state or local income tax withholding obligations with respect to any amount deferred hereunder, whether at the time of deferral, vesting or payment thereof. In addition, if prior to the date of distribution of any amount hereunder, the Federal Insurance Contributions Act (FICA) tax imposed under Code Sections 3101, 3121(a) and 3121(v)(2), where applicable, becomes due, then the Employer may distribute from the Participant’s Account vested balance the amount needed to pay the Participant’s portion of such tax, plus an amount equal to the withholding taxes due under federal, state or local law resulting from the payment of such FICA tax, and an additional amount to pay the additional income tax at source on wages attributable to the pyramiding of the section 3401 wages and taxes, but no greater than the aggregate of the FICA amount and the income tax withholding related to such FICA amount. Each Participant shall be responsible for the payment of all individual tax liabilities relating to any benefits under the Plan.

Section 4.5.     Additional Payment Provisions .

(a)     Acceleration of Payment . Notwithstanding the foregoing,

(i)
If an amount deferred under this Plan is required to be included in the income of a Participant under Code Section 409A prior to the date such amount is scheduled to be distributed, then such Participant shall receive a distribution, in a lump sum within ninety (90) days after the date the Plan fails to meet the requirements of Code Section 409A, of the amount required to be included in the Participant’s income as a result of such failure.

(ii)
If an amount under the Plan is required to be immediately distributed in a lump sum under a domestic relations order in accordance with Section 9.8, then such amount shall be distributed according to the terms of such order.

(b)     Delay in Payment . Notwithstanding the foregoing,

(i)
If a distribution required under the terms of this Plan would jeopardize the ability of the Company or an Affiliate to continue as a going concern, the Company or the Affiliate shall not be required to make such distribution. Rather, the distribution shall be delayed until the first date that making the distribution does not jeopardize the ability of the Company or an Affiliate to continue as a going concern. Any distribution delayed under this provision shall be treated as made on the date specified under the terms of this Plan.











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(ii)
If a distribution will violate the terms of Section 16(b) of the Exchange Act or other Federal securities laws, or any other applicable law, then the distribution shall be delayed until the earliest date on which making the distribution will not violate such law.

Section 4.6.     Effect of Payment . The full payment of the applicable benefit under this Plan shall completely discharge all obligations on the part of the Employer to the Participant (and each Beneficiary) with respect to the operation of the Plan, and the Participant’s (and Beneficiary’s) rights under the Plan shall terminate.

Section 4.7.     Cash-Out Payments . Notwithstanding any distribution election made under the applicable Appendix, if the balance of a Participant’s Account as of any Valuation Date preceding a distribution is $50,000 or less, then the entire remaining vested balance of the Participant’s Account shall be paid in a lump sum on such distribution date.

ARTICLE 5
MEASUREMENT FUNDS

Section 5.1.     Investment Election .

(a)     Making Elections . Unless otherwise determined by the Administrator, amounts credited to a Participant’s Account shall reflect the investment experience of the Measurement Funds selected by the Participant. The Participant may select Measurement Funds as follows:

(i)
The Participant may make an initial investment election at the time of enrollment in the Plan in whole increments of one percent (1%).

(ii)
A Participant may elect to allocate any future amounts credited among the various Measurement Funds in whole increments of one percent (1%) from time to time as prescribed by the Administrator.

(iii)
A Participant may elect to reallocate the balance of his or her Account into various Measurement Funds from time to time as prescribed by the Administrator.

Investment elections shall remain in effect until changed by the Participant or the Administrator. All investment elections shall become effective as soon as practicable after receipt of such election by the Administrator, and must be made in the form and manner and within such time periods as the Administrator prescribes in order to be effective.
(b)     Default Election . In the absence of an effective election, the Participant’s Account shall be deemed invested in the applicable default fund under the Savings Plan.

Section 5.2.     Crediting of Earnings (or Losses) . On each Trading Day, a Participant’s Account shall be credited with all deemed earnings (or losses) generated by the Measurement Funds in which such Participant’s Account is deemed invested. Notwithstanding that the rates of return credited to a Participant’s Account are based upon the actual performance of the corresponding Measurement Fund, the Company shall not be obligated to invest an amount credited to a Participant’s Account under the Plan in such Measurement Funds or in any other investment funds.


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Section 5.3.     Pro-rata Distribution . Any distribution made to or on behalf of a Participant from his or her Account in an amount which is less than the entire balance of his or her Account shall be made pro rata from each of the Measurement Funds to which such Account is then allocated.


ARTICLE 6
RULES WITH RESPECT TO SHARE UNITS

Section 6.1.     Valuation of Share Unit Account . When any amounts are to be allocated to a Share Unit Account, such amount shall be converted to whole and fractional Share Units, by dividing the amount to be allocated by the Fair Market Value of a Share on the effective date of such allocation. If any dividends or other distributions are paid on Shares while a Participant has Share Units credited to his or her Account, such Participant’s Account shall be credited with a dividend award equal to the amount of the cash dividend paid or Fair Market Value of other property distributed on one Share, multiplied by the number of Share Units credited to his or her Share Unit Account on the date the dividend is declared. The dividend award shall be converted into additional Share Units as provided above using the Fair Market Value of a Share on the date the dividend is paid or distributed. Any other provision of this Plan to the contrary notwithstanding, if a dividend is declared on Shares in the form of a right or rights to purchase shares of the Company or any entity acquiring the Company, then no additional Share Units shall be credited to the Participant’s Share Unit Account with respect to such dividend, but each Share Unit credited to a Participant’s Share Unit Account at the time such dividend is paid, and each Share Unit thereafter credited to the Participant’s Share Unit Account at a time when such rights are attached to Shares, shall thereafter be valued as of any point in time on the basis of the aggregate of the then Fair Market Value of one Share plus the then Fair Market Value of such right or rights then attached to one Share.

Section 6.2.     Transactions Affecting Shares . In the event of any merger, share exchange, reorganization, consolidation, recapitalization, share dividend, share split or other change in corporate structure of the Company affecting Shares, the Administrator may make appropriate equitable adjustments with respect to the Share Units credited to the Share Unit Account of each Participant, including without limitation, adjusting the date as of which such units are valued and/or distributed, as the Administrator determines is necessary or desirable to prevent the dilution or enlargement of the benefits intended to be provided under the Plan.

Section 6.3.     No Shareholder Rights With Respect to Share Units . Participants shall have no rights as a shareholder pertaining to Share Units credited to their Account.

ARTICLE 7
SPECIAL RULES APPLICABLE IN THE EVENT OF A
CHANGE OF CONTROL OF THE COMPANY

Section 7.1.     Effect of a Change of Control .








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(a)    Upon a Change of Control (as defined in (b) below), the Committee may, but shall not be required to, terminate the Plan and cause the Company or each Employer to distribute to each Participant or Beneficiary his or her Account balance (which shall be fully vested upon the date of such Plan termination) in a lump sum payment as soon as practicable (but not more than ninety (90) days) following the Change of Control; provided that, if the Committee reasonably anticipates that any such lump sum payment would reduce or eliminate the Company’s or any of its Affiliate’s deduction for compensation to a Participant because of the compensation limit imposed under Code Section 162(m), then the Committee may elect to delay payment of such amount in accordance with the requirements of Code Section 409A.

(b)    For the purposes of this Section 7.1, a Change of Control shall have the meaning given in the Company’s equity awards plan as in effect at the time immediately prior to a Change of Control, provided that such event also constitutes a change in control event within the meaning of Code Section 409A.

Section 7.2.     Special Rule for Amounts Accumulated Before 2017 . Notwithstanding Section 7.1, each Participant (or any Beneficiary entitled to receive payments hereunder) shall receive a lump sum payment in cash of all amounts accumulated in such Participant’s Account with respect to periods through December 31, 2016 (as adjusted for earnings or losses thereon) within ninety (90) days following a Change of Control, as defined in the Pre-2018 Johnson Controls International plc Deferred Compensation Plan, provided, however, that the payment shall not be made prior to the date that is five (5) years after the occurrence of events that would have constituted a Change of Control as it was defined in this Plan prior to January 1, 2016.

Section 7.3.     Maximum Payment Limitation .

(a)     Limit on Payments . Except as provided in subsection (b) below, if any portion of the payments or benefits described in this Plan or under any other agreement with or plan of the Company or an Affiliate (in the aggregate, “Total Payments”), would constitute an “excess parachute payment”, then the Total Payments to be made to the Participant shall be reduced such that the value of the aggregate Total Payments that the Participant is entitled to receive shall be one dollar ($1) less than the maximum amount which the Participant may receive without becoming subject to the tax imposed by Section 4999 of the Code or which the Company or an Affiliate may pay without loss of deduction under Section 280G(a) of the Code. The terms “excess parachute payment” and “parachute payment” shall have the meanings assigned to them in Section 280G of the Code, and such “parachute payments” shall be valued as provided therein. Present value shall be calculated in accordance with Section 280G(d)(4) of the Code. Within forty (40) days following delivery of notice by the Employer to the Participant of its belief that there is a payment or benefit due the Participant which will result in an excess parachute payment, the Participant and the Employer, at the Employer’s expense, shall obtain the opinion (which need not be unqualified) of nationally recognized tax counsel selected by the Company’s independent auditors and acceptable to the Participant in his or her sole discretion (which may be regular outside counsel to the Company or an Affiliate), which opinion sets forth (1) the amount of the Base Period Income, (2) the amount and present value of Total Payments and (3) the amount and present value of any excess parachute payments determined without regard to the limitations of this Section. As used in this Section, the term “Base Period Income” means an amount equal to the Participant’s “annualized includible compensation for the base period” as defined in Section 280G(d)(1) of the Code. For purposes of such opinion, the value of any noncash benefits or any deferred payment or benefit shall be determined by the Company’s independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code, which determination shall be evidenced in a certificate of such auditors addressed to the Employer and the

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Participant. Such opinion shall be addressed to the Employer and the Participant and shall be binding upon the Employer and the Participant. If such opinion determines that there would be an excess parachute payment, the payments hereunder that are includible in Total Payments or any other payment or benefit determined by such counsel to be includible in Total Payments shall be reduced or eliminated so that there will be no excess parachute payment by applying the following principles, in order: (1) the payment or benefit with the higher ratio of the parachute payment value to present economic value (determined using reasonable actuarial assumptions) shall be reduced or eliminated before a payment or benefit with a lower ratio; (2) the payment or benefit with the later possible payment date shall be reduced or eliminated before a payment or benefit with an earlier payment date; and (3) cash payments shall be reduced prior to non-cash benefits; provided that if the foregoing order of reduction or elimination would violate Section 409A of the Code, then the reduction shall be made pro rata among the payment or benefits (on the basis of the relative present value of the parachute payments). If such legal counsel so requests in connection with the opinion required by this Section, the Participant and the Employer shall obtain, at the Employer’s expense, and the legal counsel may rely on in providing the opinion, the advice of a firm of recognized executive compensation consultants as to the reasonableness of any item of compensation to be received by the Participant. If the provisions of Sections 280G and 4999 of the Code are repealed without succession, then this Section shall be of no further force or effect.

(b)     Employment Contract Governs . The provisions of subsection (a) above shall not apply to a Participant whose employment is governed by an employment contract that provides for Total Payments in excess of the limitation described in subsection (a) above.

ARTICLE 8
AMENDMENT OR TERMINATION

Section 8.1.     Amendment . The Committee may at any time amend the Plan, including but not limited to modifying the terms and conditions applicable to (or otherwise eliminating) allocations or deferrals to be made on or after the amendment date to the extent not prohibited by Code Section 409A; provided, however, that no amendment may reduce or eliminate any vested Account balance as of the date of such amendment ( except as such Account balance may be reduced as a result of investment losses allocable to such account) without a Participant’s consent except as otherwise specifically provided herein; and provided further that any amendment that is required to be approved by the Board or Company shareholders pursuant to any applicable law or applicable listing requirement of the national securities exchange upon which the Company’s ordinary shares are then traded shall be subject to the Board’s or shareholders’ approval. In addition, the Administrator may at any time amend the Plan to make administrative or ministerial changes or changes necessary to comply with applicable law.













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Section 8.2.     Termination . The Committee may terminate the Plan in accordance with the following provisions. Upon termination of the Plan, any deferral elections then in effect shall be cancelled to the extent permitted by Code Section 409A. Upon termination of the Plan, the Committee may authorize the payment of the balance in all Accounts in a single sum payment without regard to any distribution election then in effect, only in the following circumstances:

(a)    The Plan is terminated pursuant to Article 7.

(b)    The Plan is terminated within twelve (12) months of a corporate dissolution taxed under Code Section 331, or with the approval of a bankruptcy court pursuant to 11 U.S.C. §503(b)(1)(A). In such event, the single sum payment must be distributed by the latest of: (1) the last day of the calendar year in which the Plan termination occurs, (2) the first calendar year in which the amount is no longer subject to a substantial risk of forfeiture, or (3) the first calendar year in which payment is administratively practicable.

(c)    The Plan is terminated at any other time, provided that such termination does not occur proximate to a downturn in the financial health of the Company or an Affiliate, and all other plans required to be aggregated with this Plan under Code Section 409A are also terminated and liquidated. In such event, the single sum payment shall be paid no earlier than twelve (12) months (and no later than twenty-four (24) months) after the date of the Plan’s termination. Notwithstanding the foregoing, any payment that would otherwise be paid during the twelve (12)-month period beginning on the Plan termination date pursuant to the terms of the Plan shall be paid in accordance with such terms. In addition, the Company or any Affiliate shall be prohibited from adopting a similar arrangement within three (3) years following the date of the Plan’s termination.

Section 8.3.     Entitlement to Benefits . Nothing herein shall be construed in any way to limit the right of the sponsor of a Retirement Plan to amend, modify or terminate such plan.

ARTICLE 9
CLAIMS PROCEDURES

Section 9.1.     Claim . A Participant or Beneficiary (referred to as a “claimant” in this Article 9) who believes that he or she is being denied a benefit to which he or she is entitled under the Plan may file a written request for such benefit with the Administrator, setting forth his or her claim for benefits. Any such claim must be made within one year after the claimant knew, or exercising reasonable care should have known, of the circumstances giving rise to such claim. If the claimant does not file a claim within such one year period, the claimant shall be barred and estopped from raising the claim. A claimant’s claim may also be filed by his or her duly authorized representative.

Section 9.2.     Claim Decision . The Administrator shall reply to any claim that is timely filed under Section 9.1 within ninety (90) days of receipt, unless it determines to extend such reply period for an additional ninety (90) days for reasonable cause. If an extension of time is required for a hearing or other special circumstances, the claimant shall be notified prior to the end of the initial ninety (90) day period. If the claim is denied in whole or in part, such reply shall include a written explanation, using language calculated to be understood by the claimant, setting forth:





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(a)    the specific reason or reasons for such denial;

(b)    the specific reference to relevant provisions of the Plan on which such denial is based;

(c)    a description of any additional material or information necessary for the claimant to perfect his or her claim and an explanation why such material or such information is necessary;

(d)    appropriate information as to the steps to be taken if the claimant wishes to submit the claim for review;

(e)    the time limits for requesting a review under Section 9.3 and for review under Section 9.4 hereof;

(f)    the claimant’s right to bring an action for benefits under Section 502 of ERISA, if the claim is denied upon review; and

(g)    any other information required by ERISA.

Section 9.3.     Request for Review . Within sixty (60) days after the receipt by the claimant of the written explanation described above, the claimant (or his or her duly authorized representative) may request in writing that the Administrator review its determination. The claimant (or his or her duly authorized representative) may, but need not, review the relevant documents and submit issues and comment in writing for consideration by the Administrator. If the claimant does not request a review of the initial determination within such 60-day period, the claimant shall be barred and estopped from challenging the determination.

Section 9.4.     Review of Decision . After considering all materials presented by the claimant, the Administrator will render a written decision, setting forth the specific reasons for the decision and containing specific references to the relevant provisions of the Plan on which the decision is based, and any other information required by ERISA. The decision on review shall normally be made within sixty (60) days after the Administrator’s receipt of the claimant’s request. If an extension of time is required for a hearing or other special circumstances, the Administrator shall notify the claimant and the time limit shall be 120 days. All decisions on review shall be final and shall bind all parties concerned.

Section 9.5.     Limitation on Actions . Any action or other legal proceeding with respect to the Plan may be brought only after the claims procedures of this Article 7 are exhausted and only within the period ending on the earlier of (a) one year after the date claimant receives notice or deemed notice of a denial upon review under Section 9.4 or (b) the expiration of the applicable statute of limitations period under applicable federal law. Any action or other legal proceeding not adjudicated under ERISA must be arbitrated in accordance with the provisions of Section 9.6








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Section 9.6.     Arbitration . Notwithstanding any employee agreement in effect between a Participant and the Employer, if a Participant or Beneficiary brings a claim that relates to benefits under this Plan that is not covered under ERISA, and regardless of the basis of the claim (including but not limited to, actions under Title VII, wrongful discharge, breach of employment agreement, etc.), such claim shall be settled by final binding arbitration in accordance with the rules of the American Arbitration Association (“AAA”) and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Arbitration must be initiated by serving or mailing a written notice of the complaint to the other party. Normally, such written notice should be provided to the other party within one year (365 days) after the day the complaining party first knew or should have known of the events giving rise to the complaint. However, this time frame may be extended if the applicable statute of limitation provides for a longer period of time. If the complaint is not properly submitted within the appropriate time frame, all rights and claims that the complaining party has or may have against the other party shall be waived and void. Any notice sent to the Employer or Company under this Section shall be delivered to the Company’s headquarters, with attention to the General Counsel of the Company.


ARTICLE 10
MISCELLANEOUS

Section 10.1.     Protective Provisions . Each Participant and Beneficiary shall cooperate with the Administrator by furnishing any and all information requested by the Administrator in order to facilitate the payment of benefits hereunder. If a Participant or Beneficiary refuses to cooperate with the Administrator, the Company and each Employer shall have no further obligation to the Participant or Beneficiary under the Plan, other than payment of the then-current balance of the Participant’s Account in accordance with prior elections and subject to Section 10.9.

Section 10.2.     Designation of Beneficiary . Each Participant may designate in writing a Beneficiary or Beneficiaries (which Beneficiary may be an entity other than a natural person if approved by the Administrator in its sole discretion) to receive any payments which may be made under the Plan following the Participant’s death. A Beneficiary designation under the Plan may be separate from all other retirement-type plans sponsored by the Company. Such designation may be changed or canceled by the Participant at any time without the consent of any such Beneficiary. Any such designation, change or cancellation must be made in a form approved by the Administrator and shall not be effective until received by the Administrator or its designee prior to the date of the Participant’s death. If no Beneficiary has been named, or the designated Beneficiary or Beneficiaries shall have predeceased the Participant, then the Beneficiary shall be the Participant’s estate. If a Participant designates more than one Beneficiary, the interests of such Beneficiaries shall be paid in equal shares, unless the Participant has specifically designated otherwise. If the Beneficiary survives the Participant, but dies before receipt of payment hereunder, the Beneficiary’s estate shall be entitled to the Beneficiary’s share of the payment.

Section 10.3.     Inability to Locate Participant or Beneficiary . In the event that the Administrator is unable to locate a Participant or Beneficiary within two years following the date the Participant or Beneficiary was to commence receiving payment, the entire amount allocated to the Participant’s Account shall be forfeited. If, after such forfeiture, the Participant or Beneficiary later claims such benefit, such benefit shall be reinstated without interest or earnings from the date payment was to commence pursuant to Article 6, and the Participant or Beneficiary shall be responsible for all taxes and penalties under Code Section 409A.


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Section 10.4.     No Contract of Employment . Neither the establishment of the Plan, nor any modification thereof, nor the creation of any fund, trust or account, nor the payment of any benefits shall be construed as giving any Participant or any person whosoever, the right to be retained in the service of the Company or any Affiliate, and all Participants and other employees shall remain subject to discharge to the same extent as if the Plan had never been adopted.

Section 10.5.     Obligations to Company . If a Participant becomes entitled to payment of benefits under the Plan, and if at such time the Participant has any outstanding debt, obligation, or other liability representing an amount owing to the Company or any Employer, then the Company or the Employer may offset such amount owed to it against the amount of benefits otherwise distributed; provided, however, that such deductions cannot exceed $5,000 in the aggregate to the extent needed to comply with Code Section 409A.

Section 10.6.     No Liability; Indemnification . Neither the Company, any of its Affiliates nor any director, officer or employee of the Company or its Affiliates shall be responsible or liable in any manner to any Participant, Beneficiary or any person claiming through them for any benefit or action taken or omitted in connection with the granting of benefits, the continuation of benefits, or the interpretation and administration of Plan. Service on the Committee or as an Administrator shall constitute service as a director or officer of the Company so that the Committee and Administrator members shall be entitled to indemnification, limitation of liability and reimbursement of expenses with respect to their Committee or Administrator services to the same extent that they are entitled under the Company’s charter documents and applicable law for their services as directors or officers of the Company.

Section 10.7.     Nonalienation of Benefits; Domestic Relations Orders . Except as otherwise specifically provided herein, all amounts payable hereunder shall be paid only to the person or persons designated by the Plan and not to any other person or corporation. No part of a Participant’s Account shall be liable for the debts, contracts, or engagements of any Participant, his or her Beneficiary, or successors in interest, nor shall such accounts of a Participant be subject to execution by levy, attachment, or garnishment or by any other legal or equitable proceeding, nor shall any such person have any right to alienate, anticipate, commute, pledge, encumber, or assign any benefits or payments hereunder in any manner whatsoever. If any Participant, Beneficiary or successor in interest is adjudicated bankrupt or purports to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any payment from the Plan, voluntarily or involuntarily, the Administrator, in its discretion, may cancel such payment (or any part thereof) to or for the benefit of such Participant, Beneficiary or successor in interest in such manner as the Administrator shall direct. Notwithstanding the foregoing, all or a portion of a Participant’s Account may be awarded to an “alternate payee” (within the meaning of Section 206(d)(3)(K) of ERISA) if and to the extent so provided in a judgment, decree or order that, in the Administrator’s sole discretion, would meet the applicable requirements for qualification as a “qualified domestic relations order” (within the meaning of Section 206(d)(3)(B)(i) of ERISA) if the Plan were subject to the provisions of Section 206(d) of ERISA. Such amounts shall be payable to the alternate payee in the form of a lump sum distribution and shall be paid within ninety (90) days following the Administrator’s determination that the order satisfies the requirements to be a “qualified domestic relations order.”







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Section 10.8.     Liability for Benefit Payments . The obligation to pay or provide for payment of a benefit hereunder to any Participant or his or her Beneficiary shall be the sole and exclusive liability and responsibility of the Employer which employed the Participant during the period allocations were made to the Participant’s Account. No other Company or parent, affiliated, subsidiary or associated company shall be liable or responsible for such payment, and nothing in the Plan shall be construed as creating or imposing any joint or shared liability for any such payment. The fact that a Company or a parent, affiliated, subsidiary or associated company other than the Employer actually makes one or more payments to a Participant or Beneficiary shall not be deemed a waiver of this provision; rather, any such payment shall be deemed to have been made on behalf of and for the account of the Employer.

Section 10.9.     Unfunded Status of Plan . The Plan is intended to constitute an “unfunded” supplemental retirement compensation plan for Participants, with all benefits payable hereunder constituting an unfunded contractual payment obligation of the Employer and the Company. Nothing contained in the Plan, and no action taken pursuant to the Plan, shall create or be construed to create a trust of any kind. The Company or Employer shall reflect on its books the Participants’ interests hereunder, but no Participant or any other person shall under any circumstances acquire any property interest in any specific assets of the Company or Employer. Nothing contained in the Plan and no action taken pursuant hereto shall create or be construed to create a fiduciary relationship between the Company, an Employer, and any Participant or other person. A Participant’s right to receive payments under the Plan shall be no greater than the right of an unsecured general creditor of the Company or Employer. Except to the extent that the Company or Employer determines that a “rabbi” trust may be established in connection with the Plan, all payments shall be made from the general funds of the Company or Employer, and no special or separate fund shall be established and no segregation of assets shall be made to assure payment. The Company’s or Employer’s obligations under the Plan are not assignable or transferable except to (a) any corporation or partnership which acquires all or substantially all of the Company’s or Employer’s assets or (b) any corporation or partnership into which the Company or Employer may be merged or consolidated. The provisions of the Plan shall inure to the benefit of each Participant and the Participant’s Beneficiaries, heirs, executors, administrators or successors in interest.

Section 10.10.     Governing Law . The Plan shall be construed in accordance with and governed by the laws of the State of Wisconsin to the extent not superseded by federal law, without reference to the conflict of laws principles thereof.

Section 10.11.     Successors . All obligations of the Employer and the Company under the Plan shall be binding on any successor thereto, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business and/or assets of the Company or the Employer.











4816-2550-9706.12                     16



Section 10.12.     Severability of Provisions . If any provision of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced as if such provisions had not been included.

Section 10.13.     Headings and Captions . The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan.

Section 10.14.     Gender; Singular and Plural . All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, or neuter, as the identity of the person or persons may require. As the context may require, the singular may read as the plural and the plural as the singular.

Section 10.15.     Notice . Any notice or filing required or permitted to be given under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to (a) except as provided in Section 8.6, the Company’s headquarters, with attention to the Secretary of the Company, if the notice or filing is to be made to the Administrator, Committee, Company, or Employer or (b) the Participant’s or Beneficiary’s address on file with the Employer, if the notice or filing is to be made to such individual. Such notice shall be deemed given as of the date of delivery, or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.

Section 10.16.     Delay of Payment for Specified Employees . Notwithstanding any provision of the Plan to the contrary, in the case of any Participant who is a “specified employee” within the meaning of Code Section 409A as of the date of such Participant’s Separation from Service, no distribution under the Plan may be made, or may commence, before the date which is six months after the date of such Participant’s Separation from Service (or, if earlier, the date of the Participant’s death).







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APPENDIX A
GRANDFATHERED OFFICERS
1.
Eligibility . This Appendix A covers employees of the Company or its Affiliates (a) who are participants in a Retirement Plan, (b) whose benefits under such Retirement Plan are limited as described in Section 1.1, and (c) who either (i) were an officer (as elected by the Board or appointed by the Chief Executive Officer ) of the Company as of September 3, 2016 and continue to be an officer of the Company, (ii) were an officer immediately prior to the merger of Johnson Controls, Inc. with a subsidiary of Tyco International plc and who ceased to be am officer in connection with such merger or (iii) was selected by the Chief Executive Officer or the Committee to participate under this Appendix A of the Plan. For purposes hereof, an employee shall nonetheless remain eligible under this Appendix A, provided such employee continues to satisfy the requirements of (b) and(c) above.

2.
Definitions .

(a) “Annual Enrollment Period” means the period designated by the Administrator in its sole discretion during which deferral elections can be made. Notwithstanding the foregoing, in all cases, the Annual Enrollment Period will end no later than December 31 of the year immediately preceding the calendar year for which such enrollment is effective.

(b) “Disability” means that a Participant either (1) has been determined to be eligible for Social Security disability benefits or (2) is eligible to receive benefits under the Company’s long-term disability program as in effect at the time of disability.

3.
Retirement Plan Supplement Contributions .

(a) Before-Tax Contributions Allocation . For each calendar year, during the Annual Enrollment Period, each Participant may elect that, in the event the Participant’s ability to make Before-Tax Matched Contributions (as defined under the Participant’s Retirement Plan) is limited by reason of Sections 401(k), 402(g) or 415 of the Code and/or the limit on considered compensation under Section 401(a)(17) of the Code, then the difference between the amount of Before-Tax Matched Contributions that the Participant could have made under the Participant’s Retirement Plan for that calendar year (assuming the Participant elected the maximum amount of Before-Tax Matched Contributions for the calendar year and did not change his or her election during the calendar year) and the amount that would have been contributed as Before-Tax Matched Contributions but for such limits, shall be credited at such time or times as may be determined by the Administrator in its sole discretion, but in no event less frequently than annually as of December 31, to the Participant’s Account. A Participant’s election shall be made according to procedures established by the Administrator, which may include making an election by electronic means.





4816-2550-9706.12                     A-1



A Participant’s election shall be effective only for the calendar year to which the election relates, and shall not carry over from year to year unless otherwise allowed by the Administrator in its sole discretion. An election under this subsection (a) shall constitute an election by the Participant to reduce the Participant’s salary by the amount determined under this subsection.
(b)     Matching Contributions Allocation . If a Participant makes a before tax contribution under (a), then a Participant’s Account shall also be credited at such time or times as may be determined by the Administrator in its sole discretion, but in no event less frequently than annually as of December 31, with an amount equal to the difference between the amount of Matching Contributions actually credited to the Participant’s Retirement Plan account for the year and the amount of Matching Contributions that would have been so credited if the amount determined under subsection (a) had actually been contributed to the Participant’s Retirement Plan (determined without regard to the limitations imposed by Sections 401(m) and 415 of the Code), but only with respect to the period the Participant is covered by this Plan; provided the Participant has met the eligibility requirements to receive a Matching Contribution under the Participant’s Retirement Plan for such year.

(c) Retirement Income Allocation . A Participant’s Account also shall be credited at such time or times as may be determined by the Administrator in its sole discretion, but in no event less frequently than annually as of December 31, with an amount equal to the difference between the amount of Retirement Income Contributions (as defined in the Savings Plan) or other employer non-matching contributions actually credited to the Participant’s Retirement Plan account for the year and the amount of Retirement Income Contributions or other employer non-matching contributions that would have been so credited if the limit on considered compensation under Section 401(a)(17) of the Code did not apply; provided the Participant has met the eligibility requirements to receive a Retirement Income Contribution or other employer non-matching contribution under the Participant’s Retirement Plan for such year.

(d) Modification of Compensation . Notwithstanding the foregoing, when determining a Participant’s compensation for purposes of subsections (a), (b) and (c), (1) the only bonus that may be included is the amount a Participant receives (or would receive but for a deferral election) under an annual cash incentive award granted under a plan of the Company or the Employer for the calendar year, and (2) base compensation shall be determined on a gross basis (i.e., without regard to any nonqualified deferral elections made under a plan of the Company or the Employer).

(e) Cancellation of Deferral Elections . Notwithstanding any other provision of the Plan to the contrary, (1) if the Administrator determines that a Participant’s deferral elections must be cancelled in order for the Participant to receive a hardship distribution under a Retirement Plan or (2) if the Participant elects to cancel his or her deferral election(s) due to a Disability, then the Participant’s deferral election(s) shall be cancelled to the extent permitted under Code Section 409A. A Participant whose deferral election(s) are cancelled pursuant to this subsection (e) may make a new deferral election under subsection (a), and pursuant to the requirements of Code Section 409A, with respect to future calendar years, unless otherwise prohibited by the Administrator.


4816-2550-9706.12                     A-2



4.
Vesting .
(a)     Before-Tax Contributions . Subject to Section 7, a Participant shall always be 100% vested in his or her Before-Tax Contributions described in Section 3(a).

(b)     Matching Contributions . Subject to Section 7, the portion of the Participant’s Account attributable to Matching Contributions credited under Section 3(b) shall be vested as follows:
Years of Vesting Service *
Vested Percentage
Less than 1
0%
1
20%
2
40%
3
60%
4
80%
5 or more
100%

* Vesting Service has the meaning given in the underlying Retirement Plan.
(c)     Retirement Income Contributions . Subject to Section 7, the portion of the Participant’s Account attributable to Retirement Income Contributions or other employer non-matching contributions credited under Section 3(c) shall be vested as follows:
Years of Vesting Service *
Vested Percentage
Less than 1
0%
1
20%
2
40%
3
60%
4
80%
5 or more
100%

* Vesting Service has the meaning given in the underlying Retirement Plan.








4816-2550-9706.12                     A-3



5.
Distribution Elections .

(a)    If a Participant was previously participating under Appendix B, then the portion of the Participant’s Account that is credited under Appendix B (plus earnings thereon) shall be paid in a lump sum.

(b)    If an individual will become a Participant effective on January 1 of a given year, then the Participant may elect the manner of distribution of the Participant’s Account by submitting a distribution election no later than the December 31 preceding the Participant’s first year of participation. Such election shall be made in such form and manner as the Administrator may prescribe. The election shall specify whether distributions shall be made in a single lump sum or in annual installments of from two (2) to ten (10) years. Such election shall be irrevocable. If no valid election is in effect, distribution shall be made in ten (10) annual installments.

(c)    If an individual first becomes a Participant hereunder on a date other than a January 1, then the amounts deferred hereunder in the first year of participation (and earnings thereon), if any, shall be paid in a lump sum. With respect to amounts deferred for the second year of participation and thereafter, the Participant may elect the manner of distribution of the Participant’s Account with respect to those deferrals (and earnings thereon) by filing a distribution election no later than December 31 of the first year of participation. Such election shall be made in such form and manner as the Administrator may prescribe. The election shall specify whether distributions shall be made in a single lump sum or in annual installments of from two (2) to ten (10) years. Such election shall be irrevocable. If no valid election is in effect, distribution shall be made in ten (10) annual installments.

6.
Distribution Payments .

(a)     Lump Sum . With respect to the amount that a Participant has elected (or been deemed elected) to receive in a lump sum, such lump sum shall be paid on the first distribution date (as defined below) following the six-month anniversary of the Participant’s Separation from Service. The lump sum payment shall equal the vested balance of the Participant’s Account (or sub-account, if applicable) as of the Valuation Date.

(b)     Installments . With respect to the amount that a Participant has elected to receive in annual installments, the first annual payment shall be paid on the first distribution date (as defined below) following the six-month anniversary of the Participant’ Separation from Service. All subsequent installments shall be made on the anniversary of such first distribution date. The amount of the first annual payment shall equal the value of 1/10th (or 1/9th, 1/8th, 1/7th, etc. depending on the number of installments elected) of the vested balance of the Participant’s Account (or sub-account, if applicable) as of the Valuation Date. All subsequent annual payments shall be in an amount equal to the value of 1/9th (or 1/8th, 1/7th, 1/6th, etc. depending on the number of installments elected, and the number of installments remaining) of the vested balance of the Participant’s Account (or sub-account, if applicable) as of the Valuation Date, except that the final annual installment payment shall equal the then remaining vested balance of such Account (or sub-account) as of the Valuation Date.



4816-2550-9706.12                     A-4



(c)     Distribution Date. For purposes hereof, the term “distribution date” means each January 15 or July 15, or the first business day prior such date if such date falls on a holiday or weekend.

7.
Forfeiture .

(a)     Termination for Reasons Other than Cause . If the Participant is terminated for reasons other than Cause, then his or her unvested Account balance shall be immediately forfeited and not payable hereunder. Such unvested Account balance shall not be restored upon any subsequent re-employment with the Company or Employer. Notwithstanding the foregoing, the Administrator may restore an unvested Account balance to an individual upon re-employment.

(b)     Termination for Cause . If the Participant is terminated for Cause (or if the Administrator determines that a Participant who was terminated other than for Cause engaged in conduct prior to his or her termination which would have constituted Cause), then the Administrator may determine in its sole discretion that the portion of the Participant’s Account credited on or after January 1, 2018 shall be forfeited and not payable hereunder.

8.
Administrative Error Correction . The Administrator may permit an Administrative Error (as defined below) to be corrected by allowing a Participant’s deferral election to be processed as soon as practicable after December 31 (and any related payroll discrepancy to be corrected) to the extent permitted under Code Section 409A. “Administrative Error” shall mean (a) an error by a Participant to file a deferral election according to Section 2(a) of this Appendix with the Administrator, following a good faith attempt, or (b) the failure of the Administrator to properly process a Participant’s deferral election.











4816-2550-9706.12                     A-5



APPENDIX B                                         HIGHLY COMPENSATED EMPLOYEES (RIC)
1.
Eligibility . This Appendix B covers an employee (a) whose Retirement Income Contributions (as defined in the Savings Plan) or other employer non-matching contributions under his or her Retirement Plan are limited by reason of the application of Code Section 401(a)(17) and (b) who is not covered by Appendix A.

2.
Participation Date . An eligible employee shall become a Participant on the date the Participant’s compensation first exceeds the Code Section 401(a)(17) limit. For this purpose, the only bonus that may be included in compensation is the amount a Participant receives (or would receive but for a deferral election) under an annual cash incentive award granted under a plan of the Company or the Employer for the calendar year.

3.
Retirement Income Allocation . A Participant’s Account shall be credited at such time or times as may be determined by the Administrator in its sole discretion, but in no event less frequently than annually as of December 31, with an amount equal to the difference between the amount of Retirement Income Contributions or other employer non-matching contributions actually credited to the Participant’s Retirement Plan account for the year and the amount of Retirement Income Contributions or other employer non-matching contributions that would have been so credited if the limit on considered compensation under Section 401(a)(17) of the Code did not apply and by including all amounts of cash compensation which the Participant would have received under an annual cash incentive award granted under a plan of the Company or Employer for the year but for a deferral election; provided the Participant has met the eligibility requirements to receive a Retirement Income Contribution or other employer non-matching contributions under the Participant’s Retirement Plan for such year.

4.
Vesting . The Retirement Income Contributions or other employer non-matching contributions credited to a Participant under this Appendix B shall be shall be vested as follows:
Years of Vesting Service *
Vested Percentage
Less than 1
0%
1
20%
2
40%
3
60%
4
80%
5 or more
100%

* Vesting Service has the meaning given in the underlying Retirement Plan.
Notwithstanding the foregoing, if the Participant is terminated for Cause (or if the Administrator determines that a Participant who was terminated other than for Cause engaged in conduct prior to his or her termination which would have constituted Cause), then the Administrator may determine in its sole discretion that the portion of the Participant’s Account accumulated on or after January 1, 2018 shall be forfeited and not payable hereunder.


4816-2550-9706.12                     B-1



5.
Manner of Distribution . Amounts credited under this Appendix B (as adjusted for earnings or losses thereon) shall be paid in a cash lump sum on the first distribution date (as defined below) following the six-month anniversary of the Participant’s Separation from Service. For purposes hereof, the term “distribution date” means each January 15 or July 15, or the first business day prior such date if such date falls on a holiday or weekend. The lump sum payment shall equal the vested balance of the Participant’s Account as of the Valuation Date.











































4816-2550-9706.12                     B-2



APPENDIX C                                                 MERGED PLANS
Air Distribution Technologies, Inc. Restoration Plan
Effective at the close of business on December 31, 2014, the Air Distribution Technologies, Inc. Restoration Plan (the “ADTI Restoration Plan”) was merged with and into this Plan, such that the account balances accrued under the ADTI Restoration Plan as of December 31, 2014, will be accounted for and subject to the terms of this Plan effective January 1, 2015. The account balances transferred from the ADTI Restoration Plan, as adjusted for earnings/losses thereon, and distributions therefrom, shall be referred to herein as the “ADTI Restoration Plan Account.” The ADTI Restoration Plan Accounts will be subject to all of the same terms and conditions of the Plan as apply to the Accounts, except as follows:
1.
Vesting . The ADTI Restoration Plan Accounts will be subject to the vesting schedule set forth in the ADTI Restoration Plan as in effect on December 31, 2014. Under such plan, all participants who were active employees of ADTI on the date that the Company acquired JCI shall be 100% vested in their ADTI Restoration Plan Account.

2.
Payment to Participants . An ADTI Restoration Plan Account shall be paid in 3 annual installments following the Participant’s Separation from Service. The first installment shall be paid during the 75-day window that commences 6 months after the Participant’s Separation from Service. The second and third annual installment payments will be made during the 30-day window commencing on each of the first and second anniversary of the Participant’s Separation from Service. The amount of each installment will be determined by dividing the vested balance of the ADTI Restoration Plan Account by the number of remaining installments to be paid.

Notwithstanding the foregoing, if the vested balance of a Participant’s ADTI Restoration Plan Account (when added to the vested balance of any other nonqualified deferred compensation account maintained by the Company or any Affiliate for such Participant), does not exceed the limit in effect under Code Section 402(g) for the year in which the first installment is due, then such vested balance shall be paid in a single lump sum at the time the first installment would have otherwise been due.

3.
Payment to Beneficiaries . All beneficiary designations filed under the ADTI Restoration Plan (except those with respect to participants who are deceased as of December 31, 2014) shall be cancelled effective January 1, 2015. Thereafter, the beneficiary designation procedures of this Plan shall apply to the ADTI Restoration Plan Accounts. Upon the death of a Participant with an unpaid vested balance in his or her ADTI Restoration Plan Account, such unpaid vested balance shall be paid in a lump sum to the Participant’s Beneficiary during the 90-day period commencing after 3 months from the date of the Participant’s death.

4.
Offset to SERB . This Plan constitutes a retirement plan of the employer for purposes of the Supplemental Executive Retirement Benefit (SERB) which has been extended to certain Participants. Consequently, the benefits provided under this Plan (whether under this Appendix C or otherwise) shall constitute an offset (i.e., an “Other Benefit”) to any Participant’s benefit under any SERB Agreement with any employer.




4816-2550-9706.12                     C-1



5.
Final Contributions . Notwithstanding anything herein to the contrary, employer allocations that were due with respect to the 2014 plan year under the terms of the ADTI Restoration Plan shall be credited to the ADTI Restoration Plan Accounts hereunder in 2015.















































4816-2550-9706.12                     C-2



Exhibit 31.1
CERTIFICATIONS
I, George R. Oliver, of Johnson Controls International plc, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Johnson Controls International plc;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 3, 2018
 
                                    
 
/s/ George R. Oliver
George R. Oliver
Chairman and Chief Executive Officer




Exhibit 31.2
CERTIFICATIONS
I, Brian J. Stief, of Johnson Controls International plc, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Johnson Controls International plc;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 3, 2018
 
                                    
 
/s/ Brian J. Stief
Brian J. Stief
Executive Vice President and
Chief Financial Officer




Exhibit 32.1
CERTIFICATION OF PERIODIC FINANCIAL REPORTS
We, George R. Oliver and Brian J. Stief, of Johnson Controls International plc, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.
the Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 (Periodic Report) to which this statement is an exhibit fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and

2.
information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of Johnson Controls International plc.

Date: May 3, 2018

                                    
 
/s/ George R. Oliver
George R. Oliver
Chairman and Chief Executive Officer
 
                                    
 
/s/ Brian J. Stief
Brian J. Stief
Executive Vice President and
Chief Financial Officer