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, Inc. and its consolidated subsidiaries.

All statements in this report, other than purely historical information, including future financial position, sales, costs, earnings, cash flows, other measures of results of operations, capital expenditures or debt levels and plans, objectives, outlook, targets, guidance or goals and the assumptions upon which those statements are based, are statements that are, or could be, deemed "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "should," "forecast," "project" or "plan" or terms of similar meaning are also generally intended to identify forward-looking statements. Forward-looking statements are based on current expectations and assumptions that are subject to risks, uncertainties and other factors, some of which are beyond our control, which may cause actual results to differ materially from those expressed or implied by such forward-looking statements. A detailed discussion of risks, uncertainties and other factors that could cause actual results and events to differ materially from such forward-looking statements is included in the section entitled "Risk Factors" of our Annual Report on Form 10-K for the year ended September 30, 2012. Shareholders, potential investors and others should consider these factors in evaluating the forward-looking statements and should not place undue reliance on such statements. The forward-looking statements included in this report are only made as of the date of this report, and we assume no obligation, and we disclaim any obligation, to update forward-looking statements to reflect events or circumstances occurring after the date of this report.

Overview

Johnson Controls is a global diversified technology and industrial leader serving customers in more than 150 countries. The Company creates quality products, services and solutions to optimize energy and operational efficiencies of buildings; lead-acid automotive batteries and advanced batteries for hybrid and electric vehicles; and interior systems for automobiles.

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.

The Building Efficiency business is a global market leader in designing, producing, marketing and installing integrated heating, ventilating and air conditioning (HVAC) systems, building management systems, controls, security and mechanical equipment. In addition, the Building Efficiency business provides technical services, energy management consulting and operations of entire real estate portfolios for the non-residential buildings market. The Company also provides residential air conditioning and heating systems and industrial refrigeration products.

The Automotive Experience business is one of the world's largest automotive suppliers, providing innovative interior systems through our design and engineering expertise. The Company's technologies extend into virtually every area of the interior including seating and overhead systems, door systems, floor consoles, instrument panels, cockpits and integrated electronics. Customers include most of the world's major automakers.

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, 2012 consolidated financial statements and notes thereto, along with management's discussion and analysis of financial condition and results of operations included in our 2012 Annual Report on Form 10-K. References in the following discussion and analysis to "Three Months" refer to the three months ended December 31, 2012 compared to the three months ended December 31, 2011.

Certain amounts as of December 31, 2011 have been revised to conform to the current year's presentation. Effective October 1, 2012, the Company reorganized the reportable segments within its Automotive Experience business to align with its new management reporting structure and business activities. As a result of this change, Automotive Experience is comprised of three new reportable segments for financial reporting purposes: Seating, Interiors and Electronics. Historical information has been revised to reflect the new Automotive Experience reportable segment structure.

In the fourth quarter of fiscal 2012, the Company changed its accounting policy for recognizing pension and postretirement benefit expenses. The Company's historical accounting treatment smoothed asset returns and amortized deferred actuarial gains and losses over future years. The new mark-to-market approach includes measuring the market related value of plan assets at fair value instead of utilizing a three-year smoothing approach. In addition, the Company has elected to completely eliminate the corridor approach and recognize actuarial gains and losses in the fourth quarter of each fiscal year or at the date of a remeasurement event. The Company believes this new policy is preferable and provides greater transparency to on-going operational results. The change has no impact on future pension and postretirement funding or benefits paid to participants. The change has been reported through retrospective application of the new policy to all periods presented and resulted in a $14 million increase in net income attributable to Johnson Controls, Inc. ($0.02 per diluted share) in the quarter ended December 31, 2011.

Outlook

On January 18, 2013, the Company announced that it expects diluted earnings per share of $0.40-$0.42 in the second quarter of fiscal 2013. This guidance reflects the current European automotive production environment and short-term delays in flexing labor in the region as well as a high level of launch activity. The Company also reaffirmed its fiscal 2013 full year guidance, as announced on December 19, 2012. This guidance states a year over year segment income improvement of 10% and diluted earnings per share of $2.60-$2.70.

Liquidity and Capital Resources

The Company believes its capital resources and liquidity position at December 31, 2012 are adequate to meet projected needs. The Company believes requirements for working capital, capital expenditures, dividends, share repurchases, minimum pension contributions, debt maturities and any potential acquisitions in fiscal 2013 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. The Company continues to adjust its commercial paper maturities and issuance levels given market reactions to industry events and changes in the Company's credit rating. In the event the Company is unable to issue commercial paper, it would have the ability to draw on its $2.5 billion revolving credit facility, which matures in February 2015. There were no draws on the revolving credit facility as of December 31, 2012. 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 covenants require a minimum consolidated shareholders' equity attributable to Johnson Controls, Inc. of at least $3.5 billion at all times and allow a maximum aggregated amount of 10% of consolidated shareholders' equity attributable to Johnson Controls, Inc. for liens and pledges. For purposes of calculating the Company's covenants, consolidated shareholders' equity attributable to Johnson Controls, Inc. 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. As of December 31, 2012, consolidated shareholders' equity attributable to Johnson Controls, Inc. as defined per the Company's debt financial covenants was $11.4 billion and there were $300 million of liens outstanding. The Company expects to remain in compliance with all covenants and other requirements set forth in its credit agreements and indentures for the foreseeable future. None of the Company's debt agreements limit access to stated borrowing levels or require accelerated repayment in the event of a decrease in the Company's credit rating.

The 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 our plan assets. In fiscal 2013, the Company believes the long-term rate of return will approximate 8.00%, 4.55% and 5.80% for U.S. pension, non-U.S. pension and postretirement plans, respectively. During the first three months of fiscal 2013, the Company made approximately $16 million in total pension contributions. In total, the Company expects to contribute approximately $100 million in cash to its defined benefit pension plans in fiscal 2013. The Company does not expect to make any significant contributions to its postretirement plans in fiscal 2013.

Net Sales

Consolidated net sales were comparable to the prior period due to higher sales in the Power Solutions business ($90 million), Automotive Experience business ($51 million) and Building Efficiency business ($4 million), offset by the unfavorable impact of foreign currency translation ($140 million). Excluding the unfavorable impact of foreign currency translation, consolidated net sales increased 1% as compared to the prior year. The favorable impacts of increased automotive industry production in North America and strong automotive production and building demand in Asia, were partially offset by the negative impacts of lower automotive industry production in Europe, softness in building demand in North America, mild weather conditions on automotive battery aftermarket demand and prior year divestitures in the Building Efficiency business. 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
                                       December 31,
                  (in millions)     2012           2011        Change
                  Cost of sales   $   8,914       $ 8,881            0 %
                  Gross profit        1,508         1,536           -2 %
                  % of sales           14.5 %        14.7 %

The increase in total cost of sales year over year corresponds to the sales noted above, with gross profit percentage remaining relatively consistent. Gross profit in the Automotive Experience business was unfavorably impacted by higher operating costs related to operational inefficiencies, delay in flex labor costs related to lower production volumes in Europe, and net unfavorable pricing and commercial settlements, partially offset by lower purchasing costs and favorable sales mix. The Building Efficiency business experienced favorable sales mix and pricing initiatives, partially offset by contract related losses. Gross profit in the Power Solutions business was favorably impacted by pricing, product mix and vertical integration, partially offset by higher costs for battery cores and lead. Foreign currency translation had a favorable impact on cost of sales of approximately $121 million. Refer to the segment analysis below within Item 2 for a discussion of segment income by segment.

Selling, General and Administrative Expenses



                                                    Three Months Ended
                                                       December 31,
   (in millions)                                    2012           2011        Change
   Selling, general and administrative expenses   $   1,052       $ 1,035            2 %
   % of sales                                          10.1 %         9.9 %

Selling, general and administrative expenses (SG&A), as well as SG&A as a percentage of sales, increased slightly year over year. The Automotive Experience business SG&A increased primarily due to higher engineering, product development and employee related expenses. The Power Solutions business SG&A increased primarily due to higher employee related expenses and a prior year business interruption insurance recovery. The Building Efficiency business SG&A decreased primarily due to a pension curtailment gain resulting from a lost Global Workplace Solutions contract, and overall lower employee related expenses due to cost reduction initiatives. Foreign currency translation had a favorable impact on SG&A of $13 million. Refer to the segment analysis below within Item 2 for a discussion of segment income by segment.

Net Financing Charges

The increase in net financing charges was primarily due to higher interest expense as a result of higher debt levels and higher interest rates in the current period.

Equity Income

The decrease in equity income was primarily due to a prior year gain on redemption of a warrant for an existing partially-owned affiliate in the Power Solutions business ($25 million) and a prior year equity interest gain in the Automotive Experience business. Refer to the segment analysis below within Item 2 for a discussion of segment income by segment.

Provision for Income Taxes



                                           Three Months Ended
                                              December 31,
                   (in millions)         2012             2011
                   Tax provision        $    96         $     113
                   Effective tax rate        20 %              20 %

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 annual effective tax rate is adjusted, as appropriate, based upon changed facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter.

Income Attributable to Noncontrolling Interests

The decrease in income attributable to noncontrolling interests was primarily due to the effects of an increase in the Company's ownership percentage in an Automotive Experience partially-owned affiliate.

Net Income Attributable to Johnson Controls, Inc.

The decrease in net income attributable to Johnson Controls, Inc. was primarily due to lower gross profit, lower equity income, higher selling, general and administrative expenses, higher net financing charges and the unfavorable impact of foreign currency translation, partially offset by a decrease in the provision for income taxes and lower income attributable to noncontrolling interests. Diluted earnings per share for the three months ended December 31, 2012 was $0.52 compared to diluted earnings per share of $0.62 for the three months ended December 31, 2011.

Segment Analysis

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

Building Efficiency



                                                Net Sales                               Segment Income
                                           Three Months Ended                         Three Months  Ended
                                              December 31,                               December 31,
(in millions)                               2012          2011        Change         2012            2011         Change
North America Systems                    $      533      $   552           -3 %    $      48       $      53           -9 %
North America Service                           455          514          -11 %           20              18           11 %
Global Workplace Solutions                    1,134        1,086            4 %           35              10          250 %
Asia                                            505          473            7 %           66              62            6 %
Other                                           905          917           -1 %            3               2           50 %

                                         $    3,532      $ 3,542            0 %    $     172       $     145           19 %

Net Sales:

• The decrease in North America Systems was primarily due to lower volumes of equipment and controls systems in the commercial construction and replacement markets ($20 million), partially offset by the favorable impact of foreign currency translation ($1 million).

• The decrease in North America Service was primarily due to a reduction in energy solutions volumes ($36 million) and truck-based volumes ($25 million), partially offset by the favorable impact of foreign currency translation ($2 million).

• The increase in Global Workplace Solutions was primarily due to an increase in services to new and existing customers ($50 million), partially offset by the unfavorable impact of foreign currency translation ($2 million).

• The increase in Asia was primarily due to higher volumes of equipment and controls systems ($30 million) and the favorable impact of foreign currency translation ($2 million).

• The decrease in Other was primarily due to lower volumes due to prior year divestitures ($33 million) and the unfavorable impact of foreign currency translation ($17 million), partially offset by higher volumes in unitary products ($22 million), other businesses ($13 million) and Latin America ($3 million).

Segment Income:

• The decrease in North America Systems was primarily due to higher selling, general and administrative expenses ($6 million), and lower volumes ($5 million), partially offset by favorable margin rates ($6 million).

• The increase in North America Service was primarily due to lower selling, general and administrative expenses ($13 million), and favorable margin rates ($5 million), partially offset by lower volumes ($16 million).

• The increase in Global Workplace Solutions was primarily due to a pension curtailment gain resulting from a lost contract net of other contract losses ($22 million), favorable margin rates ($5 million) and higher volumes ($3 million), partially offset by higher selling, general and administrative expenses ($5 million).

• The increase in Asia was primarily due to higher volumes ($8 million) and favorable margin rates ($3 million), partially offset by higher selling, general and administrative expenses ($7 million).

Automotive Experience



                          Net Sales                              Segment Income
                     Three Months Ended                       Three Months  Ended
                        December 31,                              December 31,
   (in millions)      2012          2011       Change         2012             2011        Change
   Seating         $    3,889      $ 3,895           0 %    $      85         $  189           -55 %
   Interiors            1,012        1,026          -1 %          (10 )          (17 )          41 %
   Electronics            313          340          -8 %           26             29           -10 %

                   $    5,214      $ 5,261          -1 %    $     101         $  201           -50 %

Net Sales:

• The decrease in Seating was primarily due to the unfavorable impact of foreign currency translation ($74 million), lower volumes to the Company's major OEM customers ($17 million) and net unfavorable pricing and commercial settlements ($16 million), partially offset by favorable sales mix ($76 million) and the prior year negative impact of the flooding in Thailand and related events ($25 million).

• The decrease in Interiors was primarily due to the unfavorable impact of foreign currency translation ($13 million) and lower volumes to the Company's major OEM customers ($5 million), partially offset by net favorable pricing and commercial settlements ($4 million).

• The decrease in Electronics was primarily due to the unfavorable impact of foreign currency translation ($11 million), lower volumes to the Company's major OEM customers ($10 million) and net unfavorable pricing and commercial settlements ($6 million).

Segment Income:

• The decrease in Seating was primarily due to higher operating costs ($54 million), higher selling, general and administrative expenses ($30 million), net unfavorable pricing and commercial settlements ($27 million), lower equity income including a prior year equity interest gain ($17 million), lower volumes ($5 million), higher engineering expenses ($5 million) and the unfavorable impact of foreign currency translation ($1 million), partially offset by favorable sales mix ($17 million), lower purchasing costs ($12 million) and the prior year negative impact of the flooding in Thailand and related events ($6 million).

• The increase in Interiors was primarily due to net favorable pricing and commercial settlements ($14 million), higher equity income ($4 million), lower operating costs ($3 million) and favorable sales mix ($2 million), partially offset by higher purchasing costs ($6 million), higher selling, general and administrative expenses ($5 million), higher engineering expenses ($4 million) and lower volumes ($1 million).

• The decrease in Electronics was primarily due to net unfavorable pricing and commercial settlements ($5 million), higher engineering costs ($5 million), lower volumes ($3 million) and the unfavorable impact of foreign currency translation ($2 million), partially offset by lower purchasing costs ($8 million), higher equity income ($1 million), lower selling, general and administrative expenses ($1 million), lower operating costs ($1 million) and favorable sales mix ($1 million).

Power Solutions



                                     Three Months Ended
                                        December 31,
                  (in millions)       2012          2011       Change
                  Net sales        $    1,676      $ 1,614           4 %
                  Segment income          268          275          -3 %

• Net sales increased primarily due to favorable pricing and product mix ($61 million), and higher sales volumes ($43 million), partially offset by the unfavorable impact of foreign currency translation ($28 million) and the impact of pass through pricing ($14 million).

• Segment income decreased primarily due to a prior year gain on redemption of a warrant for an existing partially-owned affiliate ($25 million), higher selling, general and administrative expenses including a prior year business interruption insurance recovery net of related costs and lost profit on sales due to a continued plant shutdown in Asia ($7 million), and the unfavorable impact of foreign currency translation ($3 million), partially offset by favorable pricing and product mix net of higher costs for battery cores and lead ($15 million), higher sales volumes ($5 million), higher equity income ($5 million) and lower operating and transportation costs ($3 million).

Backlog

Building Efficiency's backlog relates to its control systems and service activity. At December 31, 2012, the unearned backlog was $5.1 billion. The Asia and Other segment backlogs increased compared to prior year levels, offset by decreases in the North America Service and North America Systems backlogs compared to the prior year.

Financial Condition

Working Capital



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