Published
# Johnson Controls International plc (NYSE: JCI) — Business, Risks and Management's Discussion
Johnson Controls is an Irish-domiciled commercial building technology company. Its fiscal year ends September 30. This narrative draws on the annual report for fiscal 2025 (Form 10-K, accession 0000833444-25-000097), the quarterly report for the three and nine months ended June 30, 2026 (Form 10-Q, accession 0000833444-26-000087), and the third-quarter fiscal 2026 results release furnished on Form 8-K (accession 0000833444-26-000083).
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## Business
*From the fiscal 2025 Form 10-K, accession 0000833444-25-000097.*
Johnson Controls International plc, headquartered in Cork, Ireland, engineers, manufactures, installs and services the systems that run commercial buildings: commercial HVAC equipment, industrial refrigeration, building controls and management systems, integrated electronic security, and fire detection and fire suppression. It sells to commercial, industrial, data center, institutional and governmental customers worldwide, plus a residential security subscriber business in EMEA and marine customers. Alongside the equipment it sells a large technical service business — inspection, scheduled maintenance, repair, retrofit and replacement of mechanical and control systems, and energy-management consulting — and its OpenBlue software platform, which layers artificial intelligence and machine learning onto the installed base for remote diagnostics, predictive maintenance, workplace management, compliance monitoring and risk assessment. In fiscal 2025, products and systems accounted for approximately 68% of continuing-operations sales and services for 32%.
Distribution is unusual for the industry: the bulk of sales move through an extensive **direct channel** of global sales and service offices rather than through distributors, with significant additional volume through third-party distributors of air-conditioning, controls, security and fire products. The direct channel is the core of the economic model — it creates a large installed base, and that base generates repeat maintenance, retrofit and replacement revenue over the life of the building. The brand portfolio includes YORK, Metasys, Ansul, Frick, FM:Systems, PENN, Sabroe, Silent-Aire, Simplex and Grinnell.
### Segments
Effective April 1, 2025, in connection with the divestiture of the Residential and Light Commercial ("R&LC") HVAC business, the company realigned from four reportable segments (Global Products, Building Solutions North America, Building Solutions EMEA/LA, Building Solutions APAC) into **three regional reportable segments**. Fiscal 2025 results:
| Segment | Net sales FY2025 | Segment EBITA | Segment EBIT |
|---|---|---|---|
| Americas (US, Canada, Latin America) | $15,831M | $2,882M | $2,526M |
| EMEA (Europe, Middle East, Africa) | $4,968M | $649M | $581M |
| APAC (Asia and Pacific) | $2,797M | $476M | $461M |
| **Total net sales** | **$23,596M** | | |
Each segment designs, manufactures, sells, installs and services the same portfolio — HVAC, controls, building management, refrigeration, integrated security, fire detection and suppression, and digital solutions — into its own region. EMEA additionally carries the residential security subscriber business and marine customers.
Segment EBITA and Segment EBIT are the two measures the chief operating decision maker (the CEO) uses. Segment EBITA excludes corporate expenses, restructuring and impairment costs, AFFF settlement costs and insurance recoveries, gains or losses on divestitures, net pension/asbestos-investment mark-to-market, net financing charges and amortization. Segment EBIT adds amortization of intangible assets back. Neither is a GAAP measure. Assets are not reported by segment because they are not provided to the CODM.
### Strategy and portfolio simplification
The stated objective is to become a **pure-play provider of comprehensive solutions for commercial buildings**. Two divestitures in 2024 and 2025 executed that: the Air Distribution Technologies business, and on July 31, 2025 the R&LC HVAC business — sold to Robert Bosch GmbH for net cash proceeds of approximately **$5.6 billion** after tax and transaction expenses. The R&LC business comprised the North America Ducted business and Johnson Controls-Hitachi Air Conditioning Holding (UK) Ltd., the global residential joint venture with Hitachi Global Life Solutions.
The remaining strategy has three stated planks: monetizing the whole building lifecycle (install, service, retrofit, replace) through cross-selling and recurring revenue; accelerating in high-growth verticals — **data centers**, hospitals, university campuses, advanced manufacturing, class A offices and airports; and sustaining a high-performance, customer-centric culture. Management points to data centers, sustainable and smart buildings and mission-critical environments as the demand trends it intends to capture, with OpenBlue as the digital layer.
A multi-year restructuring plan committed to in the fourth quarter of fiscal 2024 addresses stranded costs from the divestitures and right-sizes global operations: approximately **$400 million** of one-time costs across fiscal 2025–2027, for expected annual savings of approximately **$500 million** on full completion. Costs fall across all segments and Corporate.
### Backlog, orders and other operating facts
- Backlog was **$16.6 billion** at September 30, 2025; remaining performance obligations were **$22.7 billion**. The two differ because remaining performance obligations capture the full 25–35 year term of multi-purpose hospital/school/government contracts (backlog counts roughly five years), exclude short-duration and freely cancellable service contracts (backlog includes them), and include the full remaining term of service contracts with substantial termination penalties (backlog counts one year).
- **Raw materials**: steel, aluminum, brass, copper, polypropylene, fluorochemicals for fire-suppression agents, semiconductors and electronic components. Costs have risen from tariffs and reciprocal tariffs; management states it has largely mitigated tariffs enacted to date.
- **Competition** is fragmented and broad. Larger competitors named: Honeywell International, Siemens Smart Infrastructure, Schneider Electric, Carrier Global, Trane Technologies, Vertiv Holdings, API Group and Daikin Industries. Contracts are largely negotiated or competitively bid, awarded on system and service performance, quality, price, design, reputation, technology, engineering capability, financing availability and project management.
- **Seasonality** is modest: air conditioning demand rises in summer months, mitigated by the rest of the portfolio.
- **Employees**: approximately 87,000 worldwide at September 30, 2025 — roughly 31,000 in the United States and 56,000 outside it. Headcount fell from 2024 primarily on divestitures, R&LC HVAC included. Approximately 18,000 employees are covered by collective bargaining agreements or works councils. Fiscal 2025 safety metrics: total recordable incident rate 0.34, lost-time incident rate 0.15.
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## Risk factors
*From the fiscal 2025 Form 10-K, accession 0000833444-25-000097 (Item 1A), as updated in the Form 10-Q for the quarter ended June 30, 2026, accession 0000833444-26-000087 (Part II, Item 1A).*
### Business operations
- **Product and technology development.** Future growth depends on developing or acquiring competitive, increasingly complex products quickly and cost-effectively — energy efficiency, cooling technology including **liquid cooling**, AI and machine learning are named explicitly. Development diverts resources, may not deliver on time, and new products may not satisfy customers or may fail.
- **Execution of the operating model.** Results depend on driving organizational improvement through restructuring, integration, digital transformation, portfolio reviews, productivity initiatives and management changes — including the multi-year restructuring plan and the fiscal 2025 realignment into three regional segments. Named risks: execution delays, unexpected costs, lost customer relationships, fewer productivity gains than estimated, change fatigue, organizational strain, and damage to morale and retention.
- **Quality and on-time delivery.** Quality failures expose the company to recalls, field corrective actions, warranty, product liability and personal injury claims — in many jurisdictions uncapped and potentially in excess of insurance. The company states it has conducted recalls and field corrective actions in the past and may again. Inability to deliver on time costs sales and constrains manufacturing capacity.
- **Supply chain.** Steel, copper, aluminum, semiconductors, electronic components and rare-earth-mineral components come from suppliers worldwide; some key parts are single- or limited-source and not all arrangements guarantee supply. The company has experienced input cost increases, component shortages and delays; subcontractor disruptions have impaired its ability to complete projects and convert backlog. Because backlog pricing is typically fixed, cost inflation between order and conversion is borne by the company.
- **Personnel.** Growth requires hiring and retaining a high-performance workforce, with an emphasis on digital and consultative outcome-based selling skills, plus skilled trade workers for the direct channel field business. Labor shortages have occurred and could limit the ability to scale and convert backlog.
- **Cybersecurity.** The 10-Q supplements this factor. Threats range from individual attempts to advanced persistent threats aimed at the company, its products, customers and third-party providers. AI and machine-learning tools are named as a new aggravating factor: threat actors are using them to find previously undetected vulnerabilities in short time spans, creating zero-day exposure and compressing the detection window. The company states it has experienced cybersecurity incidents and will likely continue to, that incidents have remained undetected for extended periods, and that losses could exceed available insurance. OpenBlue and the growing population of interconnected products enlarge the exposure and could produce third-party claims that product failures damaged customers.
- **Data privacy.** A September 2023 cybersecurity event affected certain data, primarily employee, job applicant and personal information; the company notified individuals and regulators. Conflicting privacy regimes across U.S. states and foreign jurisdictions must each be complied with; proposed restrictions on biometric security technology could affect the security product line. Some contracts lack limitations of liability.
- **Artificial intelligence.** AI is being incorporated into products, services and processes. Risks named: regulatory scrutiny, litigation, compliance, ethical and confidentiality concerns, improper use by personnel without the company's knowledge, loss or theft of intellectual property, output that appears correct but is factually inaccurate or biased, and competitive disadvantage if rivals deploy AI more effectively. The 10-Q adds that lawmakers in jurisdictions where the company operates are moving to regulate AI, with monitoring costs and non-compliance consequences that could be material.
- **Intellectual property.** Protection rests on trademarks, trade secrets, patents, copyrights, know-how and confidentiality provisions; effective protection may be unavailable or limited in some countries of operation, continued AI use may affect protections, and patent expiry opens products to competition. The company is also periodically subject to infringement claims by practicing and non-practicing entities.
- **Direct channel dependence.** Unlike many competitors, a substantial portion of revenue comes from the direct installation channel. Failure to maintain and grow that installed base would reduce installation revenue and, downstream, product pull-through and service, monitoring, solutions and retrofit revenue.
- **Climate change and regulation.** Physical effects could raise material, insurance and operating costs. Emissions regulation targeting refrigerant global warming potential, equipment energy efficiency and fossil-fuel combustion falls predominantly on the HVAC business. Inconsistent climate and refrigerant transition legislation creates regulatory and economic uncertainty in both directions — discontinued incentives could reduce demand for energy-efficient buildings, while rollback of existing rules could raise the cost of adapting the portfolio for different markets.
- **Sustainability commitments.** Public commitments include net zero Scope 1 and 2 carbon emissions by 2040 and science-based targets for Scope 1 and 2 and for Scope 3 category 11 (use of sold products). Meeting them may require significant spending; the company may prioritize other investments; failure could draw adverse reaction from investors, activist groups and customers.
- **Catastrophic and geopolitical disruption**, particularly at monitoring and manufacturing facilities, could prevent responding to alarm signals, filling orders, converting backlog and collecting revenue.
- **Labor force.** Approximately 21% of the roughly 87,000 employees are covered by collective bargaining agreements or works councils. A work stoppage at a supplier, or at a customer, would also hurt.
### Macroeconomic and political conditions
- **Cyclicality.** Demand is driven by commercial, institutional, industrial, data center and governmental construction, facility expansion, retrofit and maintenance — all heavily dependent on general economic conditions, localized real estate demand and the availability of credit and public funding. Developers rely on project financing; falling real estate values or rising rates can cut financing availability even where demand exists. Industrial customers delay capital projects in downturns. Governmental and institutional customers have faced budgetary constraints that have reduced demand and may again.
- **Trade policy.** The United States has imposed tariffs and reciprocal tariffs on products from Canada, China, the European Union, Japan and Mexico among others, and other countries have responded in kind; tariffs have been and may be paused, reimposed, decreased or increased. If actual and potential tariffs are implemented, the company expects negative pressure on revenue growth and margins through higher costs, lower demand and other adverse economic effects, plus renewed cost inflation, component shortages and supply chain delay. Trade restrictions can arrive with little or no notice.
- **Non-U.S. operations.** Significant operations sit outside the U.S., some in emerging markets. **Softening economic conditions in China negatively affected the APAC segment in fiscal 2024 and fiscal 2025.** A significant portion of revenues and expenses is denominated in non-U.S. currencies; hedging does not insulate transactional exposure completely and translation exposure from non-dollar functional-currency subsidiaries cannot be hedged.
- **Capital markets.** Capital and credit markets supply liquidity beyond operating cash flow. The company has experienced increased capital costs from global interest rate fluctuations; constrained access or higher cost from rate moves, ratings downgrades or market volatility would affect financial condition and cash flows.
- **Commodity prices.** Because backlog prices are typically fixed, commodity increases erode the profitability of orders already booked and short-term ability to adjust is limited. Conversely, unfavorable hedge positions during falling commodity prices can compress margins as prices are reduced to market.
### Strategic transactions
- **Portfolio simplification may not deliver.** The Air Distribution Technologies and R&LC HVAC divestitures carry separation difficulties, management distraction, business disruption, loss of key employees and retention of uncertain environmental and other contingent liabilities. **Some divestitures, the R&LC HVAC divestiture included, are or may be dilutive to earnings**, and restructuring to offset that dilution may not succeed. Divestitures may produce significant goodwill and intangible impairment charges; a business that cannot be sold may have to be wound down.
- **Acquisitions and joint ventures.** These are expected to contribute to future growth, but attractive targets may not be identified or financed, competition for deals may raise costs, and integration carries the standard catalogue of risks — management distraction, systems and control integration, cultural and compensation conformity, employee and customer retention, unrealized synergies, larger-than-expected contingent liabilities including earn-outs, and unknown liabilities. Goodwill and long-lived assets recorded in past acquisitions were significant and impairment could be material.
### Government regulation
Operations are subject to U.S. federal, state and local licensing laws, codes and standards and their foreign equivalents; non-compliance can bring substantial fines or revocation of operating permits and licenses, and competition or other regulatory investigations can run for years. The international footprint pulls in U.S. Customs and Border Protection, the Bureau of Industry and Security, the Office of Foreign Assets Control and non-U.S. agencies across export controls, anti-trust, customs, currency exchange control and transfer pricing. Environmental and safety regulation carries significant capital, operating and compliance cost and may tighten. Anti-bribery exposure under the FCPA and U.K. Bribery Act is elevated because the company operates in regions recognized as having governmental and commercial corruption. Selling to U.S. federal, state and local governments adds dependence on government spending levels, procurement and security regulation, contracts terminable at the government's convenience, and the risk of suspension from bidding if charged with wrongdoing following an investigation.
### Litigation
- **Environmental contamination.** Remediation projects are underway at multiple current and former manufacturing and testing facilities, including the Fire Technology Center and the Stanton Street manufacturing facility in Marinette, Wisconsin — arsenic, solvent, oil, metal, lead, PFOS, PFOA and other PFAS, plus structure decontamination, demolition and asbestos abatement. Governments are increasingly regulating PFAS, which is contained in certain legacy firefighting foam products. Future expense could be considerably higher than the accrued liability.
- **AFFF firefighting foam.** The company has been named, with others, in numerous class actions and other lawsuits over the use of firefighting foam by the U.S. Department of Defense, the U.S. military and others. As set out in the June 30, 2026 quarterly report: more than **16,515 individual or "mass" actions** are pending against Chemguard, Tyco Fire Products and other defendants, originating from 53 states and territories, the vast majority consolidated in or transferred to the multidistrict litigation; state and territory attorneys general litigation includes four New York suits, Alaska, six North Carolina suits and **35 further lawsuits filed by 33 other states and territories**; tribal actions (Kalispel Tribe, Red Cliff Band, Fond du Lac Band, Leech Lake Band) and Canadian and Belgian proceedings are also pending. The company is defending all of these and asserting statutes of limitations, the government contractor defense and medical, scientific and other defenses. It is pursuing insurance coverage under a historical general liability program, has settled with certain insurers, and remains in discussions and litigation with the rest. It states it cannot predict the outcome or ultimate financial exposure beyond the water systems AFFF settlement, and that there is no assurance the exposure will not be material.
- **Asbestos.** The company and certain subsidiaries are defendants in personal injury lawsuits alleging exposure to asbestos-containing materials, and continue to evaluate strategies including entity restructuring and judicial relief. Liabilities are estimated through 2068 — the company's best estimate of the period over which claims will be filed against its affiliates — and discounted to present value. At June 30, 2026: total asbestos-related liabilities of $381 million against total asbestos-related assets of $350 million, a net liability of $31 million (from $48 million at September 30, 2025).
- **Other.** Legal proceedings and commercial disputes arise in the ordinary course. Because fire and security products and services are intended to protect lives and property, exposure to liability for employee acts or omissions and system failures is greater than in other businesses. Separately, a putative class action by former Johnson Controls, Inc. stockholders over the 2016 Tyco merger (*Gumm v. Molinaroli*) was dismissed in its entirety on March 28, 2025; plaintiffs have appealed.
### Tax
The effective tax rate is exposed to legislative and regulatory change in the U.S. and other jurisdictions, including any override of relied-upon tax treaties or broadening of the circumstances in which the company would be treated as a U.S. resident. **OECD Pillar Two** — a 15% global minimum tax on multinationals with annual global revenue above €750 million — has been enacted by a number of countries including Ireland and applies to the company from fiscal 2025; continuing legislative updates, administrative guidance and adoption by additional countries could raise the rate. Because the company is Irish-organized, Section 7874 of the U.S. Internal Revenue Code is a standing risk: the IRS may assert that, as a result of the 2016 Merger, Johnson Controls International plc should be treated as a **U.S. corporation** for U.S. federal tax purposes, or that U.S. affiliates' ability to use net operating losses and tax credits is limited. The company expects Section 7874 does not apply but notes the determination is complex and no assurance can be given. Changes to the U.S. model income tax treaty could cause double taxation and raise worldwide tax liability. Deterioration in profitability in particular jurisdictions could force changes to valuation allowances, and future business sales could reverse outside basis differences adversely.
### Jurisdiction of incorporation
Irish law may afford holders less protection than U.S. law. There is no U.S.–Ireland treaty for reciprocal recognition and enforcement of civil judgments, so a U.S. money judgment would not automatically be enforceable in Ireland, and it may not be possible to enforce U.S. civil-liability judgments against the company in Ireland. Under the Irish Companies Act, directors' and officers' duties are generally owed to the company only, and shareholders generally have no personal right of action against them. Certain share transfers attract **Irish stamp duty** at 1% of price or market value, payable by the buyer (transfers between beneficial holders through DTC are not subject to it). Dividends may be subject to Irish dividend withholding tax, currently 25%, unless the shareholder qualifies for exemption and has filed a valid form.
### General
The insolvency or financial distress of counterparties could force replacement of commitments at worse terms. A further list of factors could each be material on its own: loss of or failure to perform under guaranteed performance contracts with major customers; cancellation of or significant delay in backlog projects; delays in new product development; failure to realize restructuring benefits; debt downgrades or material increases in indebtedness; defined benefit retirement plan risk; unrecoverable cost increases; changes in energy costs or regulation that reduce the incentive for customers to upgrade building control systems; and natural or man-made disasters.
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## Management's discussion — fiscal 2025
*From the fiscal 2025 Form 10-K, accession 0000833444-25-000097 (Item 7). All figures are continuing operations unless noted.*
### Results, fiscal 2025 versus fiscal 2024
| (in millions) | FY2025 | FY2024 | Change |
|---|---|---|---|
| Net sales | $23,596 | $22,952 | +3% |
| Cost of sales | 15,004 | 14,875 | +1% |
| Gross profit | 8,592 | 8,077 | +6% |
| Gross margin | 36.4% | 35.2% | +120 bp |
| Selling, general and administrative expenses | 5,764 | 5,661 | +2% |
| SG&A % of sales | 24.4% | 24.7% | −30 bp |
| Restructuring and impairment costs | 546 | 510 | |
| Net financing charges | 319 | 342 | |
| Income tax provision | 245 | 111 | |
| Effective tax rate | 12% | 7% | |
| Income from discontinued operations, net of tax | 1,789 | 489 | +266% |
The **3% sales increase** was higher organic sales of $1,430 million offset by $786 million of net acquisition and divestiture impact. Excluding currency translation and M&A, net sales rose **6%**, driven by Services growth across all segments plus Products and Systems growth led by the Americas.
**Gross profit** rose on margin improvement in Products and Systems and higher volumes in both Products and Systems and Services.
**SG&A** rose on higher costs to support operations ($277 million), higher transformation costs ($180 million) and the unfavorable comparison to prior-year earn-out adjustments ($68 million), partly offset by a $422 million net favorable swing from the prior-year water systems AFFF settlement and related insurance recoveries.
**Restructuring and impairment** of $546 million comprised goodwill and other intangible impairments of $206 million, other impairments of $176 million and restructuring and related costs of $164 million.
The **effective tax rate** rose from 7% to 12% primarily because fiscal 2024 carried non-recurring tax benefits. Ireland has enacted Pillar Two legislation applicable to the company from fiscal 2025.
**Discontinued operations** income of $1,789 million was driven by the gain on sale of the R&LC HVAC business.
### Segment analysis, fiscal 2025 versus fiscal 2024
| (in millions) | Net sales FY25 | Net sales FY24 | Change | EBITA FY25 | EBITA FY24 | EBIT FY25 | EBIT FY24 |
|---|---|---|---|---|---|---|---|
| Americas | $15,831 | $15,606 | +1% | $2,882 | $2,679 | $2,526 | $2,300 |
| EMEA | 4,968 | 4,620 | +8% | 649 | 561 | 581 | 481 |
| APAC | 2,797 | 2,726 | +3% | 476 | 478 | 461 | 461 |
| Total | 23,596 | 22,952 | +3% | | | | |
- **Americas**: organic growth of $1,058 million was largely offset by $799 million of divestiture impact and $34 million of unfavorable currency; excluding those, sales rose **7%**, led by Applied HVAC and Controls. EBITA and EBIT rose on higher-margin backlog conversion and volumes, partly offset by prior-year earn-out adjustments.
- **EMEA**: organic growth of $295 million, favorable currency of $40 million and $13 million of net M&A; underlying growth was led by **8% Services growth**. EBITA and EBIT rose on productivity improvements and favorable mix from Services.
- **APAC**: organic growth of $77 million, partly offset by unfavorable currency; underlying growth was led by **12% Services growth**. EBITA and EBIT were flat as volume gains were offset by pricing challenges.
### Macroeconomic and demand drivers cited by management
Demand depends on general economic conditions, localized real estate demand and the availability of credit, public funding and other financing. U.S. and reciprocal tariffs are a live margin and revenue risk; the company has largely mitigated the tariffs enacted to date and is responding by strengthening in-region-for-region manufacturing, pivoting to local sourcing, accelerating pricing actions and asserting contractual rights through change orders. On the positive side, management points to increased demand for smart, safe, efficient and sustainable buildings driven by government tax incentives, building performance standards and emissions regulation — the EU Energy Efficiency Directive and EU Heat Transition among them — and, specifically, to the **increased maturity and adoption of AI and high-performance computing**, which is driving demand for hyperscale and data center cooling solutions. Offsetting that, governmental and institutional customers have shown increased uncertainty over future spending because of budget reductions, spending reprioritization, interest rates and economic uncertainty, which has impaired the company's ability to forecast revenue and backlog for those customers.
### Liquidity and capital resources at September 30, 2025
- Working capital was consistent with the prior year: lower short-term debt and higher receivables and other current assets offset by lower cash, working capital associated with dispositions and various current liabilities.
- Operating cash flow rose on higher net income and favorable receivables changes, partly offset by the timing of accrued income tax payments. Cash used by investing rose primarily because fiscal 2024 included proceeds from the Air Distribution Technologies divestiture. Cash used by financing rose on the accelerated share repurchase transactions. Cash from discontinued operations rose on the R&LC HVAC sale proceeds.
- **Capital return.** The approximately **$5.6 billion** of net R&LC HVAC proceeds were returned to shareholders through **$5.0 billion** of accelerated share repurchase transactions launched in August 2025 and expected to complete in the second quarter of fiscal 2026. Approximately **$4.8 billion** remained available under the repurchase authorization. Dividends declared in fiscal 2025 were **$1.51 per share**, with quarterly dividends intended to continue in fiscal 2026.
- **Liquidity.** Cash and cash equivalents were **$379 million**. Commercial paper outstanding was $400 million (versus $350 million a year earlier). Committed revolving facilities were a $2.5 billion syndicated facility expiring December 2028 and a $500 million facility expiring December 2025, neither drawn. Interest payable on long-term debt outstanding was $326 million in the following twelve months and $3.3 billion thereafter. Purchase obligations were approximately $2 billion payable within twelve months and $0.2 billion thereafter. Expected pension and postretirement contributions were $23 million in the next twelve months and $162 million thereafter.
- **Covenants.** Revolving credit facilities require minimum consolidated shareholders' equity attributable to Johnson Controls of at least $3.5 billion at all times and cap debt secured by liens at 10% of that equity. The company was in compliance with all covenants and expects to remain so. No debt agreement limits access to stated borrowing levels or requires accelerated repayment on a ratings decrease.
- **Critical accounting estimates** are over-time revenue recognition using a cost-to-cost input method (with monthly review and cumulative catch-up adjustments), goodwill and indefinite-lived intangibles, pension plans, loss contingencies, asbestos-related contingencies and insurance receivables, and income taxes. The fiscal 2025 annual goodwill impairment test as of July 31 was qualitative for all reporting units and no quantitative test was required. At September 30, 2025 the company carried a **$6.3 billion valuation allowance** for continuing operations — $5.9 billion against net operating and capital loss carryforwards primarily in France, Ireland, Luxembourg, Mexico and the United Kingdom — and a **$1.9 billion liability** for its best estimate of the probable loss on certain tax positions.
- **Market risk.** Substantially all outstanding debt carries fixed rates; a 100 basis point move in the average rate on variable rate debt would be immaterial to interest expense. The company hedges 70% to 90% of the nominal amount of each known foreign exchange transactional exposure. An unfavorable 10% change in exchange rates would have decreased net unrealized gains by approximately $214 million at September 30, 2025 (approximately $144 million in 2024).
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## Current quarter — third quarter of fiscal 2026
*From the Form 10-Q for the three and nine months ended June 30, 2026, accession 0000833444-26-000087, and the results release furnished on Form 8-K, accession 0000833444-26-000083. All figures are continuing operations unless noted.*
### How management now describes the company
The quarterly report's self-description has shifted from the annual report's. Management now presents Johnson Controls as "a global leader in **thermal management, mission-critical building systems, energy efficiency, and decarbonization**" and as "a fully integrated industrial technology company," helping customers create, maintain and optimize indoor operating environments that support "the precise, reliable and resilient operating conditions in rapidly expanding industries such as **data centers, healthcare, pharmaceuticals, advanced manufacturing, and higher education**." The emphasis has moved from "smart, healthy and sustainable buildings" toward lifecycle management of critical indoor environments — design and commissioning through service and retrofit — delivered by a large global field workforce and system integration expertise. Chief Executive Officer Joakim Weidemanis attributes the quarter's performance to the early deployment of "our proprietary business system."
### Results
| (in millions, except per share) | Q3 FY26 | Q3 FY25 | Change | 9M FY26 | 9M FY25 | Change |
|---|---|---|---|---|---|---|
| Net sales | $6,614 | $6,052 | +9% | $18,553 | $17,154 | +8% |
| Products and systems | 4,596 | 4,122 | | 12,687 | 11,672 | |
| Services | 2,018 | 1,930 | | 5,866 | 5,482 | |
| Cost of sales | 4,140 | 3,806 | +9% | 11,743 | 10,913 | +8% |
| Gross profit | 2,474 | 2,246 | +10% | 6,810 | 6,241 | +9% |
| Gross margin | 37.4% | 37.1% | +30 bp | 36.7% | 36.4% | +30 bp |
| SG&A | 1,407 | 1,417 | −1% | 4,029 | 4,243 | −5% |
| SG&A % of sales | 21.3% | 23.4% | −210 bp | 21.7% | 24.7% | −300 bp |
| Restructuring and impairment costs | 80 | 51 | | 224 | 146 | |
| Net financing charges | 71 | 77 | | 197 | 243 | |
| Income from continuing operations before income taxes | 917 | 705 | | 2,363 | 1,614 | |
| Income tax provision | 165 | 87 | | 443 | 160 | |
| Effective tax rate | 18.0% | 12.3% | | 18.7% | 9.9% | |
| Income from continuing operations | 752 | 618 | | 1,920 | 1,454 | |
| Income (loss) from discontinued operations, net of tax | — | 160 | | (27) | 301 | |
| Net income attributable to Johnson Controls | 749 | 701 | | 1,886 | 1,598 | |
| Diluted EPS, continuing operations | $1.23 | $0.94 | | $3.12 | $2.20 | |
| Diluted EPS, total | $1.23 | $1.07 | | $3.08 | $2.42 | |
Adjusted EPS, a non-GAAP measure reported in the results release, was **$1.42** for the quarter, against GAAP EPS of $1.23. Adjusted net income from continuing operations attributable to Johnson Controls was $868 million against GAAP net income from continuing operations attributable to Johnson Controls of $749 million.
**Sales.** The 9% quarterly increase was organic growth of $582 million and favorable currency of $26 million, less $46 million of divestiture impact. Excluding currency and divestitures, sales rose **10%**, with growth across all three segments led by strength in **Applied HVAC**; Products and Systems rose 11% and Services 7%. Year to date, the 8% increase was organic growth of $1,253 million and favorable currency of $226 million less $80 million of net M&A impact — **7%** excluding currency and M&A, with Products and Systems and Services both up 7%.
**Gross profit** rose on organic growth, productivity improvements and better operating leverage.
**SG&A** fell in absolute dollars. The quarterly decrease was primarily AFFF insurance recoveries related to the previously disclosed water systems settlement, which were $16 million higher than the prior-year quarter; the nine-month decrease reflected recoveries $135 million higher than the prior year, the **$70 million gain on the ADT Mexico divestiture**, and benefits from ongoing cost actions. Water systems AFFF insurance recoveries were **$17 million** in the quarter and **$148 million** year to date (versus $1 million and $13 million in the prior-year periods).
**Restructuring.** The multi-year plan committed to in the fourth quarter of fiscal 2024 is now expected to be **completed in fiscal 2027**, with total one-time costs of approximately $400 million and expected annual savings of approximately $500 million on full completion. The quarter carried $45 million of restructuring and related costs plus $35 million of other impairments; year to date, $118 million and $106 million.
**Tax.** The effective rate rose to 18.0% for the quarter and 18.7% year to date, from 12.3% and 9.9%.
### Segment results
| (in millions) | Q3 FY26 sales | Q3 FY25 sales | Change | Q3 FY26 EBIT | Q3 FY25 EBIT | Change | EBIT margin FY26 | Q3 FY26 EBITA | Q3 FY25 EBITA |
|---|---|---|---|---|---|---|---|---|---|
| Americas | $4,504 | $4,042 | +11% | $847 | $654 | +30% | 18.8% (+260 bp) | $926 | $742 |
| EMEA | 1,264 | 1,273 | −1% | 172 | 159 | +8% | 13.6% (+110 bp) | 179 | 177 |
| APAC | 846 | 737 | +15% | 171 | 139 | +23% | 20.2% (+130 bp) | 175 | 143 |
Nine-month sales were Americas $12,468 million (+8%), EMEA $3,807 million (+5%), APAC $2,278 million (+13%); nine-month Segment EBIT was Americas $2,096 million (+19%), EMEA $502 million (+28%), APAC $427 million (+31%).
- **Americas**: organic growth of $454 million plus $8 million of favorable currency; excluding currency, sales rose 11%, led by continued strength across Applied HVAC, with Products and Systems up 12% and Services up 10%. Margin expansion was driven by strong operating leverage on higher revenue. Adjusted Segment EBITA (non-GAAP, excluding transformation costs) was $951 million at a 21.1% margin, up 260 basis points.
- **EMEA**: the reported 1% sales decline was $41 million of divestiture impact against $17 million of organic growth and $15 million of favorable currency. Excluding currency and divestitures, sales rose 1% — **growth constrained by continued pressure in the region from the conflicts in the Middle East**, with both Products and Systems and Services up 1%. Margins rose on favorable pricing and productivity improvements, partly offset by divestitures. Adjusted Segment EBITA was $181 million at a 14.3% margin, up 20 basis points.
- **APAC**: organic growth of $111 million plus $3 million of favorable currency, less $5 million of divestiture impact; excluding currency, sales rose 15%, led by **20% growth in Products and Systems** and continued strength in Applied HVAC. Margins rose on productivity improvements, favorable mix and higher revenue. Adjusted Segment EBITA was $179 million at a 21.2% margin, up 180 basis points.
Total Segment EBIT was $1,190 million for the quarter ($3,025 million year to date) and Segment EBITA $1,280 million ($3,289 million). Corporate expense was $167 million versus $141 million (adjusted, excluding certain transaction/separation and transformation costs, $100 million versus $93 million), the increase driven by higher incentive compensation accruals and the timing of certain corporate expenses.
### Orders and backlog
| (in billions) | Q3 FY26 orders | YoY change | Backlog at 6/30/26 | YoY change |
|---|---|---|---|---|
| Americas | $4.8 | +37% | $15.9 | +40% |
| EMEA | 1.2 | +6% | 3.1 | +14% |
| APAC | 0.8 | +12% | 2.0 | +12% |
| **Total** | **$6.8** | **+27%** | **$21.0** | **+32%** |
Changes exclude acquisitions, divestitures and currency. **Orders rose 27%**, reflecting sustained demand in large projects across core markets including large-scale data center projects; the Americas increase was led by 55% growth in Products and Systems against 4% in Services. **Backlog rose 32%**, led by Products and Systems — within the Americas' 40% increase, Products and Systems backlog rose 47% while Services backlog fell 1%. Remaining performance obligations were **$27.1 billion** at June 30, 2026, up from $22.7 billion at September 30, 2025. Orders and backlog metrics relate to the Solutions and Services businesses; orders prior to the first quarter of fiscal 2026 exclude certain equipment-only sales for longer-cycle projects, and backlog has been restated to include that category.
### Portfolio activity during fiscal 2026 to date
- **Acquisitions.** In the third quarter of fiscal 2026 the company closed the acquisitions of **Alloy Enterprises** and **Nantum AI** for total aggregate consideration, net of cash acquired, of approximately **$291 million**, of which a meaningful component related to Alloy Enterprises. Alloy Enterprises is a thermal, mechanical and materials sciences technology company that designs and manufactures advanced **direct liquid cooling** components; Nantum AI expands capabilities within the OpenBlue digital ecosystem. Both are reported within the Americas segment. The company recorded $193 million of goodwill, primarily for expected synergies, and $127 million of definite-lived developed-technology intangibles amortized straight-line over 15 years.
- **ADT United Kingdom Residential Security — pending.** In the third quarter of fiscal 2026 the company signed a definitive agreement to sell this business and classified it as held for sale. The transaction is **expected to close in fiscal 2027**. It was not classified as a discontinued operation because the divestiture does not represent a strategic shift with a major effect on operations and results. At June 30, 2026, $229 million of assets and $39 million of liabilities were presented as held for sale. Estimated fair value less costs to sell exceeded carrying value, so no adjustment was required.
- **ADT Spain Security — completed.** Sold April 1, 2026 for net proceeds of **$98 million**, with no gain or loss recorded. Because estimated fair value less costs to sell was below carrying value, the company recorded a **$50 million non-cash impairment** in the first quarter of fiscal 2026 within restructuring and impairment costs.
- **ADT Mexico Security — completed.** Sold October 31, 2025 for net proceeds of **$207 million**, with a **$70 million pre-tax gain** recognized in SG&A in the nine months ended June 30, 2026.
- **R&LC HVAC.** In the three months ended June 30, 2026 the company **paid approximately $155 million** in final purchase price adjustments associated with the sale of the R&LC HVAC business to the Bosch Group. Discontinued operations recorded a **$27 million loss** for the nine months ended June 30, 2026, reflecting post-closing working capital, net debt and other adjustments.
### Liquidity and capital structure at June 30, 2026
| (in millions) | June 30, 2026 | September 30, 2025 |
|---|---|---|
| Short-term debt | $865 | $723 |
| Current portion of long-term debt | 311 | 566 |
| Long-term debt | 8,299 | 8,591 |
| **Total debt** | **9,475** | **9,880** |
| Less cash and cash equivalents | 641 | 379 |
| **Net debt** | **8,834** | **9,501** |
| Shareholders' equity attributable to Johnson Controls | 13,482 | 12,927 |
| Total debt as % of total capitalization | 41.3% | 43.3% |
| Net debt as % of net capitalization | 39.6% | 42.4% |
Nine-month cash flows from continuing operations: **operating $2,572 million** (from $1,586 million), investing $(235) million (from $(302) million), financing $(1,946) million (from $(1,111) million). The operating improvement reflects higher net income and favorable changes in accounts payable, accrued liabilities and other assets, partly offset by higher receivables. The investing change reflects the ADT Mexico and ADT Spain proceeds and lower capital expenditures, partly offset by the Alloy Enterprises and Nantum AI acquisitions. Higher financing outflows reflect net debt activity, partly offset by lower stock repurchases. For the quarter alone, the results release reports cash provided by operating activities of $1,289 million, free cash flow of $1,194 million and adjusted free cash flow of $1,179 million, both non-GAAP.
Working capital moved from $(779) million to $(2) million, on higher cash and receivables and lower accrued compensation and current long-term debt, partly offset by higher deferred revenue and payables. Accounts receivable net was $6,970 million (+11%), inventories $1,955 million (+7%), accounts payable $3,917 million (+8%).
- **Capital return.** The **$5.0 billion accelerated share repurchase program was completed in the second quarter of fiscal 2026**; in total the company repurchased **43,693,817 shares at an average price of $114.43**. Open market repurchases resumed after final ASR settlement: $635 million in the quarter and $850 million year to date, repurchased and immediately retired. Approximately **$3.9 billion** remains under the authorization the Board approved in June 2025. A dividend of **$0.40 per share** was declared in the quarter, and dividends of $245 million were paid; the company intends to continue paying dividends through fiscal 2026.
- **Debt.** In February 2026 the company **repaid $538 million of 3.90% Notes due 2026**. Short-term debt comprised $200 million of commercial paper (from $400 million) and $665 million of term loans (from $320 million), at a weighted average rate of 3.5% (from 4.5%). The $2.5 billion revolving credit facility expiring December 2028 was undrawn. Credit ratings were **BBB+/A-2, stable outlook (S&P)** and **Baa1/P-2, stable outlook (Moody's)**. The company was in compliance with all covenants.
- Within the co-issued notes disclosure, the company notes that **$17 billion of intercompany loans were canceled as the result of a distribution by a non-obligor subsidiary in October 2025**.
### Tariffs and the macro picture this quarter
Management repeats that it has been largely able to mitigate enacted tariffs and adds a new development: **in February 2026 certain tariffs imposed under the International Emergency Economic Powers Act were invalidated by the U.S. Supreme Court, but the United States has since imposed new tariffs and duties in their place.** The company is participating in the IEEPA refund process. To date, tariffs enacted by the United States and other countries and refunds claimed under the refund process **have not had a material impact** on financial performance for the periods presented. India is added to the list of countries whose products are subject to announced U.S. tariffs. Ongoing conflicts in the Middle East have disrupted energy supplies and supply chains, raised costs and created capital markets volatility — and, per the segment discussion, directly constrained EMEA growth. On the demand side, management states that AI and high-performance computing adoption driving hyperscale and data center cooling demand **has contributed to the increases in orders and backlog**.
There were no material changes to critical accounting estimates or assumptions since the annual report, and no adverse changes in market risk exposures. Disclosure controls and procedures were concluded effective as of June 30, 2026, with no significant changes in internal control over financial reporting during the quarter.
### Guidance
*From the results release furnished on Form 8-K, accession 0000833444-26-000083 (July 29, 2026). All guidance measures are non-GAAP and relate to continuing operations; the company states it cannot provide a quantitative reconciliation to forward-looking GAAP measures without unreasonable effort.*
**Fiscal 2026 full year — raised:**
- Organic sales growth of approximately **8%** (previously approximately 6%)
- Operating leverage of **45% to 50%** (previously approximately 50%)
- Adjusted EPS of approximately **$5.05** (previously approximately $4.85)
- Adjusted free cash flow conversion of approximately **100%** (unchanged)
**Fiscal 2026 fourth quarter — initiated:**
- Organic sales growth of **9% to 10%**
- Operating leverage of **45% to 50%**
- Adjusted EPS of approximately **$1.55**
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## Subsequent events
The quarterly report for the three and nine months ended June 30, 2026 (accession 0000833444-26-000087) contains no subsequent-events note: its eighteen notes run from Basis of Presentation to Commitments and Contingencies, and the filing discloses no post-period acquisition, divestiture, financing, borrowing or litigation outcome as an event occurring after the June 30, 2026 balance sheet date.
Three matters in that filing and in the results release furnished the same day, July 29, 2026, extend past the quarter end and are the forward-looking items a reader should carry:
- **The ADT United Kingdom Residential Security sale is signed but not closed.** A definitive agreement was signed in the third quarter of fiscal 2026 and the business is classified as held for sale at June 30, 2026 with $229 million of assets and $39 million of liabilities; the transaction is **expected to close in fiscal 2027**. The purchase price is not disclosed in the filing.
- **Guidance for the fourth quarter and full fiscal 2026 was raised** on July 29, 2026: full-year organic sales growth of approximately 8% (from approximately 6%) and adjusted EPS of approximately $5.05 (from approximately $4.85), with fourth-quarter organic sales growth of 9% to 10% and adjusted EPS of approximately $1.55 initiated. These are non-GAAP measures.
- **The restructuring plan runs to fiscal 2027**, with approximately $400 million of total one-time costs and approximately $500 million of expected annual savings on full completion; $224 million of restructuring and impairment costs had been recorded in the first nine months of fiscal 2026.