Welcome, and thank you for standing by. At this time all participants are in a listen-only mode. Questions will be taken at the end of the presentation. [Operator Instructions] This call is being recorded. If you have objections you may disconnect at this point. I will now have the meeting over to your host, Mr. Glen Ponczak, Vice President Global Investor Relations at Johnson Controls. Sir, please go ahead.

Thanks, Abby [ph], and welcome everybody to the review of Johnson Controls fourth quarter fiscal 2015 earnings. If you have not already received it, you can get the slide presentation at Johnson Controls.com. Click the Investor link at the top of the page and scroll down to the Event Calendar section and you'll find the PDF there. This morning Chairman and CEO Alex Molinaroli will provide some perspective on the quarter followed by Executive VP and Vice Chairman, Bruce McDonald, who will review the business results, and then Chief Financial Officer, Brian Stief, will review the company's overall financial performance. Following those prepared remarks will open the call for questions to end the top of the hour. Before we begin I like to remind you and refer you to our forward-looking statements disclosure that's in the news release and also the slide deck. We remind you that today's comments will include forward-looking statements that are subject to risks and uncertainties and assumptions that could cause actual results to be materially different than those expressed or implied by such forward-looking statements. These factors include the potential impact from a planned separation of the automotive experience business and business operations after these results, required regulatory approvals that are material conditions for the proposed transaction to close, the strength of U.S. automotive economy, automotive vehicle production levels, mix and schedules, energy and commodity prices, currency exchange rate and cancellation of or changes to commercial contracts as well as other factors discussed in Johnson Controls' most recent annual report on form 10-K for the year ended September 30, 2014 and Johnson Controls subsequent quarterly reports on 10-Q. The company assumes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this presentation. And with that, I'll turn it over to Alex.

Good morning, everyone. I want to jump right in to slide number four. It is a busy slide, but we have been busy and I think it's indicative of all of the things that we have going on and the pride that I have in of our people. So our fourth quarter we continued most importantly with our ongoing improvement in each one of the businesses and our EPS guidance. We've made significant progress across our portfolio transformation. As we remake this company and ultimately as we create two great companies, once we spin our automotive business. In the face of some real headwinds in each one of our businesses and the company as a whole we've achieved margins in the quarter and margins for the year we've never achieved and I'm incredibly proud of our entire team. If you look at our slide four you'll see our improvements in our margin for the year is 120 basis points and our EPS improved 14% to $3.22. The slide also does a really good job of putting into context the ongoing transformational actions that we've taken up to this point. It goes back a couple of years since we began this journey and then specifically in the fourth quarter you can see we completed the sale of GWS and consummated the Hitachi joint venture. And of course the largest and most significant action that we currently have and that we've had under way is the spin of our automotive business which is planning to be spun off on October 1, 2016. If you move on to slide five, a couple of more data points already discussed: our segment margin improvements and our EPS gain but probably more importantly is the underlying health of the individual business operations. If you adjust for…

All right. Well thank you, Alex. And I think as I go through the business operations you're going to - what you're going to see is despite the fact that we've had a lot going on from a portfolio perspective, that our business leaders and all the people at the company have really been focused on delivering solid year-over-year results here. So if we start on slide 12, we were really pleased with building efficiencies results here in the fourth quarter. You can see sales of $2.9 billion were approximately the same as they were last year. Though stripping out foreign exchange, we had organic revenue growth of 5%. In North America Systems and Service, our business was up 6% year-over-year and we saw good strength in our Branch business, though that was offset by some of the softness in the Federal Government business that Alex talked about earlier in his comments. We finally saw - we've been talking a lot this year about the Middle East. We finally ran up against some more favorable comps, so Middle East business were up nearly 54%, Asia was level with the prior year, Europe was down 3% and Latin America, which continues to be very, very soft, was down 16%. If you look at our segments earnings in the quarter, $351 million. We're up 5%. And as we've noted here on our slide, backing out foreign exchange, it was up 8%. The year-over-year improvement would really be due to higher volumes and favorable price and product mix. The margins, which was a real strong story in the quarter, up - were up to 12.1%, a 60 basis point improvement versus last year. I would point out that this was the first quarter where ADT - the ADT acquisition has been in both…

Okay. Thanks, Bruce, and good morning everyone. As you saw the press release and as outlined in the appendix to today's slide deck, the Q4 results from continuing operation include five significant non-operational items which resulted in a net charge of $1.04 in the quarter. And I'd like to touch quickly on those five items. First of all we had a non-cash mark-to-market pension and post-retirement charge of $422 million. The way to think about that and I think we've mentioned this before about half of that roughly relates to the fact that we had to adopt some new mortality tables in the pension calculations and that caused right at about $200 million impact tax. And then there was also with the August and September investment returns, we got hit hard in those two months and we ended up for the entire year having about a $200 million difference between expected investment returns and our actual returns. So all a 420 charge. Secondly, we had a restructuring charge in the fourth quarter just short of $4 million that related primarily to the automotive business and then some non-cash impairment charges we took as well. The third item would be a gain from the formation of interior's joint venture that Bruce referred to. That net gain was $145 million. Interiors is reported in our continuing operations but we've excluded that 145 from what I'll talk about this morning. We also have as we have in prior quarters the transaction integration and separation cost associated with all of our portfolio actions that we're taking. And the last item would be net tax expense charge that was taken as a result of the tax effects of the previous four charges or credits that I mentioned as well as planning around foreign cash repatriation…

Great. Thanks, Brian. Abby, I think we're ready to take calls here. I don't know how many are in the queue here, but just so that we give more people a chance, if you can keep it to a main question and a follow-up. And then if you've got more, get back into the queue, that would be helpful. And, Abby, we're ready to take questions.

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Robert Barry. Your line is now open, sir.

Hey, guys. Thank you. Good morning.

Morning, Robert.

Good morning.

Yeah. I guess I wanted to start on the Building business in North America. I mean it looks like the orders slowed. I guess a lot of that was the government. The comps also got a lot tougher. So maybe can you just update us on how you feel about the momentum and kind of the key nonres verticals for the Nonres Applied business? And specifically on that government piece, I mean things are looking a little brighter on a budget deal. I mean how much line of sight do you feel you have to a kind of book of government business that could flow through if in fact things move forward with the contemplated deal?

Yeah. That's a great question. Well first, I hope it came through in my comments. It was a very frustrating - literally because of the - because of when the end of the fiscal year happened. I believe it was like over the weekend, a lot of this came to light at the very, very end, as it relates to the continued resolution and what that meant to the different agencies we do business with. They actually didn't realize that they were going to be curtailed because of the uncertainty. So you're right, the budget looks like it's going to get resolved. We're not sure what the resolution exactly is going to be. We would expect some of these projects to come back soon. But we also know that some of them may not come back right away because a lot of these projects are the type of projects that come at the end of the year when agencies find that they have additional funds in their budget. So I think it's going to be a mixed bag of us being able to get some of these projects in earlier than waiting for the end of the year. But it certainly wasn't something that we expect. The good news on any of this, if there's any, is that these projects typically are very large and very, very slow moving, so that's not going to have a real huge impact on us this year. But it was disappointing because we have such a strong pipeline and such a lot of momentum in that business. The team was just really deflated when they were kind of dealt this curveball here over that weekend. But the pipeline is as strong as it was when we talked about it two quarters ago. And last quarter, what we see is secured pipeline. It looks very strong, particularly in all - in the institutional vertical markets. We continue to add salespeople, and so I think what we're going to - we'll continue to see growth. I would consider - I think what I hope everyone takes away from this is this is not a change. What this is was something that was just something we couldn't predict and for us we do an awful lot of business with the federal government, so it was a significant blow to us. But I'm just as strong, if not more bullish because if you look at where, we talked about one quarter, and then two quarters and three quarters and I think we're - our line of sight is over the next couple quarters, we should continue to see strong orders.

Gotcha. And maybe just a question on the Power business. Really two questions. If you could address the slowdown in the growth in the aftermarket? And then on the margin in Power, can you kind of bridge that gap between the guide of 50 bps and the 150 bps that you did? And to what extent specifically was there any change in planned investment spending that caused that much stronger performance in Power? Thanks.

Yeah. Yeah. I don't know that it was planned investment spending. I do think that what we can't predict at the end of each and every quarter is when - how our customers are going to order - get it where they get ready for - as they get ready for the winter months. What I would expect, in fact I was with one of our customer yesterday, is what I would expect is that some of the profits that we saw in this quarter may have been in a different year next quarter, so I think it's a little fungible quarter-to-quarter. But as it relates to the slowdown in the aftermarket, I think what our team is seeing overall - let's use North America I guess as the best proxy. Is they're seeing a 3% to 4% growth. And in fact our team would tell you right now they're struggling to get batteries to be prepared for the winter. We're really concerned about our service levels so absent whatever is going to happen with the weather I can't really control that. Our biggest challenge right now is to make sure that we do have batteries to be prepared. So I think that's good. And then AGM as far as where we are on that is we are capacity constrained. We're building as fast as we possibly can and hopefully we have to get through the allocation. All in all a positive

Yeah.

I think one point around the investment, we are opening up our plant in China, our partnership AGM batteries out of China. So there is going to start to be some heavier investment in China next year versus this year around some of those new capacity adds.

That's true. Yeah. I did see actually - that's a good point, Bruce. I did see in some of the forecast that we have some launch costs in China specifically and as we start to use our global network for batteries, we probably are going to have some additional expense cost as we move batteries around versus capital cost.

How much of a headwind is that?

We'll talk more in December.

Yeah.

We'll give you more detail around...

Yeah. I really don't - I really - I guess with the numbers I saw, I really don't know if I got to the root cause of it. It's not something that to be concerned about.

Okay. Thank you

Thank you. Next question is from Julian Mitchell. Your line is now open, sir.

Hi. Thank you.

Hi. Good morning.

Good morning. Just a question on the segment margins within building efficiency. You had a good increase in Q4 and through the year. Just wondered if you could parse out at all how much of that was driven by price net of raw material costs? And how the hedging works and what kind of benefit you think you'll see in Q1 from that effect?

Yeah. This is Bruce here. You kind of broke up a little bit. I don't have - and we usually don't like to talk about pricing versus commodity but commodities would have been a benefit with them trending down throughout the quarter but I would say equally that's not unique to Johnson Controls and so our competition would've been faced with the same tailwinds there and that tends to be reflected in how people look at quoting. So I don't think it's a big deal. I mean I think probably the best way to think about it is we've pretty consistently said that we see our glide path in BE margins around 50 basis points a year. When sales tend to be soft, we tend to do a little bit better job because we don't have to sort of ramp up resources in advance of new business. We are adding salespeople. I mean I think we talked about that a little bit on our last quarterly call but it would really be and if we have flat topline performance, we can do a little bit better than the 50 basis points. When we start to see it turn, you probably see a little bit worse than 50 basis points. So that's kind of the best way to think about it.

I'd just add to that. I think in the fourth quarter the building efficiency team did a pretty good job of addressing early on some actions it was going to take from an SG&A standpoint and there was a benefit in the fourth quarter from some of those actions that they were able to accelerate versus some of the other actions that relate to the restructuring charge we took in the fourth quarter likely won't happen until sometime during fiscal 2016. So there was a bit of a benefit there as well.

Thank you. And then just my follow-up question is on the Asian business within building efficiency. Yeah. The revenues were flat at currency orders down slightly. I think China is a pretty high-margin business for you in that segment so maybe just give some color on not the auto side but what you're seeing on the building side in China right now.

Yeah. So let me give this a little bit of that. I don't want to call victory. Bruce's conversations around the automotive business I think is something because of our unique relationships that we have. We probably had more visibility into exactly what's going to happen. I can tell you we got more positive comments but I would call it anecdotal versus something that in automotive where we would see something more structural happening. So the phone calls have been better. The anecdotes have been better but I certainly don't think we're out of the woods yet in China as it relates to the building business. Now all that being said, remember we just went through the Hitachi joint venture. So our presence in China has changed dramatically. We have a new party at Hycincs in China. We participate much more broadly in the market and I think we have the opportunity to see some increases because of that new participation and new products that we can cross sell. But we haven't really identified that. So I think that we may be able to do better than the market as we move forward because we have new products that we can sell through with multiple channels

Right. Thank you.

Thank you. Our next question is from Emmanuel Rosner. Your line is open.

Hi. Good morning, everybody.

Good morning

Wanted to ask you first about the automotive spin off. So if I heard you right I think it's scheduled for a about year from now, which obviously is a decent amount of time. I was curious if you could just give us some color on I guess what does the process look like? What do you have to accomplish in order to be able to get that done? Why does it take so long? But also, how do you reassure clients and customers, the auto makers in particular that about the future? I mean, some of your sitting competitors seem to imply that they are taking advantage of the uncertainty and they're getting more business as a result. So what can you do over that time period to sort of like make everybody more comfortable?

I'm going to turn this over to Bruce because he's so deeply into this, but I just want to address that last piece as it relates to what our competitors may or may not be saying. I'm not privy to that but I think that that's probably - I actually think that our position with our competitor is probably more about the fact that the way we manage the business today, not about who we're going to be tomorrow. Because if you think about how we manage the business today, we've very selective in the way that we allocate capital and how we compete within the Automotive business, particularly the Seating business in North America and Europe. That doesn't necessarily mean the way that Bruce and his team will run it in the future. So I think that when you hear our competition talk about it it's probably less to do about the spend and more to do about the fact that as a whole Johnson Controls has had a capital allocation strategy that may have benefited. That's the only way that I can relate to that comment. But as far as how they spend is going and why it takes so long I think Bruce probably has a couple of facts that he can give you.

Well, it's taking longer than I would like to happen but I think just to sort of walk you through sort of the main work streams. First of all and probably the most complicated is the separation and establishment of new corporate entities. So unlike say a divestiture where we're pretty used to say carving something out and selling it and have had a fair amount of experience over the last couple years doing that. Here we have to do all the separation work but also set up the corporate functions starting from scratch. And so that's a big work stream. The IT systems are always a challenge and again, we're used to sort of separating them out and automotive tends to be fairly separate here at Johnson Controls. There's not a lot of co-mingled systems or assets. But again, on the corporate side, we have to set up brand new systems from scratch. So that's kind of - what really drives the timing. I think if you look like we have, Emmanuel, in terms of how long some of these spinoffs tend to take, as we looked out in the market, we've seen sort of nine month would be a quick one, 9 or 10 months to 18 to 24 months would be a slow one. And we tend to be I think given the size of it nearly $20 billion, 35 countries, we have 225 plants, 75,000 employees. So in the scheme of it I would say we're a large complex separation and I think the timetable that we've established is pretty aggressive given the complexity. I mean, I would say it's on the shorter end of normal and it's on the much more difficult than normal.

Okay. That's helpful. And then just my follow up on automotive again. I guess the margin came maybe a little bit lower than we would have expected. And I realize there's a lot of moving pieces now because obviously the denominator is just a consolidated sales but on the numerator you have the consolidated earnings, you have now the interior earnings, you have the China earnings that are not consolidated. Can you maybe give us directional comment on how the performance for margins was for these different pieces? North America and Europe filling up down and then China filling in the interiors?

Yeah. I don't have it on the top of my head. I think and maybe we can follow this one up, Emmanuel, but I'd say just look at that seating margins were up 90 basis points in the quarter, 5.9% versus 5% last year. Interiors, in my comments I talked about some of the noise that's in their around the wind down cost, the fact that it's flipping from pre-tax number to post-tax number now. The fact that we've got cost to set up the new joint venture flowing through those numbers. So you're quite right, there's a lot of noise. We do intend next year to continue to show seating and interior separate. And I think as we sort of hit our stride on getting the JV set up here, I think it's up to us to maybe do a bit better job educating folks on what the interior piece of it is going to look like, because I think that's where the confusion is coming about. I think the street had auto margins being about 70 or 80 basis points higher than we came in at. And I think that was because they sort of looked at last year's segment income in interiors and figured that would repeat. And that's where you see the 30 million year-over-year delta. So I think there is a lot of moving points and it's something that we can do a better job, and we will in Q1.

Yeah. I think one of the things that we'll do as part of the December analyst day is we'll kind of unpack both the consolidated and unconsolidated automotive sales and related margins. So we'll get into that in a bit more detail in December.

All right. Thank you all.

Thanks.

Thank you. Our next question is from Richard Kwas. Your line is now open, sir.

Hi. Good morning.

Hi, Richard.

Good morning.

Alex, I wanted to touch base on your comment about backlog. So GWS wasn't included in backlog, and resi and the light commercial stuff. And you're implying that backlog is going to be less relevant. But if I look at the business as a whole, GWS wasn't part of it. So why is backlog less relevant going forward here? I understand the ADT piece. That's now in the business. That's not part of backlog. But it just seems like from an institutional standpoint, your mix hasn't changed all that much. So it still should be pretty relevant. So I just wanted to get some additional color from you on that.

Yeah. I guess what I would say is first off, as I thought about GWS, I never really thought about it in the context of being part of the BE and the construction projects. What I mean by that is that the way that we're going to market, the way that we're selling our products, whether it be ADTI, whether it be our Hitachi products, whether it be our strengthening of the other products that go through distribution not only in North America but around the world, we've gone through a place where 75% of our business used to be backlog ex, not including GWS. Just separate GWS out. Now it's something that's around 50% or less and probably continuing to be less and less. And so what I just wanted to say is that over time, we're going to have to make sure that we don't - that we continue to give you the information that you want to see around our projects and our projects business moving forward. But our projects business moving forward will continue to be important, but it won't be the dominant part of our business in the future. And so that's really what the comment means. In fact, you can see our ongoing sales have continued to increase adjusted for FX, and our backlog has been under pressure. And so I'm just pointing out that that's becoming more and more disconnected. That's it.

Okay. So is that more kind of differences in how you've gone to market here in the past year or so with new opportunities and what not?

Absolutely. I think it speaks to when we talk about having multiple channels, multiple ways to getting to the market and serving the market more broadly than just the complex market and becoming much more of a product company. I think all of these things, this whole conversation is really an outcome or an attribute of how we're going to go to market and what kind of products we're going to sell. We'll become more and more talking about our product sales and less and less pivoting on the contracting part of our business. That's all.

Okay. And then [indiscernible]

Not that we're restricting the [indiscernible].

We're not getting rid of it. I don't want to go over it. I'm just saying the mix is changing. That's all.

Okay. And then just broadly speaking on M&A, there's been some speculation around the business that would fit the power solutions here recently and you talked about trying to expand your scale in the midmarket light commercial residential, et cetera. How are you thinking about this right now with the transactions? There's still work to do with some transactions but how are you thinking about the landscape right now and where you see capital deployment going here within the next year or so?

Great question. So we're going to talk about - this is a good pivot to talk about our December analyst day. We're going to have, you know, all of these conversations are going to be in real detail because one of the things you should expect from us is that I don't think we've done a great job. I do think our capital allocation strategy has become much more robust in the last couple of years but I think philosophically we need to talk more about that. We'll do that in December. How are we going to make these decisions? What process and insight analytics and what metrics are we going to use? Not only what parts of our business need to be levered because they have strength as it relates to adding geography and technologies but also where we have gaps and how we would do that and what kind of metrics we'd be? Because I've gotten a lot of feedback from individuals I'm sure, you also, to make sure that we continue with a disciplined capital allocation strategy and we'll talk about that in December. So I think that you should keep that in mind understanding that we know that we need to add capabilities and take advantage of some of our portfolio to make it stronger. We also have realized that we need to make responsible capital allocation choices. More in December.

Okay. Thank you.

Thanks, Richard. We have time for one more, operator.

Okay, speakers. Our next question is from Ryan Brinkman. Your line is now open, sir.

Hi. This is Sumit for Ryan. Thanks for squeezing us in. I just want to go back to the sleeping margins. You've seen a good increase in the margins. I'm just curious where are you on the restructuring savings and should we be expecting that margin improvement to be sustainable or are the margins going to flatten out going in FY 2016?

Yeah. It's Bruce here. I think it would be normal for us here in December. We'll give our margin expectations by business for all three of our businesses in December. So that's - and sort of hold off on that.

Okay. Can you just share your thoughts on where you are on the restructuring process in terms of the getting savings there?

Restructuring for the company?

For seating.

For the seating. Yeah.

Yeah. Well it plays right into the margins so I think we'll just leave that until the December meeting.

That's fine and just a follow-up. Thanks for your comments on the China market regarding automotive. Just curious, again, if you're seeing any delay in new programs or new launches coming to the market because of the slow down or is that really something that's not playing out at all?

I think I would say not so much on any launches at this point in time but I do think there are a couple of OEs that are rethinking or possibly going to defer some capacity increases.

Okay. Great. Thanks for taking our questions. Thank you.

Thanks very much.

Thank you.

So thanks everybody. Couple closing comments, Alex?

Yeah. Just a couple. I mean, first, it's become an enjoyable broken record to thank our employees for everything that they've accomplish over the last quarter and now you got the opportunity to thank them for what we've accomplished over the last year. It's quite outstanding. I certainly don't want to leave anyone out when I think about whatever our employees accomplished in each one of our businesses. They performed extremely well in each one of our geographies depending on what they've faced. They face with different challenges and opportunities and I think we've got opportunities. We've exploited them and I think where we had challenges we went over to mitigate those challenges. And then if you look at our corporate teams and our teams that are supporting our portfolio transformation, not much can be said except I think each one of these transactions and each one of the things that we've accomplished I feel absolutely proud of what we've been able to make happen, not only from the standpoint of the time that it took to do it but the outcomes. We hopefully get to see everyone in New York in December. I think it's going to be an important meeting, one of the most important meetings we've ever had in New York because we're going to talk about the remaining Johnson Controls and our strategy moving forward. So we'll bring more and more clarity around that. We're going to give you details around the automotive spin, which I think there is a need for everyone to understand that so it can help you put the right values down in your models as you move forward. And once again I just want to thank you for your interest and hope you have a great day. Take care.

Thank you. And that concludes today's conference. Thank you for participating and you may now disconnect.