Johnson Controls 2014 Annual Report Download - page 46

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46
financing activities for at least the next twelve months and thereafter for the foreseeable future. In addition, the Company
expects existing foreign cash, cash equivalents, short-term investments and cash flows from operations to continue to be
sufficient to fund the Company’s foreign operating activities and cash commitments for investing activities, such as material
capital expenditures, for at least the next twelve months and thereafter for the foreseeable future. Should the Company
require more capital in the U.S. than is generated by operations domestically, the Company will elect to raise capital in
the U.S. through debt or equity issuances. This alternative could result in increased interest expense or other dilution of
the Company’s earnings. The Company has borrowed funds domestically and continues to have the ability to borrow funds
domestically at reasonable interest rates.
• 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 ASC 715-60, "Defined Benefit Plans - Other Postretirement," or (ii) the cumulative foreign currency
translation adjustment. As of September 30, 2014, consolidated shareholders’ equity attributable to Johnson Controls, Inc.
as defined per the Company’s debt financial covenants was $11.6 billion and there was a maximum of $279 million of
liens and pledges 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.
A summary of the Company’s significant contractual obligations as of September 30, 2014 is as follows (in millions):
Total 2015 2016-2017 2018-2019 2020
and Beyond
Contractual Obligations
Long-term debt
(including capital lease obligations)* $ 6,497 $ 140 $ 1,688 $ 700 $ 3,969
Interest on long-term debt
(including capital lease obligations)* 4,045 269 440 380 2,956
Operating leases 975 294 389 187 105
Purchase obligations 2,418 1,891 412 94 21
Pension and postretirement contributions 347 76 41 45 185
Interest rate swaps* 3 — 2 1 —
Total contractual cash obligations $ 14,285 $ 2,670 $ 2,972 $ 1,407 $ 7,236
* See "Capitalization" for additional information related to the Company's long-term debt. The Company's outstanding interest
rate swaps in an asset position are not included in the table at September 30, 2014, which indicates the Company was in a net
position of receiving cash under such swaps.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the
United States of America (U.S. GAAP). This requires management to make estimates and assumptions that affect reported amounts
and related disclosures. Actual results could differ from those estimates. The following policies are considered by management to
be the most critical in understanding the judgments that are involved in the preparation of the Company’s consolidated financial
statements and the uncertainties that could impact the Company’s results of operations, financial position and cash flows.
Revenue Recognition
The Company’s Building Efficiency business recognizes revenue from certain long-term contracts over the contractual period
under the percentage-of-completion (POC) method of accounting. This method of accounting recognizes sales and gross profit as
work is performed based on the relationship between actual costs incurred and total estimated costs at completion. Recognized
revenues that will not be billed under the terms of the contract until a later date are recorded primarily in accounts receivable.
Likewise, contracts where billings to date have exceeded recognized revenues are recorded primarily in other current liabilities.
Changes to the original estimates may be required during the life of the contract and such estimates are reviewed monthly. Sales
and gross profit are adjusted using the cumulative catch-up method for revisions in estimated total contract costs and contract