Johnson Controls 2014 Annual Report Download - page 78

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78
In November 2012, the Company entered into a five-year, 70 million euro, floating rate credit facility scheduled to mature in
November 2017. The Company drew on the credit facility during the quarter ended December 31, 2012. Proceeds from the facility
were used for general corporate purposes.
In November 2012, the Company retired $100 million in principal amount, plus accrued interest, of its 5.8% fixed rate notes that
matured November 2012.
Net Financing Charges
The Company's net financing charges line item in the consolidated statements of income for the years ended September 30, 2014,
2013 and 2012 contained the following components (in millions):
Year Ended September 30,
2014 2013 2012
Interest expense, net of capitalized interest costs $ 254 $ 255 $ 237
Banking fees and bond cost amortization 18 21 21
Interest income (10)(19)(17)
Net foreign exchange results for financing activities (18)(10)(10)
Net financing charges $ 244 $ 247 $ 231
10. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company selectively uses derivative instruments to reduce market risk associated with changes in foreign currency,
commodities, stock-based compensation liabilities and interest rates. Under Company policy, the use of derivatives is restricted
to those intended for hedging purposes; the use of any derivative instrument for speculative purposes is strictly prohibited. A
description of each type of derivative utilized by the Company to manage risk is included in the following paragraphs. In addition,
refer to Note 11, "Fair Value Measurements," of the notes to consolidated financial statements for information related to the fair
value measurements and valuation methods utilized by the Company for each derivative type.
The Company has global operations and participates in the foreign exchange markets to minimize its risk of loss from fluctuations
in foreign currency exchange rates. The Company primarily uses foreign currency exchange contracts to hedge certain of its foreign
exchange rate exposures. The Company hedges 70% to 90% of the nominal amount of each of its known foreign exchange
transactional exposures.
The Company has entered into cross-currency interest rate swaps to selectively hedge portions of its net investment in Japan. The
currency effects of the cross-currency interest rate swaps are reflected in the accumulated other comprehensive income (AOCI)
account within shareholders’ equity attributable to Johnson Controls, Inc. where they offset gains and losses recorded on the
Company’s net investment in Japan. At September 30, 2014, the Company had four cross-currency interest rate swaps outstanding
totaling 20 billion yen. At September 30, 2013, the Company had five cross-currency interest rate swaps outstanding totaling 25
billion yen.
The Company uses commodity contracts in the financial derivatives market in cases where commodity price risk cannot be naturally
offset or hedged through supply base fixed price contracts. Commodity risks are systematically managed pursuant to policy
guidelines. As cash flow hedges, the effective portion of the hedge gains or losses due to changes in fair value are initially recorded
as a component of AOCI and are subsequently reclassified into earnings when the hedged transactions, typically sales or costs
related to sales, occur and affect earnings. Any ineffective portion of the hedge is reflected in the consolidated statements of income.
The maturities of the commodity contracts coincide with the expected purchase of the commodities. The Company had the following
outstanding commodity hedge contracts that hedge forecasted purchases: