Johnson Controls 2015 Annual Report Download - page 47

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47
A summary of the Company’s significant contractual obligations as of September 30, 2015 is as follows (in millions):
Total 2016 2017-2018 2019-2020 2021
and Beyond
Contractual Obligations
Long-term debt
(including capital lease obligations)* $ 6,558 $ 813 $ 1,127 $ 1,153 $ 3,465
Interest on long-term debt
(including capital lease obligations)* 3,773 231 396 367 2,779
Operating leases 628 209 241 113 65
Purchase obligations 2,296 1,550 547 180 19
Pension and postretirement contributions 560 114 89 96 261
Cross-currency interest rate swaps* 1 1 — — —
Total contractual cash obligations $ 13,816 $ 2,918 $ 2,400 $ 1,909 $ 6,589
* See "Capitalization" for additional information related to the Company's long-term debt. The Company's outstanding cross-
currency interest rate swaps in an asset position are not included in the table at September 30, 2015, 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
values. Estimated losses are recorded when identified. Claims against customers are recognized as revenue upon settlement. The
amount of accounts receivable due after one year is not significant. The use of the POC method of accounting involves considerable
use of estimates in determining revenues, costs and profits and in assigning the amounts to accounting periods. The periodic reviews
have not resulted in adjustments that were significant to the Company’s results of operations. The Company continually evaluates
all of the assumptions, risks and uncertainties inherent with the application of the POC method of accounting.
The Building Efficiency business enters into extended warranties and long-term service and maintenance agreements with certain
customers. For these arrangements, revenue is recognized on a straight-line basis over the respective contract term.
The Company’s Building Efficiency business also sells certain heating, ventilating and air conditioning (HVAC) and refrigeration
products and services in bundled arrangements, where multiple products and/or services are involved. In accordance with ASU
No. 2009-13, "Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements - A Consensus of the FASB
Emerging Issues Task Force," the Company divides bundled arrangements into separate deliverables and revenue is allocated to
each deliverable based on the relative selling price method. Significant deliverables within these arrangements include equipment,
commissioning, service labor and extended warranties. In order to estimate relative selling price, market data and transfer price
studies are utilized. Approximately four to twelve months separate the timing of the first deliverable until the last piece of equipment
is delivered, and there may be extended warranty arrangements with duration of one to five years commencing upon the end of
the standard warranty period.
In all other cases, the Company recognizes revenue at the time title passes to the customer or as services are performed.