Johnson Controls 2015 Annual Report Download - page 83

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million to hedge the coupon of its 7.7% notes that matured in March 2015 and four fixed to floating interest rate swaps totaling
$800 million to hedge the coupon of its 5.5% notes maturing January 2016. In the third quarter of fiscal 2014, the Company entered
into four fixed to floating interest rate swaps totaling $400 million to hedge the coupon of its 2.6% notes maturing December 2016,
three fixed to floating interest rate swaps totaling $300 million to hedge the coupon of its 1.4% notes maturing November 2017
and one fixed to floating interest rate swap totaling $150 million to hedge the coupon of its 7.125% coupon maturing July 2017.
There were twelve interest rate swaps outstanding as of September 30, 2015 and thirteen interest rate swaps outstanding as of
September 30, 2014.
Cross-currency interest rate swaps - The Company selectively uses cross-currency interest rate swaps to hedge the foreign currency
rate risk associated with certain of its investments in Japan. The cross-currency interest rate swaps are valued using observable
market data. Changes in the market value of the swaps are reflected in the CTA component of AOCI where they offset gains and
losses recorded on the Company’s net investment in Japan. At September 30, 2015 and 2014, the Company had four cross-currency
interest rate swaps outstanding totaling 20 billion yen.
Investments in marketable common stock - The Company invests in certain marketable common stock, which is valued under a
market approach using publicized share prices. There were no unrealized gains or losses recorded in AOCI on these investments
as of September 30, 2015 and 2014. During fiscal 2014, the Company sold certain marketable common stock for approximately
$25 million. As a result, the Company recorded $8 million of realized gains within selling, general and administrative expenses
in the Automotive Experience Seating segment.
Equity swaps - The Company selectively uses equity swaps to reduce market risk associated with certain of its stock-based
compensation plans, such as its deferred compensation plans. The equity swaps are valued under a market approach as the fair
value of the swaps is equal to the Company’s stock price at the reporting period date. Changes in fair value on the equity swaps
are reflected in the consolidated statements of income within selling, general and administrative expenses.
The fair values of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying
values. The fair value of long-term debt, which was $6.4 billion and $6.8 billion at September 30, 2015 and 2014, respectively,
was determined primarily using market quotes classified as Level 1 inputs within the ASC 820 fair value hierarchy.
12. STOCK-BASED COMPENSATION
On January 23, 2013, the shareholders of the Company approved the Johnson Controls, Inc. 2012 Omnibus Incentive Plan (the
"2012 Plan"). The types of awards authorized by the 2012 Plan comprise of stock options, stock appreciation rights, performance
shares, performance units and other stock-based awards. The Compensation Committee of the Company's Board of Directors will
determine the types of awards to be granted to individual participants and the terms and conditions of the awards. The 2012 Plan
provides that 37 million shares of the Company's common stock are reserved for issuance under the 2012 Plan, and 32 million
shares remained available for issuance at September 30, 2015.
Prior to shareholder approval of the 2012 Plan, the Company maintained the Johnson Controls, Inc. 2007 Stock Option Plan and
the Johnson Controls, Inc. 2001 Restricted Stock Plan (the "Existing Plans"). The Existing Plans terminated on January 23, 2013
as a result of shareholder approval of the 2012 Plan, ending the authority to grant new awards under the Existing Plans. All awards
under the Existing Plans that were outstanding as of January 23, 2013 continue to be governed by the Existing Plans. Pursuant to
the Existing Plans, all forfeitures under such plans will be deposited into the reserve for the 2012 Plan.
The Company has four share-based compensation plans, which are described below. The compensation cost charged against income,
excluding the offsetting impact of outstanding equity swaps, for those plans was approximately $85 million, $81 million and $91
million for the fiscal years ended September 30, 2015, 2014 and 2013, respectively. The total income tax benefit recognized in
the consolidated statements of income for share-based compensation arrangements was approximately $34 million, $32 million
and $36 million for the fiscal years ended September 30, 2015, 2014 and 2013, respectively. The Company applies a non-substantive
vesting period approach whereby expense is accelerated for those employees that receive awards and are eligible to retire prior to
the award vesting.
Stock Options
Stock options are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Stock option
awards typically vest between two and three years after the grant date and expire ten years from the grant date.
The fair value of each option is estimated on the date of grant using a Black-Scholes option valuation model that uses the assumptions
noted in the following table. Expected volatilities are based on the historical volatility of the Company’s stock and other factors.