Johnson Controls 2010 Annual Report Download - page 12

Download and view the complete annual report

Please find page 12 of the 2010 Johnson Controls annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 114

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114

12
We may not be able to successfully negotiate pricing terms with our customers in the automotive experience
business, which may adversely affect our results of operations.
We negotiate sales prices annually with our automotive seating and interiors customers. Cost-cutting initiatives that
our customers have adopted generally result in increased downward pressure on pricing. In some cases our customer
supply agreements require reductions in component pricing over the period of production. If we are unable to
generate sufficient production cost savings in the future to offset price reductions, our results of operations may be
adversely affected. In particular, large commercial settlements with our customers may adversely affect our results
of operations or cause our financial results to vary on a quarterly basis.
Volatility in commodity prices may adversely affect our results of operations.
Commodity prices can be volatile from year to year. If commodity prices rise, and if we are not able to recover these
cost increases from our customers, then these increases will have an adverse effect on our results of operations.
The cyclicality of original equipment automobile production rates may adversely affect the results of
operations in our automotive experience business.
Our automotive experience business is directly related to automotive production by our customers. Automotive
production and sales are highly cyclical and depend on general economic conditions and other factors, including
consumer spending and preferences. An economic decline that results in a reduction in automotive production by
our automotive experience customers could have a material adverse impact on our results of operations.
A variety of other factors could adversely affect the results of operations of our automotive experience
business.
Any of the following could materially and adversely impact the results of operations of our automotive experience
business: the loss of, or changes in, automobile seating and interiors supply contracts or sourcing strategies with our
major customers or suppliers; start-up expenses associated with new vehicle programs or delays or cancellations of
such programs; underutilization of our manufacturing facilities, which are generally located near, and devoted to, a
particular customer’s facility; inability to recover engineering and tooling costs; market and financial consequences
of any recalls that may be required on products that we have supplied; delays or difficulties in new product
development; the potential introduction of similar or superior technologies; and global overcapacity and vehicle
platform proliferation.
Power Solutions Risks
We face competition and pricing pressure from other companies in the power solutions business.
Our power solutions business competes with a number of major domestic and international manufacturers and
distributors of lead-acid batteries, as well as a large number of smaller, regional competitors. The North American,
European and Asian lead-acid battery markets are highly competitive. The manufacturers in these markets compete
on price, quality, technical innovation, service and warranty. If we are unable to remain competitive and maintain
market share in the regions and markets we serve, our results of operations may be adversely affected.
Volatility in commodity prices may adversely affect our results of operations.
Lead is a major component of our lead-acid batteries. The price of lead has been highly volatile over the last several
years. We attempt to manage the impact of changing lead prices through the recycling of used batteries returned to
us by our aftermarket customers, commercial terms and commodity hedging programs. Our ability to mitigate the
impact of lead price changes can be impacted by many factors, including customer negotiations, inventory level
fluctuations and sales volume/mix changes, any of which could have an adverse effect on our results of operations.
Additionally, the prices of other commodities, primarily fuel, acid and resin, have been volatile. If other commodity
prices rise, and if we are not able to recover these cost increases through price increases to our customers, then such
increases will have an adverse effect on our results of operations.