Johnson Controls 2011 Annual Report Download - page 71

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During the quarter ended March 31, 2010, the Company retired its 18 billion yen, three-year, floating rate loan
agreement scheduled to mature on January 18, 2011. The Company used cash to repay the note.
During the quarter ended December 31, 2009, the Company retired its 12 billion yen, three-year, floating rate loan
agreement that matured. Additionally, the Company retired its 7 billion yen, three-year, floating rate loan agreement
scheduled to mature on January 18, 2011. The Company used cash to repay the notes.
During the quarter ended December 31, 2009, the Company retired approximately $13 million in principal amount
of its fixed rate notes scheduled to mature on January 15, 2011. Additionally, the Company repurchased 1,685 notes
($1,685,000 par value) of its 6.5% convertible senior notes scheduled to mature on September 30, 2012. The
Company used cash to fund the repurchases.
In September 2009, the Company settled the results of its previously announced offer to exchange (a) any and all of
its outstanding 6.5% convertible senior notes due 2012 for the following consideration per $1,000 principal amount
of convertible senior notes: (i) 89.3855 shares of the Company’s common stock, (ii) a cash payment of $120 and (iii)
accrued and unpaid interest on the convertible senior notes to, but excluding, the settlement date, payable in cash.
Upon settlement of the exchange offer, approximately $400 million aggregate principal amount of convertible senior
notes were exchanged for approximately 36 million shares of common stock and approximately $61 million in cash
($48 million of debt conversion payments and $13 million of accrued interest payments on the convertible senior
notes). As a result of the exchange, the Company recognized approximately $57 million of debt conversion costs
within its consolidated statement of income which is comprised of $48 million of debt conversion costs on the
exchange and a $9 million charge related to the write-off of unamortized debt issuance costs.
In September 2009, the Company settled the results of its previously announced offer to exchange up to 8,550,000
of its outstanding nine million Equity Units in the form of Corporate Units (the ―Corporate Units‖) comprised of a
forward purchase contract obligating the holder to purchase from the Company shares of its common stock and a
1/20, or 5%, undivided beneficial ownership interest in $1,000 principal amount of the Company’s 11.50%
subordinated notes due 2042, for the following consideration per Corporate Unit: (i) 4.8579 shares of the
Company’s common stock, (ii) a cash payment of $6.50 and (iii) a distribution consisting of the pro rata share of
accrued and unpaid interest on the subordinated notes to, but excluding, the settlement date, payable in cash. Upon
settlement of the exchange offer 8,082,085 Corporate Units (consisting of $404 million aggregate principal amount
of outstanding 11.50% subordinated notes due 2042) were exchanged for approximately 39 million shares of
common stock and approximately $65 million in cash ($52 million of debt conversion payments and $13 million of
accrued interest payments on the subordinated notes). As a result of the exchange, the Company recognized
approximately $54 million of debt conversion costs within its consolidated statement of income which is comprised
of $53 million of debt conversion costs on the exchange and a $1 million charge related to the write-off of
unamortized debt issuance costs.
9. 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 10, ―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. In the second quarter of fiscal
2010, the Company entered into three cross-currency interest rate swaps totaling 20 billion yen. In the fourth quarter
of fiscal 2010, a 5 billion yen cross-currency swap matured. In the first quarter of fiscal 2011, another 5 billion yen
cross-currency swap matured. In the second quarter of fiscal 2011, a 10 billion yen cross-currency swap matured.