Johnson Controls 2014 Annual Report Download - page 48

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year or at the date of a remeasurement event. Refer to Note 15, "Retirement Plans," of the notes to consolidated financial statements
for disclosure of the Company's pension and postretirement benefit plans.
U.S. GAAP requires that companies recognize in the statement of financial position a liability for defined benefit pension and
postretirement plans that are underfunded or unfunded, or an asset for defined benefit pension and postretirement plans that are
overfunded. U.S. GAAP also requires that companies measure the benefit obligations and fair value of plan assets that determine
a benefit plan’s funded status as of the date of the employer’s fiscal year end.
The Company considers the expected benefit payments on a plan-by-plan basis when setting assumed discount rates. As a result,
the Company uses different discount rates for each plan depending on the plan jurisdiction, the demographics of participants and
the expected timing of benefit payments. For the U.S. pension and postretirement plans, the Company uses a discount rate provided
by an independent third party calculated based on an appropriate mix of high quality bonds. For the non-U.S. pension and
postretirement plans, the Company consistently uses the relevant country specific benchmark indices for determining the various
discount rates. The Company’s discount rate on U.S. plans was 4.35% and 4.90% at September 30, 2014 and 2013, respectively.
The Company’s weighted average discount rate on non-U.S. plans was 3.00% and 3.60% at September 30, 2014 and 2013,
respectively.
In estimating the expected return on plan assets, the Company considers the historical returns on plan assets, adjusted for forward-
looking considerations, inflation assumptions and the impact of the active management of the plans’ invested assets. Reflecting
the relatively long-term nature of the plans’ obligations, approximately 47% of the plans’ assets are invested in fixed income
securities and 33% in equity securities, with the remainder primarily invested in alternative investments. For the years ending
September 30, 2014 and 2013, the Company’s expected long-term return on U.S. pension plan assets used to determine net periodic
benefit cost was 8.00%. The actual rate of return on U.S. pension plans was above 8.00% in fiscal 2014 and 2013. For the years
ending September 30, 2014 and 2013, the Company’s weighted average expected long-term return on non-U.S. pension plan assets
was 4.75% and 4.55%, respectively. The actual rate of return on non-U.S. pension plans was above 4.75% in fiscal 2014 and above
4.55% in fiscal 2013. For the years ending September 30, 2014 and 2013, the Company’s weighted average expected long-term
return on postretirement plan assets was 5.80%. The actual rate of return on postretirement plan assets approximated 5.80% in
fiscal 2014 and 2013.
Beginning in fiscal 2015, the Company believes the long-term rate of return will approximate 7.50%, 4.40% and 5.75% for U.S.
pension, non-U.S. pension and postretirement plans, respectively. Any differences between actual investment results and the
expected long-term asset returns will be reflected in net periodic benefit costs in the fourth quarter of each fiscal year. If the
Company’s actual returns on plan assets are less than the Company’s expectations, additional contributions may be required.
In fiscal 2014, total employer and employee contributions to the defined benefit pension plans were $164 million, of which $84
million were voluntary contributions made by the Company. The Company expects to contribute approximately $64 million in
cash to its defined benefit pension plans in fiscal 2015. In fiscal 2014, total employer and employee contributions to the
postretirement plans were $8 million, of which $6 million were voluntary contributions made by the Company. The Company
does not expect to make any significant contributions to its postretirement plans in fiscal year 2015.
Based on information provided by its independent actuaries and other relevant sources, the Company believes that the assumptions
used are reasonable; however, changes in these assumptions could impact the Company’s financial position, results of operations
or cash flows.
Product Warranties
The Company offers warranties to its customers depending upon the specific product and terms of the customer purchase agreement.
A typical warranty program requires that the Company replace defective products within a specified time period from the date of
sale. The Company records an estimate of future warranty-related costs based on actual historical return rates and other known
factors. Based on analysis of return rates and other factors, the Company’s warranty provisions are adjusted as necessary. At
September 30, 2014, the Company had recorded $319 million of warranty reserves, including extended warranties for which
deferred revenue is recorded. The Company monitors its warranty activity and adjusts its reserve estimates when it is probable
that future warranty costs will be different than those estimates.
Refer to Note 7, "Product Warranties," of the notes to consolidated financial statements for disclosure of the Company's product
warranty liabilities.