Glen Ponczak - Vice President, Investor Relations Alex Molinaroli - Chairman and CEO Bruce McDonald - Executive Vice President and CFO.

Ravi Shanker - Morgan Stanley Rod Lache - Deutsche Bank Brian Johnson - Barclays Patrick Archambault - Goldman Sachs Italy Michaeli - Citigroup.

Welcome and thank you for standing by. At this time, all participants lines in a listen-only mode until the question-and-answer session. (Operator Instructions) Today’s conference is being recorded. If you have any objections you may disconnect at this point. Now I’ll turn the meeting over to your host, Mr. Glen Ponczak. Sir, you may now begin..

Thank you, [Toni]. Good morning, everybody. Thanks for joining us. Before we begin here, just like to remind you that Johnson Controls will be speaking from today’s presentation that are forward-looking and therefore subject to risk and uncertainties.

All statements in this presentation other than statements of historical facts, statements that are or could be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

In this presentation, statements regarding future financial position, sales, costs, earnings, cash flows, other measures of results of operations, capital expenditures or debt levels and plans, objectives, outlook, targets, guidance or goals are forward-looking statements.

Words such as may, will, expects, intend, estimate, anticipate, believe, should, forecast, project or plan, or terms of similar meaning are also generally intended to identify forward-looking statements.

Johnson Controls cautions that these statements are subject to numerous important risks, uncertainties, assumptions and other factors, some of which are beyond the company's control that could cause Johnson Controls' actual results to differ materially from those expressed or implied by such forward-looking statements.

These factors include the strength of U.S.

or other economies, automotive vehicle production levels, mix and schedules, energy and commodity prices, availability of raw materials and component products, currency exchange rate, and cancellations of or changes to commercial contracts, as well as other factors discussed in Item 1A of Part I of Johnson Controls' most recent annual report on Form 10-K for the year ended September 30, 2013.

Shareholders, potential investors and others should consider these factors in evaluating the forward-looking statements and should not place undue reliance on such statements.

The forward-looking statements included in today's presentation are made only as of the date of this presentation, and Johnson Controls assumes no obligation, and disclaims any obligation, to update forward-looking statements to reflect events or circumstances occurring after the date of this presentation today.

We have joined this morning with a very, very long call to the microphone by Alex Molinaroli, our Chairman and Chief Executive Officer. Alex is actually joining us from Davos, Switzerland, where he is attending the World Economic Forum. So it’s -- there is a little bit late here there because of the resistance here, so we are in different places.

But Alex will join us of course for the call here and he will give an overview of the quarter and then we will be followed by Bruce McDonald, Executive Vice President and Chief Financial Officer for a look at each of the business segment and an overall financial view, followed then by your questions-and-answers ending somewhere near the top of the hour.

And with that, we’ll head over to Switzerland let me turn it over to Alex..

Well, good morning, everyone. I am glad everyone could join. It’s actually warmer here than in the Milwaukee. I -- first thing I want to do and I will come back to it at the end is acknowledge all the hard work, there has been also lot of accomplish in the short period of time.

We have been able to accomplish some things that some things that we can about here and some things that are strategic while from an operational perspective could be enable to keep our eye on the ball. So the team -- when I say the team, all of our colleagues around the world are working hard and very focused.

So let’s talk about the environment a little bit, because I think it’s important, if you go to slide three is where I am starting. We are benefiting from the North American volume increased. We will talk about -- we will talk about Europe and what we are doing. But we are seeing in Europe at least right now some stability in the market.

It shows a, you should see a 2% increase in volume in the industry production, but I think that the 2% is not as important as stability is for us right now and hopefully, we can maintain that for the rest of the year. And then China, we had significant growth, we keep talking about and hear about 7%, 9% growth.

What we saw was 14% growth in the quarter as relates to OE market. When you look at battery demand, we finally got the cold weather there we are looking for. We got it late November and throughout December, and so we were able to get, we have got some orders because of that, we will talk about that North America.

Unfortunately and as I can attest, believe it or not, Europe having the warmest winter that had in a hundred years, so we can win for losing.

But, so what you are going to find is we are little soft in Europe but we are going to see -- we are seeing the demand grow in North America which is we’d prefer to have it there anyway and we will actually see more benefit going forward because it's continues to be cold and hopefully, what we will see is our customers haven't restock more than once this winter.

And then we have seen a note about commercial HVAC demand improving. I think what I would say that, we're seeing an increase. I think a lot of it has to do with share. But we are gaining some share. We're seeing more activity.

But mostly on the negotiated side, if you look at the architectural indexes, it would tell you that, we still a ways off before we see a strong commercial recovery. But we have, our pipelines are growing now and we are seeing more and more opportunities.

And then in China, I am really happy to say that, we have been had a franchise business both in A/E and B/E and Power Solutions is making lots of strides and had their best month ever in December. So we’re seeing growth in China across all of our businesses. If you go slide four and we just kind of recap the quarter.

The way I would say this is, we did what we said we were going to do and I think that we did it in a way that was -- what -- it was a good quarter, strong operational performance. I think that, we can find opportunities that we could do some things, we could do some things better and some things we are surprised, how well it went.

But we are particularly happy with how well the automotive business did and I'm sure Bruce will cover that later. But if you look at what we said in December, we did what we said we are going to do and that’s really important to us.

We are very focused on the near-term in making sure that we have a cost structure in place so that when the market comes back we can benefit from it.

And I’d say that, if you look at our restructuring activities, all the things that we've done in order to get ourselves positioned well for the future are on tracking and when we saw the benefits of that.

And in particular you look what happen in our metals business, in our European business for automotive, significant changes and those guys are feeling good, this year they have done a great job. If you look at our second quarter outlook, EPS $0.64 to $0.66, see that’s up 45%. Now, Bruce, will go over, we have some counting changes.

So Bruce will go over some of that to make sure you understand what that means with the accounting changes, we went from -- we went from LIFO to FIFO in our Power Solutions business. So it has a significant quarter-to-quarter impact with our numbers.

Our segment income, a 15% is a fully -- is continuing to be our full year outlook and we're sticking with the range that we gave you in December, $3.15 to $3.30. I do want to go through a couple things that that strategically important. We talked about our portfolio in December. We continue to talk about that.

We’ve talk about how we want to manage our capital in a different way at least our allocation of capital. And we have made, we have been very consistent in our behaviors of the things that we are doing, consistent with what we told you we are going to do it and you continue to see that.

We are happy that we are able to get our agreement with Visteon, sell the rest of the electronics business. We increased our dividend 16%. We did finish our share repurchases for the year because of the accelerated plan that we had. We announced the joint venture with Hitachi.

It’s a very important -- it's very important to us because it’s going to bring some products particularly mini-splits and VRF into our portfolio which are very important globally and become important to North America. And we announced that we are looking at strategic options for our interiors business.

We don’t have anything to talk about at that point but there is something that’s ongoing. And then the building efficiency business, I mean this is a real big win. We have a largest contract ever and largest performance contract ever with the State of Hawaii Department of Transportation. It’s over $150 million and over time that contract will grow.

So big win for building efficiency and overall if you look at their numbers, month -- quarter-to-quarter we continue to see growth. We still don’t have our backlog above last year. We did think we would at this point. But we’re on track to continue to build that backlog.

So with that, I’ll turn it over to Bruce and he’ll give you some more color on the segments..

Okay. Thanks Alex. So just starting on page -- on Slide 6, I’ll go to Power Solutions first. You can see overall our sales in Power Solutions were up about 6%. If we were to sort of adjust for foreign exchange mainly the euro in lead, our underlying sales would have been up about 3%.

In terms of unit production, and this is one of the reasons, we have a little bit of pressure in terms of our margins here. Overall shipments were up 3% and within that we saw OE volumes up 12% and aftermarket up 1%.

So this -- we tend to be more profitable on the aftermarket side of our business and the fact that OE was up significantly and aftermarket was relatively constant here, did depress our margins little bit here in the quarter.

Geographically, you can see the information here, North America or the America is overall 3%, our Asian business up 22% really reflecting the share gains that we’re making in the Chinese market and then the Europe market down.

What you would sort of see within Europe was the OE side of our business, is up about 7% and the aftermarket part of our business was down about 5% to 6%. So again little bit of a negative mix shift in our European partner business.

As Alex indicated, just we’d have sort of look at our shipments by months, we started the quarter little bit soft in North America although our aftermarket volumes picked up significantly in December.

We did see double-digit increases in some of our PLS data from our customers and so our order backlog going into the second quarter, North America is very strong. However, that’s not fully but it’s largely offset by coming into the quarter with a pretty weak outlook in the aftermarket side in Europe due to the unseasonably warm weather.

Just commenting on AGM and with this why we have note when I talk about the regional number that includes the AGM in there but -- but it stripped our AGM overall with up about 26% to about 1.6 million to 1.7 million units in a quarter. Look at the segment income here, come in at $308 million, up 12% from last year.

Generally speaking, our results were favorably impacted by the higher unit shipments, which obviously helps our plant absorption. We’re getting the benefits of in-house lead recycling versus last year, you recall we’re flanking up our forest smelter and that’s now fully online.

And we saw -- we continue to see very strong operational performance from the Power Solutions plant. Margins overall were up about 90 basis points.

I would point out from the early within some of the early notes -- within Power Solutions in the quarter, we did have $19 million non-recurring gain in here associated with an increase in our equity position of an equity and joint venture in South America. We went from 40% ownership interest to 90% ownership interest.

So that business became consolidated in the quarter and that resulted in a $19 million non-recurring gain. Turning to Building Efficiency, you can see sales are little bit soft here, down 4%.

If you were to back out the impacts and divestitures that we made last year, particularly in Europe and foreign exchange, our sales were down about 2% on a year-over-year basis.

If you look at things geographically, little bit of mix back here in North America, the residential and light commercial business or UPG, it is sometimes called, they are up double-digit 11%. Asia was up marginally about 1%. Our North America systems and services business overall were constant versus last year.

Then where we saw the weakness on the other hand was in the Middle East where we’re down 30% -- 31%, Europe which was down 17% and then if you were to look at our global workplace solutions business, we’re down about 5% globally there.

We talked a little bit about our backlog and Alex did comment to limit the quarter of $5 billion and again adjusting for FX and divestitures down about 1% year-over-year. So we start to climb back but still down year-over-year.

On the positive side, we can see orders, we talk about being up 5% in the quarter and again kind of a mix by here in the Middle East, up 16%; North America was our biggest market, we’re up 11%. Europe, even though our revenue is soft in Europe, we’ll start to see up orders. So Europe was up 3%.

Asia was down 3% and the biggest area of softness is Latin America, it is down 17%. Segment income in BE at $146 million, was down 15% versus last year. We will need to adjust for couple of items.

One is in the current quarter, we had about $20 million of non-recurring charges associated with curdling out some aged contracts and last year, if you would look within our GWS segment, you would have seen a $22 million benefit on a contract settlement in U.K. last year.

So if you would have sort of equalized our year-over-year earnings with the gain that we recorded last year and the charge that we recorded this year, what you’d see is our underlying earnings were up about 6% on the revenue decline, so got about 50 or 60 basis points of margin expansion on an underlying basis.

In terms of Slide 8, our automotive experience, we clearly had an outstanding quarter here. We’ve suffered through some long period here of difficult launch performances and some operational challenges, which you’ve seen over the last sort of second half of 2013.

It's pretty strong year-over-year earnings momentum and that really gathered pace here in the first quarter where you can see our earnings are up more than double versus last year. Look at our revenues and we like to kind of look at revenues in light of production, but North America, we're up 11% versus the production being up about 5%.

So 2X times the market. In Europe, we have 9% versus the industry at 2%. That really reflects the -- the European performance really reflects our backlog coming on stream.

So we have a higher percentage of our business that’s on newer platforms and if you look at our custom exposure, we tend to be underexposed to a couple of customers that are losing share. So we have a healthy customer mix versus the market right now. That's benefiting our topline.

In China, and Alex touched on this in his comments but it is great momentum in our business here are reflecting ongoing share gains. Our overall revenues, which is primarily a non-consolidated joint ventures in the quarter was $1.9 billion, which is up about 33% against the 14% increase in passenger car production in the quarter.

So terrific quarter in China and we see that momentum carrying through here into the second quarter. In terms of our segment income, it more than doubled to $232 millions, which is up 130%.

It benefited clearly from higher volumes but the real story was the operational improvements that we saw in our metals business, our European business and I guess to a larger extent in South America.

Most of our restructuring initiatives were geared towards automotive and generally speaking, we are in line with our plans and tracking losses with the benefits that we expect here in 2014.

In terms of our margins in auto, at 4%, we are up 210 basis points with our seating business, which is the biggest piece here of margins that looks like 1% and a 190 basis points higher than last year. If you look at our geographic profitability, North America was about 5.7%, which is consistent with last year.

Asia was up 150 basis points with 13.6% and Europe was nearly at a breakeven level and about a $97 million year-over-year improvement. So a terrific quarter for our automotive businesses really drove the bulk of favorable year-over-year performance level of the company. Let’s get into the slide 9 and go through with some of the financial highlights.

Maybe I will just expand a bit on Alex comment in terms of the impact of changing from a LIFO to FIFO in Power Solutions. So for the year and for the first quarter and the fourth quarter, the impact is negligible less than a $0.01 a share. But it does change our second and third quarter previously reported numbers.

So for the second quarter of 2013, last year ex-items, we reported earnings of $0.42. When we would make the LIFO to FIFO adjustment that becomes $0.45. So the number when we report our second quarter earnings here that we are comparing to, it is $0.45 ex-items not $0.42.

And conversely in the third quarter, last year we reported earnings per share of $0.78 with LIFO change reduces back to $0.74. I know that’s out by about $0.01 but it’s all of the rounding and the full year impact is zero. So when we talk about our second and third quarter numbers on a go-forward basis, we are going to talk to those two adjustments.

Turning to the first quarter, you can see our revenues that overall were up about 5%. If you take out the impact of the euro, which was positive and the yen which was negative for us then our underling growth was 4% excluding currency effects. We were pleased to see our gross profit improved by 70 basis points to 15.2%.

We saw higher margins in all three of our businesses and that reflects the benefit of higher volumes and the cost reduction and initiatives associated with some of the manufacturing operations. In terms of SG&A, as a percentage of sales declined by 20 basis points to 9.9% from 10.1% last year.

We continue to invest in some of our key growth initiatives and infrastructure in Asia, some IT systems implementation and R&D and advanced battery investment in particular. But despite that we were able to offset some of those increases with restructuring benefits. Our equity income line was up 33% to $113 million.

What you will see in there basically is the $19 million non-recurring gain that we talked about earlier in Power Solutions and stronger profitability from the increased revenues in our automotive businesses in China.

When I look at on our segment income here at 6.3%, very pleased to see a 100 basis point improvement in our underlying margins on a year-over-year basis. On slide 10, I will just comment on few line items here. In financing, we came in at $55 million, down about $6 million versus last year.

And generally speaking, borrowing costs are around the same as last year, the benefits really flowing as a result of the just lower averaged debt levels in the quarter. Income tax rate of 20%, consistent with last year in our guidance.

Income attributable to non-controlling interests up about $6 million versus last year, that’s really just due to the higher level of profitability in some of our consolidated automotive joint ventures. And then lastly, if you look at our diluted earnings per share, it came in at $0.69 versus $0.52 last year, so up about 33%.

We did get the benefit of our share buyback here, although the fact that it got completed kind of late in the quarter, our averaged share count was a little bit higher than the $670 million that we guided to in our Analyst Call here in the first quarter, but $670 million is probably good number for [Qs 2 to 4].

But we had about one set headwind associated with slightly higher share count here in the first quarter. Before I open it up for questions, I will just borrow a summary here. We were very pleased with the solid start to the year here. We had a couple of little bit near within our numbers with the one-time gain in Power Solution and that charges.

And we have some contracts in BE but it was largely not out. So, I think -- if you look at the underlying $0.69, it’s a strong number. Looking at some of the momentum that we have, the way our businesses are performing and the traction that we are making on our restructuring programs, we feel pretty confident about our second quarter outlook here.

And at the midpoint of our guidance here, we are talking about Q2 earnings growth of about 45%. I don’t think we have anything to be apologizing. For us, it’s a pretty strong number. I don’t think we are going to see a lot of companies out here with 35% earnings growth here in the first calendar quarter of 2014.

After the first quarter in terms of our dividend, our buyback, in terms of divestiture activity, the Hitachi announcement and some of the work that we are starting to do with Interiors. And in terms of the full year, generally playing not as we expected, we are maintaining our guidance at $3.15 to $3.30.

We commented about free cash flow for the year at being $1.6 billion and we think we are on track for that, even though we kept seeing our very large outflow here in the first quarter associated with some seasonal working capital factors and our buyback.

We are going to work on getting our cash flow back to the number that we talked about here and we feel good about our margin expansion opportunities. So generally speaking, a very good start to the year and with that we will open it up for questions..

Yeah, Toni, we are ready to take questions as soon as we can..

Thank you. (Operator Instructions) And our first question came from the line of Mr. [Ryan Rickman]. Sir, your line now is open..

Hi. Thank you.

Could you talk about what is allowing you to make the market share gains in China that you aren’t ceding with non-consolidated revenues up 33% in the industry, maybe 18% or so? Is that because of just -- which auto markers you lever to that they are gaining share or are you gaining share within those automakers and kind of continue?.

I will start that and Bruce, if you can add some more commentary to that. First off, I just think we are partnered with the right people and our partnerships with the local Chinese OEs and their partnerships happen to be with the right mix of customers, very similar to what you see in Europe.

So we’re outperforming the market because we happen to have the right partners with the right products. And not to mention that they are gaining share themselves, meaning our venture partners. So it’s a little bit of both, we’re unfortunate to have the customer mix and we are gaining shares..

Yeah. And I would, Brain, I’ll maybe just add a couple of things. One is, we are seeing the benefit of our metals investment in China.

So if you recall when we made the KEIPER and Hammerstein acquisitions, we -- one of the things we talked was the fact that we are significantly underrepresented metals in China and that business is now up and running and demonstrating strong growth.

And the other sort of tailwind that we have is a lot of the Chinese own brand companies are putting more money to work in their interiors in an effort to compete with some of the European and North American brands.

And so there, what we are seeing a little bit of the shift away from Chinese, independent Chinese-based suppliers in our ceiling business and to some extent interiors and that’s shifting to western suppliers, so they can compete on into quality and power lift with the Western European and North America.

So there is just kind of two factors in addition to what our factor that our customs are gaining share that I would point too..

Okay. Great. Thanks.

Maybe update on the performance of GWS, how that division did in 1Q relative to our expectations and relative to what you would need to see to either want to dispose off or retain that division?.

(Inaudible).

The question was about GWS performance for the first quarter relative to our expectation I think, right?.

Yeah.

And relative to what you would want to see to support your decision to either keep the division or dispose it, perhaps?.

Yeah. So, as you’ll recall the GWS is going through a transformation around its delivery mechanism. And I think that, unfortunately because we had year-on-year one-time issue, it doesn't really demonstrate the kind of progress they’re making. They are making good progress against their objectives.

I don't know it’s going to -- it’s not going to get easier for us, they’ve done of a lot change in a very short period of time. Our customers are not only acknowledging the changes but they’re helping us make these changes because it benefits both us and them. So at this point, I would say that they’re pretty much on track.

But it’s early, we’ve only been in this for three or four months, so it's early, but I would say so far so good..

Okay. Great. Thanks a lot..

Thank you. And our next question came from the line of Mr. Ravi Shanker. Sir, your line now is open..

Thanks. Good morning, everyone..

Hi, Ravi..

Hi, Ravi..

Just the question on the Power Solutions business, I think, it’s an interesting trend that you are seeing the strength in North America with the weather being so severe, but it’s weakest in Europe.

Anything in particularly we had to keep in mind from either capacity utilization or slices of business or mix that’s going to cause that to be a net headwind or tailwind when you will have this?.

I’ll start, Bruce, then you can give more information. I -- in generally, just from my knowledge of that business. Our volumes overall are higher in North America, particularly in the aftermarket. So if we had to get cold weather in one region and warm weather in another region, it would be exactly how it’s happening here.

So I think that the Europeans will have to make sure that they flex which is little tough in Europe, but in North America we’re going to see continue significant gains. So if I had to pick the weather pattern, I couldn’t get cold everywhere, I pick it the way it with. It’s more the tailwind than headwind I think..

Yeah..

Understood.

And also on the smelter capacity, is there any more tailwind or dry powder you have there on margins in term of just squeezing more capacity utilization out of these smelters?.

You are speaking anymore upside on the margins, is that you said?.

Yeah. Just from that, yeah..

Yeah. I think, well, we can't speak to -- I can’t give you that answer completely. I'm sure there's going to be incremental improvements. We are still -- we’re not starting up anymore but we are still, when you think about these plans. There’s still lots of efficiency to be gain. But nothing like this coming online new.

I think one of the opportunities that we found is that, now that their extra capacities in the marketplace. We’re seeing the secondary totalers come to us looking for longer term contracts and in a much different way than they did five years ago.

So there might be some benefits that we see that are outside of their own totaling just from and what we purchase..

Got it. And just lastly, one housekeeping question for Bruce.

Just want to confirm that your 2Q and your full year guidance include the electronics business and it gives us 670 share account?.

Yeah. Yeah. You are right. It does..

Thank you..

Thanks Ravi..

Thank you. And our next question came from the line of Mr. Rod Lache. Sir, your line now is open..

Good morning, everybody..

Hi, Rod..

Hi, Rod..

Just a couple, it would be real helpful if you can help us understand some of the puts and takes in the Power Solutions margins year-over-year. You had a $13 million increase in earning extra gain? It -- I think the middle of last year, you implemented that 3% to 4% price increase in the U.S.

which is maybe 45% of Power Solutions and applied to the aftermarket, which is the majority? I would have thought that that alone would have maybe been more than that $13 million gain, maybe closer to $20 million and you also are talking about the benefits of I think previously you said 50 basis points per year from smelters and obviously some width from AGM batteries, which were up really strong.

So just can you help us spread out a little bit on what we’re seeing on the year-over-year basis?.

Yeah..

We’ve could given the numbers so you are propping on net again..

Yeah. Yeah. I’ll take that, Rod. I think, let me comment, in the kind of early notes there is a lot of, I feel a lot of questions about power and margins. And maybe let me just kind of give little bit extra step back.

We -- if you look at our guidance that we gave for this year, we talked about Power Solutions margins being up 50 basis points for the year, roughly speaking.

If you look at where we are here in the first quarter and Rod, if you take out the non-recurring gain then what you would see is margins are roughly comparable to where they were in the first quarter of last year. So we’ve got little bit of the headwind to get to our full year number here.

Now a couple things I would just point out in the first quarter. One, we -- that I talked about in my comments was we did see mix being a relative negative here in Q1 with OE being up substantially, aftermarket being largely flat.

We don’t see that continuing for the balance of the year and so that’s as we sort of get flex back to normal mix here that will be headwind for us. We also do have higher -- offsetting some of the price increase or some of the investments that we’re making out of business. So the price increases that we implemented which were generally positive.

We put in place to offset higher lead totaling cost. Some of the increase costs that we have to incur to be compliant with some of the new emission standards. And look at our own business, we -- in the first quarter, we have some charges associated with implementing new IT system.

And we continue ramp up our investment on a year-over-year basis in battery -- in advanced batteries. I would also point out that generally speaking, if you look at our incentive compensation cost that we started off last year in whole. And on the year-over-year basis, incentive compensation in battery is little bit higher.

And then lastly, we talked about the South American joint venture that we consolidated. So last year in Q1, every quarter we had equity income. This year that’s been necessarily consolidated. So you can think about our ownership right from 40% of that business to 90%. So last year, we had 40% of the profit and zero of the sales.

This year, we have a 100% of the sales coming in than the corresponding profit. That business is a little bit dilutive to our margins but if you also factor in, the fact that’s what we are essentially doing is picking up 100% of sales and only 60% of profit, it’s a little bit of a headwind.

Now that was in our guidance but I think those are the main issues I would say in terms of Q1. But our full year outlook at 50 basis point increase is stuff that we are still comfortable..

Okay. So just to clarify, if we think about it in terms of dollar changes of your basis rather than margins, which obviously can get thrown off by the OE versus after mark.

You are saying, basically at this point at least, the volume increases the pricing adjustments and that big increase in AGM was offset by investments and comp generally, is that right?.

More or less, more or less..

Okay.

And are there some significant adjustments, as we look out in Q2 and Q3 when we think about the year-over-year comparison for this accounting change?.

Well, what you are going to see as a result of that accounting change is a quarter similar to this one in the Q2. So you will see -- now when you make this accounting change, but it also -- what it does for us is because the length of a FIFO is out of the equation.

Now, we can, I would say more efficiently run our factories and kind of more level load them because enough to worry about the volatility associated with buying and lead raw materials and things like that. So we can be more efficient in Romania at our plants operations.

But what we are seeing here us Q2 and Power Solutions will be comparable to last year. We’ll see a big benefit on the other end of the spectrum and see a much, much bigger improvement in Q3. And the seasonality that will show this year would be kind of the mid norm, so nothing exciting in terms of margins in power in Q2.

You will see the benefit really in Q3 and Q4..

All right. And just lastly, seating revenue was up 10% than first quarter and your guidance for the year was up 1% to 2%.

Are there some big program roll offs in the second half, or are the numbers in fact coming in better than you were expecting?.

The number are coming in -- I didn’t comment on our revenue. But I would tell you if you look at the first quarter here, probably 2% or 3% better like in aggregate than we saw with the bulk of that coming through in the auto space.

So, I think if I was updating our revenue guidance, I would probably up auto and probably take a little bit off of BE at this point and for the company, we had a little bit of a tailwind here..

Great. Thank you..

Appreciate it..

Thank you. And our next question came from the line of Mr. Brian Johnson. Sir, your line now is open..

Yes. Good morning. Couple of questions..

Hello, Brian..

First, could you just maybe, Alex, walk us through the kind of sales new battery shipments cycles U.S. aftermarket, just so we get a feel when this battery replacement line, that actually is close to shipment. And the second is I just want to follow-up on the seating equity income and kind of various puts and takes there..

Okay. So, I will let Bruce handle second one. So in the battery business, especially in North America, we have liner side all way to the point of sale to our retail customers. So we are able to see what their point of sale is and then obviously what their order pattern is going to be got.

As a rule of thumb, if we don’t get a cold blast in December, if we don’t get a good cold in December then we are probably going to get one restocking if that. If we get the kind of colds that we got here, we could get -- I never get a full turn but we are going to get the benefit of them of the retailers in particular having to stock more than once.

So that’s probably what’s going to happen. We’re going to see with little pushing out things like the lawn garden shipments, that will probably get pushed out little bit because the demand is going to push out much more than it was in the past, so we are going to have to restock at the end of the season.

So, I would say that that’s the rule of thumb and I can’t give you the numbers, but I could tell you that it’s more of a normal pattern, at least normal prior to the last couple of years. Sales from some of those customers were up 15% to 20% and we are shipping some of those batteries today..

And does the primary replenishment come for this kind of late January cold or January cold, would it come in your 2Q or in your 3Q?.

It will come in Q2..

Okay. And then on the equity income, when you back out the special gain, it looks like your equity income was $96 million, yet your commentary was very positive on China, which is primarily avoid income.

Can you kind of educate us on the other puts and takes in the equity income line, or is it the case that China is going well but the equity income isn't quite keeping up?.

The equity -- there’s a lot of investment there. What I would tell you, if you sort of look at AEs equity, let’s just talk about our seating business first. What you would see is our equity income there is up about 25%, so a little bit diluted there. We do have -- and you would say it kind of wires that.

I mean, there’s a couple of larger joint ventures where we’ve got significant startup costs. As you know, there’s a lot of new production coming on with Volkswagen and Audi and Ford and others in the western part of the country, so building new facilities there. So that’s a little bit of a dilution for us.

Interiors, our equity income was down couple million and more really just reflecting on customer mix. The other adverse thing I would point out is we did have equity income associated with this Power Solutions joint venture that went away. So when I said, we have $90 million gain. Last year, we had $2 million or $3 million of equity income.

So, I guess the net year-over-year was about $16 million versus $19 million. So it’s really just investments that we are keeping that aren’t quite keeping up with that topline growth point grow, but I think we are pleased with where we stand, are we doing on some startup, some new startup JVs in there too as well..

Okay. It would be helpful if we could just get China equity income and seating broken out at some point..

Okay. Okay. We can follow-up with you on that, Brian..

Thanks..

Thank you. And our next question came from the line of Mr. Patrick Archambault. Your line now is open sir..

Yes. Thanks. Good morning..

Good morning..

A couple of follow-ups from my end. Just kind of taking I think where Rod was going with his question, kind of more in aggregate for the whole company. If you look at what was done in fiscal Q1 and what's implied by the guidance for Q2, it does imply fairly backend loaded increase in margins in subsequent quarters.

And I know some of that is seasonality. You did highlight kind of a mix benefit and some operational comps on the battery side.

But maybe you can just help us understand how we kind of get up that backend loaded margin curve a little better?.

Well, I think, I'm not sure. I agree with you, but maybe -- let me try my best here. If you look at the guidance that we've given for this year, so we said 315 to 330, which played against about I think we end up last year 260 or something like that.

So if you think about up sort of euro and you look at kind of Q1 were up 33% so we’re front-end loaded on that one in Q2, up 45%. So the back -- the earning -- the year-over-year earnings growth that we have in the second half is lower than the first half. So I would say that the -- our earnings growth is front-end loaded not backend loaded.

Having said that, if you look at our seasonality of the company, really because of Building Efficiency what you tend to see it, who earns about 65% to 70% of profit in the last couple of quarters, that's really what drives the year-over-year improvement.

But maybe only other thing I could -- I would point to is if just look at Q1 and you said we'll take out the impact in December shutdown or let’s say the December shutdown in Auto, that's probably worth $0.05 a share in the current quarter. So I think I feel pretty good about our phasing here and maybe I'm just missing your question, Patrick..

Yeah, it was more reflective of margins rather than just absolute EPS level..

Okay. Okay..

And if you just go through the segment, it does imply, I think pretty much across. Unless, I'm missing something I think it does imply the margin increase sequentially. I think you just sort of explain the seasonality of Building Efficiency..

Yes..

And then, I guess automotive to your point I guess is sort of has the shutdown. And then I suppose maybe it’s -- those are two items, right.

The mix, the benefit in batteries and in some of the operation cost that you explain maybe that's the rest of it I suppose?.

Yeah. And I guess maybe I don’t think when the one point out would be that we're going to ask only thing, benefit from the restructuring activity..

Yeah. I would say that's probably, if you look at the pattern, the pattern is the same. If we make we make in first quarter guidance and we make the numbers that the guidance that we’ve given you for the second quarter. Is that itself for the right pattern if you look at our historical patterns.

One difference this year that will give us more margin is our cost basis is dropping because of the restructuring..

Got it, okay. That's helpful. And then kind of another follow-up, I mean I know this was addressed at your Analyst Day, but kind of the general. I just have to think the flat top line guidance right for sort of the longer term that you guys provided for the seating. It seems conservative right especially given what you're seeing now.

I mean you've got kind of cyclical recovery in Europe that’s starting China has strong momentum. It sounds like your customer exposure is favorable and then there is maybe the backlog is the key question.

So maybe we could just revisit that a little bit just given the strength of that business unit this quarter?.

Yeah. Let me start and Bruce can give in the backlog information. I think one another things that you have to recall and go back and look into your notes is what assumptions that we put in for the automotive business and what assumptions for Europe and North America.

We probably didn't talk because it’s not top line so much about the China assumption or at least it's not a part of the top line conversation. I think what we saw in the first quarter, you could tell about our comments we were surprise as how strong it was everywhere.

I personally don't believe that Europe is going to continue at that kind of strength. I think it's going to bump along, but I don't -- we're not predicting that it's going to continue to grow. We hope it does. But I think what you -- if you say conservative -- being conservative, I hope we were, but it was based on the assumptions that we gave you.

And I would say that our ongoing backlog is going to become flatter, because we are going to not -- we are not going to invest the same -- at the same level we did in past. So you should see our margin improve which you actually see the kind of the growth that we saw in the past, because we're not going to make those investments. That's going forward.

Bruce, I’m going to get something to add to that..

Yeah. I think whether than -- or if I just look at our -- look at the guidance that we gave for 2014 in particular. We said North America we have 6% for the year, about 5%. We said -- we saw Europe will grow 2% for the year, it’s up 2. China we said -- we saw it will be up 11 and that was up 14.

So generally speaking I think we’re generally above, clearly getting some -- we are getting some lift from our customer mix about those better than expected Patrick. And we are continuing to see clinically in Europe not that luxury car segment doing better than we thought.

And so I just -- that would be hard for us to say I don't see, I think those things may not continue. So like I said to one of the early question, we probably have some revenue upside in Auto when I look at things in aggregate here. On the other hand, I would say BE revenue is probably little bit weaker than we thought.

But in aggregate, we probably got some revenue upside here in the balance of the year. That -- I'm not back away from that..

Brett, it’s Glen here. I think you're looking at through 2018 number being sort of flattish top line, remember most of our growth of the China and those sales are not consolidated..

Right. .

So, it's really more a comment on, to Alex’s point earlier, about the level of investment in North America and Europe, I think, what they’ve been used to be. Then the growth in China being pretty good but you're not going to see it consolidated sales line..

Okay. Thanks a lot guys. That's really helpful..

Okay. Thanks..

Thank you. And our next question came from the line of Mr. Italy Michaeli. Your line is now open..

Good morning..

Good morning..

Just wanted to drill down on cash flow little bit. Bruce, you talked about the working capital headwind. Looks like most of it or all of it really came from accounts payable and accrued liability. Hoping you could drill down a bit more into the detail there.

Then typically historically you've always also been cash flow negative in Q2 of the year without -- should we expect the same this year or perhaps given the extent of the burn in Q1 -- Q2 actually turn positive for you?.

Yeah. Maybe I just give a little bit of some comments on the working capital. So you're right. We typically do have an outflow in Q1. Although, this was higher than in the previous year and a little bit of a disappointment actually coming out of the blocks here.

So just look at where we finish the quarter, we had an outflow about $945 million, that’s about 700 million higher than last year. And I want to tell you, really look at the main items in there and kind of point to four things. One is timing of tax payments.

So we probably worth about $300 million, a lot of tax planning and payments and sort of things delayed refunds on VAT and things like that, I see that all coming back, $300 million. And we do have, our fair share of some customers with December 31st year end, where I would say our, we did not get a payment in on by December 31st.

We got in the first week of December. I would say in aggregate and that typically happens to us but in aggregate that’s probably about $100 million higher than the last year.

Inventory for us here in Q1 was we kind of made a decision because of the clear weather that we are seeing in power to -- you saw continued over, I would say, overproduced, so even though we really good shipments out, we have $100 million more inventory than we have in the past in Power Solutions.

And then, 2013, if you look at just the payments that we had associate with sales incentives and balances and things like that about $150 million higher outflow in Q1 than the prior year and again that will be, that’s all timely.

So when I kind of go through all those items largely and this is pretty good about it being time and regulator, our full year guidance when we talk about being about $1.6 billion of free cash flow, we were forecasting a full year outflows of $200 million to $300 million.

So my expectation here is in the second quarter some of these timing things will start to unwind and I think what you will see better cash performance in the second quarter than we had in the past..

Perfect. Thanks so much for that detail, Bruce. That’s all I have. Thanks..

Thanks..

Okay..

Thank you. And our next question came from the line of Mr. [Brett Coperson]. Your line now is open..

Thank you. Good afternoon, Alex. Good morning, Bruce and Glen..

Good morning, Brett..

Hi..

I wanted to start off the automotive business and Bruce, I was hoping you could just give us a sense of the margins by geography, maybe on a year-over-year basis, I know in slide eight you kind of gave us a flavor for it.

I was hoping and in the past, you've kind of talked a little bit about your margins were in Europe last year versus this year and so on and so forth? And obviously, it would be great if you could maybe adjust for some of the divestitures that you've made?.

Yeah. Well, it would be, if I was, but if you just look back the old segment, here is what the answer would be.

So North America last year 5.7, this year 5.7 flat, that’s where you will see the impact of HomeLink heading us, only and it has a little bit of impact in the Europe, but generally speaking most of the dilutive impact of the HomeLink sale would have depressed North American margins and if I was sort of running that off to top of my head, I would say that’s probably 80 to 100 basis points.

And Europe last year, I don’t have the margin on this I know last year we lost $105 million. In Q1, this year our lost is, which mainly associated with the shutdown. So in Europe overall we lost $8 million, so that we touch about $97 million improvement. And in Asia, we are at 12.1% last year, 150 basis points to 13.6% this year..

Okay..

That’s kind of an old segment, new segment basis..

And then as you kind of think about that margin progression through the remainder of the year, I mean your automotive is around 4%, your guidance is like around 4% to 4.2%, it kind of changes adjusted to margins, it’s going to be roughly pass through the remainder of the year?.

While we talked about the guidance that we gave at the beginning of the year for Auto in aggregate was 70 to 90 basis point improvement with seating being up somewhere between 100 and 120. We’ve been -- in terms of -- let's forget about electronics because that’s where the HomeLink in and out, it is kind of really confusion.

But let’s say, if you looked at our interiors business, we talked about that business going from a minus 0.3 last year to a range of 1% to 1.2%. Interiors had a great quarter. That’s the probably the business that’s furthest along in terms of the restructuring because we sort of started at earliest.

And so we probably had some upside in terms of our interior’s profit. But I think where we see seating come in that quarter 4.8% to 5%, number was -- I think we feel pretty good about that. If you would have probably take our Q1 number, just trying to think what I talked of both seating here.

With 4.1 in the fourth quarter, we still had some -- obviously some loan figure on our medals improvement, I mean we are in the big year. We have improved. We got a lot of opportunity of, say, in the future quarters here..

And then switching gears to Power, over the past year or two, we have been talking about little bit weaker aftermarket demand, the winter cold snap here potentially driving little bit higher demand but if you kind of reflect back on the potential impact of maybe strengthening demand in the aftermarket battery business and Power Solutions business, how do we think about that from a revenue standpoint, in other words, is -- does normalized demand drive $10 million of incremental revenue in that segment or is it more like $100 million of incremental revenue, I mean, what kind of order of magnitude would you characterize that as?.

Hello. This is Alex. I’d be afraid to give you that number because some time we can take a look at and give you -- I just don’t. I -- most of you know on top of the head, Bruce and I was pretty close to it. I just -- I don’t have that number..

No. I don’t have that one..

Okay. And then finally just on the share repurchase standpoint, $3.6 billion over three years, you did $1.2 billion in the first quarter.

How do we think about the pace of share repurchase going forward?.

We are going to only do a $1.2 billion this year. So we decided and I think I may have talked about this when we had our November call. But we really think we decided it because it was quite a departure in terms of our past that we would front-end load.

I would suggest that we should not do it sort of equally through the year but get out and have it back stronger here and do it all in Q1. We have not decided yet or even talked about as we get into the F’15, ’16. We can always combine on Q1. We are going to spread it out. We don’t have any answer for that yet.

But I think the main thing is we are -- we did want to maintain some flexibility to look at M&A at some point in time here. For now, the $1.2 billion that we’ve done here in Q1 is all that we are planning on doing for this year..

Thanks very much. Perfect..

Thanks, Brett, I think we are out of time. Operator, I will be around for the balance of the day, certainly meeting tomorrow to answer any questions I didn’t get answer out.

So any final signoff from Davos?.

Yeah. Just going to give you a couple -- I'm incredibly proud. As I said early on about what our teams accomplished. And we talk an awful lot here about what’s going to happen next quarter, some of the bridges from the first quarter and how conservative we are for the full year.

I hope as we continue to go -- continue to ask questions about how we are changing the company, changing the portfolio of the company, profile of the company and how we are going to run the company.

And I hope we continue to have that conversation because we made substantial progress in a very short period of time of getting some momentum and getting our team aligned. So, I just want to thank all of our employees.

They are working extremely hard between restructuring to operational improvements and some of the changes that we are trying to make as far as how we operate and run the company. It’s a lot of change, very fast and they are responding well. So thanks to the employees and I appreciate all the good questions..

Thank you. That concludes today's conference call. Thank you all for participating. You may now disconnect..