Glen Ponczak - Vice President Alex Molinaroli - Chairman and CEO Bruce McDonald - EVP and Chief Financial Officer.

Brett Hoselton - KeyBanc Rod Lache - Deutsche Bank Italy Michaeli - Citigroup Rich Kwas - Wells Fargo Ryan Brinkman - J.P. Morgan Brian Johnson - Barclays Colin Langan - UBS Jeff Sprague - Vertical Research Partners.

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

Well, thank you and welcome to the Johnson Controls’ Second Quarter 2014 Earnings Conference Call. The slide presentation, if you don’t have, it can be accessed at johnsoncontrols.com by clicking the Investors link at the top of the page, then scroll down to the events calendar section.

This morning, our Chairman and Chief Executive Officer, Alex Molinaroli will provide some spectrum on the quarter, will be followed by Executive Vice President and Chief Financial Officer, Bruce McDonald for a review of the business unit results and overall financial performance.

Following our prepared remarks, we’ll open up the call for questions and we’re scheduled to end right around top of the hour.

Before we begin, I would like to refer you to our full forward-looking statement disclosure in our news release and slide deck and remind you that today’s comments will include forward-looking statements that are subject to risks, uncertainties and assumptions that could cause actual results to be materially different from those expressed or implied by such forward-looking statements.

These factors include required regulatory approvals that are material conditions for the proposed transactions to close, strength of the 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 rates and cancellation of or changes to commercial contracts, as well as other factors discussed in Item 1A of Part 1 of Johnson Controls’ most recent Annual Report on Form 10-K for the year ended September 30, 2013.

Johnson Controls disclaims any obligations to update forward-looking statements to reflect events or circumstances occurring after the date of this presentation. And with that, let's get started Alex..

Okay. Good morning everyone. I’d like to start by recognizing that the quarter was fantastical draw, I’m really pleased with our results. And even with some of the mixed results as it relates to the top-line, operational improvements are really across all of our businesses.

So, we are exactly where we wanted to be, in spite of some of the markets not helping us so well. So, I’ll just jump right in on the second quarter, some of the highlights or some of them, what’s happened in the industry.

What we saw was a stronger Europe market than we anticipated, continued strength in North America, and we’ll talk later about China but the marketplace in China remains around 9%, but you’ll see later that we’ve outperformed the market.

In the battery business, we had great results in North America, the aftermarket we saw demand increase due to the cold weather particularly in the Midwest and North East.

And then, but unfortunately in Europe, we see demand continue to drop and it’s specifically in Northern Europe, you look at Russia, Northern Europe meaning Germany and the Baltics, Russia and Turkey. In the HVAC market, the commercial markets we’re still awaiting for a rebound that we haven’t seen.

And unfortunately it continues to push and in spite of that we have been able to have great bottom-line results, but it’s bit frustrating that the market hasn’t turned on us yet, but we’re ready when it does. And then all of our businesses, we are still seeing strong markets across the China region. So let’s talk about our results.

For the quarter, our revenue is up for 4% and our segment income was up 36%, a little growth (inaudible) the operational increases which were significant and then our earnings per share was a little bit better than what we expected overall up 52% shows that the segment income increased, the operational income increases along with some of the other non-operational items.

Our Q2 results are at the high-end of what we guided and we will talk later about what our future guidance or the guidance for the rest of the year.

I would to just say that execution remains our number one priority, but all that being said, we have been pretty busy on our strategic initiatives trying to keep everyone updated on our portfolio changes. And that known I’d like to remind you this is the slide where it is we’re going and where we’ve been.

We have list here just reminds everyone of things that we are working on or have completed over the last year. And specifically there are two things that over the next quarter are two we should see close is the ADT acquisition we hope that closes in the next quarter and the closing of the Electronics deal that will certainly happen this fiscal year.

If you go to the segments, let’s talk about Power Solutions. So sales were actually up just a (inaudible), so basically flat sales in Power Solutions. And if you look at it outside of [LatAm] we actually saw a 4% increase. Unfortunately all the great news we had in North America in the aftermarket was offset to a large extent by Europe.

Specifically it’s Russia, Germany; the Baltics is the bulk of it. There is a few things that account for that, weather is one, our AGM penetration sales is another one. Our AGM penetration is up 24% in the quarter. And then we are also seeing some of the effects of the downturn on the first replacement cycle, the downturn in ‘08 and ‘09.

If you look at their results, the bottom-line shows that the results we retrieved 5%, but what you need to keep in count is the footnote we have here that we had a legal settlement last year that [popped-up] the numbers of $24 million.

So what we are seeing is; we are seeing the margins at what we expected; we are still seeing the operational improvements and hopefully we will continue with that and get some additional volume. We should see some good improvements in the third quarter.

If you recall last year, the third quarter is when we started having some of our difficulties in Power Solutions. If we move to Building Efficiency, probably the most frustrating part about this business is the commercial HVAC markets, particularly the high-end particularly the institutional segments continue not to grow.

We are seeing some pipeline growth, so our orders secured is still tough but we’re seeing projects go in our pipeline at an increasing rate. So hopefully that will turn into growth in the future but I am a little shy to start talking about that until I start see anything move to the pipeline.

So, if you look at sales being down 2%, and when you take out GWS and divestitures, you can see that Asia was up 5%, North America was down 4%, and orders in North America were down 2%. The Middle East was down 31%, the Middle East being down 31% has a lot to do with very large projects we had in the pipeline last year.

And then workplace solutions were down 8%. If you look at the operating performance, it has to do with all of the initiatives that we’ve had in place; the restructure we’ve had in place; and also the separation of GWS, strong operating results considering the lack of volume.

And GWS specifically is really benefiting from the restructuring charges and the operational initiatives we have. The backlog is about flat to last year and then orders down 2%. So, we’re hopeful that that will turn as we continue to see some toughness in the markets we participate in.

Automotive experience is really a great story, not only are we participating in the growth, we’re giving the pull through on the income side. If you look at our revenues in North America, Europe, Asia, China all sales are up. And if you look at the sales of 25% in China, that shows you that we’re benefiting and gaining share continually in China.

The production numbers are really to remind you. The segment income is also a great story. In fact, pretty pleased that metal performance is one that went from an unprofitable business last quarter to a profitable business this quarter. And so we continue to see improvements in our metals business.

Our margins are up and both in the interiors and our automotive business and both have done very well. If you look at our interiors business, they’ve gone from a loss making business last quarter -- last quarter of this year -- last year this quarter to a business that’s now making money.

So all-in-all, not a lot of help to top-line except for automotive, some incredible results. And I’ll turn it over to Bruce and then I’ll close up..

Okay. Thanks Al. Yes, just on slide 9 here, I’ll just talk about the financial highlights. And these are from continuing operations, so maybe just before I -- some of the early notes that there is some confusion around those in and out.

But electronics for the quarter, we pulled out of our numbers, if you were to sort of add it back in the quarter, the sales were about 344 million and segment income was about 18 million. So, those sort of get collapsed and just reported net of tax on the discontinued operations line.

So, that’s kind of how things shake out versus probably what was the most analysts’ model. We’ve also had some one-time charges in this quarter and the prior year. This year we had non-cash tax charge of about $0.27 and last year, we had three non-operational items that resulted in net charge of $0.20.

And as I go through the numbers, I’ll back those out. So I’m going through the adjusted numbers. So let’s start with revenue, we’re up about 4% to $10.5 billion. You can see our gross profit here up about 50 basis points.

Here we’re really seeing the benefits of the automotive operational performance and the impact of higher global revenues in the auto space. SG&A. Here as we will start to see the benefit of a lot of the restructuring cost reduction initiatives, so on a slightly higher sales level you receive SG&A expense were down 10%.

So, that we can see the impact that had on our segment margins. Equity income, a little bit higher than last year about $8 million, we benefited from improved profitability of our automotive joint ventures. And we can see our segment income margins of 6% were 140 basis points higher than the 2015 Q2 number. On slide 10.

Might I just draw your attention to financing charges that were down about $10 million versus the prior year, really, really benefited from really lower interest rates. So borrowing levels were slightly lower than last year, we had more of our debt in shorter term commercial paper which has a significant lower interest rate.

Tax rate in the quarter is just above 19% and roughly in line with where we were in the second quarter of last year.

There is a tweak to our tax rate associated with the reclassification of electronics and discontinued operations, our blended rate is 20%, but continued operation a little bit lower and the electronics rate to discontinued operation is necessarily higher. So, the average about 20%.

And EPS for the quarter came in at $0.64 which is up the 52% that Alex referred to and including the impact of the discontinued operations our total to diluted earnings per share were $0.66 which is at the high end of our guidance.

Slipping to slide 11, I just spend a minute on the balance sheet and cash flow, and we are sort of pleased with how the balance sheet sort of smack back this quarter, you recall with a fairly large outflow in the first quarter really around some of the seasonal working capital factors and the $1.2 billion buyback that we completed.

So if you look at this quarter our cash flow from operations was $730 million, you can see that’s nearly club (inaudible) versus where we were last year. Our net debt in the quarter came down almost $400 million and we are sitting here right now with the net debt to total capitalization of about 34%.

Our trade working capital was source of cash in the quarter. If you look at that and we define trade working capital’s payables receivable inventory which is now about 6.9% of sales, down about 80% basis points from where we were last year.

In terms of CapEx on a year-to-date basis where we thought would be are half way through in a $1.2 billion that we have guided to. Really pretty confident in the second half cash flow, our cash flow is back end loaded with our earnings and we remain on track to deliver the $1.6 billion free cash flow target that we set at the beginning of the year.

And lastly on slide 12. I just touched on our guidance. I just want to be clear in terms of what we are saying and what we said. So if we go back to the guidance that we have provided on December analyst meeting in New York, we talked about a range of $3.15 to $3.30 including Electronics and Electronics perhaps within that range was up $0.10 to $0.12.

So on an apples-to-apples basis that we were to pullout Electronics, our guidance back then would have been $3.05 to $3.18. And so what we are doing here today is we are tightening and slightly raising the midpoint of our guidance to a range of $3.10 to $3.15 without electronics so it’s continuing operations.

And then from the third quarter we’re introducing earnings range of $0.81 to $0.84 which as we compared to last would be an increase of between 13% and 17%.

And we talked a little bit about air distribution technology and the impact it would have on our 2014 numbers, excluding any transaction related costs we think it’s going to be fairly neutral to our Q4 earnings estimates. And so I will turn it back over to you Alex..

Yes, before we get the questions there is a couple of things I would like to point out where I think there might be some concerns. First I will give you some, my take on B/E, if you look at our share which is something that we can only control, we can’t control the marketplace, we are maintaining or increasing our share.

If you look at our profitability, I will just give you an example, I go to North America, if you look at our profitability in North America with sales being down 4% our earnings are up 22% a quarter, 12% year-to-date.

So we have got operational improvements that are put in place, we are not losing share and when the market comes back we are going to be in a position to take advantage of that. So I want to make sure it puts it in a context that we are very pleased with what’s going on and we just wish the market was coming back quicker.

And in Power Solutions we are increasing our share both in the OEs if you look at it this time versus last year and the aftermarket unfortunately in Europe the aftermarket is not helping us, it is helping us in North America. Along with increasing share our AGM growth is continuing and we are very pleased with our China growth.

So if you look at our strategic initiatives and what we have been saying with what we can control, I am very proud of what the team has done.

Last thing that I will leave you with, if you look at the portfolio moves we still have ways to go but I am also pleased with how quickly the team has been able to get their heads wrapped around and get some actions put in place in order to meet some of our portfolio changes, so all-in-all I am pretty pleased with what we’ve accomplished so far.

With that Glen I think we’ll take the questions..

Yes. (Inaudible), we’re ready to take questions..

Thank you. We will now begin the question-and-answer session. (Operator Instructions). Our first question is coming from the line of Mr. Brett Hoselton. Sir you may now proceed..

Good morning gentlemen..

Hi Brett..

Good morning..

Two things here, related to the automotive segment.

First, can you provide your guidance while you’re looking at CD margins coming at high 4% or 5% range? And I am wondering how are you tracking, how are you feeling about that (inaudible) a little bit of pressure on their margins versus their previous expectations, but how are you feeling about the margins kind of in the short-term relative to your guidance? And then kind of longer-term where do see that segment potentially moving to you?.

Yes, Brett it’s Bruce here.

Well, we’ve always talked about we think our margins are to be in the 7% to 8% range, if you look at this, the quarter that we just did our ceiling business was 5.2% and that’s off of a depressed, our metals business a lot better than it was, but still not anywhere close to where we think that business should be from a longer-term margin perspective and obviously Europe is pretty fast.

So I would tell you right now our, if you look at where we are through these six months our ceiling business, our interiors business and the Electronics business are all performing ahead of our plan, both in terms of our top-line and margin performance, so we're pretty pleased..

And then on the interiors business, can you provide us with an update as to your latest thinking, I know you’re doing a strategic review of the interiors business.

Is there anything new that you can share with us with regards to future of that business?.

Unfortunately we’re not in a position to share yet. I could tell you that we're heavily engaged in activities and I’m hopeful and I told our employees that over the next quarter or so we should be able to talk about it, so that’s where we are today..

Okay. Thank you very much gentlemen..

Thank you..

Thank you. Our next question is coming from Mr. Rod Lache from Deutsche Bank. Sir you may now proceed..

Good morning everybody. Alex, so speaking you might be willing to just kind of revisit your thoughts on the long-term goal for the building efficiency, auto experience and power solutions and whether those have changed? Just in the context of what we’ve seen here building efficiency down, it was down last year and year before was weak.

I think long-term you’ve been talking about 5% to 6% growth there. I think you sort of intimated that automotive experience would be kind of flattish, but here it’s been running up over 9%. And similarly for power solutions, there was originally like an 8% to 9% long-term growth expectations, but that’s been running a little bit lower.

So you get a couple of years here of different performance than what the long-term plan was, is that kind of factor into your thinking about the long-term now?.

Well I think we’re going through cycles. The automotive cycle is better than what we expected and we certainly want to take advantage of that long-term, but haven’t really changed our view. Building efficiency, unfortunately we just have not seen in the commercial market especially the high-end come back.

Our recent acquisition of ADT is going to help us not only with other distribution that participate in the broader in the market, but also in some of the products that are more down market. So, we can have a broader participation in the marketplace. So, I'm still bullish on BE long-term, frustrated with where we're at.

So, we'll continue to invest particularly in North America and China, but we think that long-term that's the best place to invest in our dollars; the Hitachi JV is an example of that. And as far as our power solutions, I think we're finally getting some traction in China. And as you know, the AGM growth just happens quick as we wanted to.

But we're maintaining the share and keeping share in that business. So that business is one that we can't control necessarily what's going to happen on the ground, but what we can control is make sure we maintain share. But I would tell you that my long-term view of where we're going to invest has not changed..

And you’re still expecting kind of a secular growth rate in building efficiency.

Is that what you are referring to as more of the cyclical part, but in the past you've talked quite a bit about some of the savings opportunities there and why that should grow on a secular long-term basis?.

Yes, I expect to outperform the marketplace. And we're certainly getting our cost inline and I think this will make us not only more competitive, but put us in a position to take advantage of the upturn. So, I would expect that we're going to outpace the market, not only because we have a good cost position, but because we're adding to our portfolio..

Okay. And in auto experience, could you just give us a little bit of detail on what the profitability looks like right now and structures and what's the gap to your target.

And I don't know sounds like you don't really want to give us a lot on the interior sale process, but is there any kind of broad framework that you can convey on valuation or what you are thinking that you can get out of it at this point?.

Well, I think we’ve said organic sales in terms of the interior just got to be pretty (inaudible) but in terms of our structuring business, I can tell you that we were profitable in the quarter, so we are profitable in fact every month.

I don’t have that top of my head, however the margins, I would say it’s probably in the 1% to 2% type range and it’s a business that when we look at our metals business overall should be normally 8% to 10% range.

And we’ve talked in the past about what are sort of things that we need to do to get there, it’s not going to be a -- right now we are benefiting from fixing a lot of our launch problems, but to get to the target that I talked about, we really have to accomplish two things; one is getting our plants converted over so they are all making the 2b technology and right now we have a eight plus four of technology that came from the three businesses before.

And then we are working on some initiatives to spend on some of our [product] technology as well, standardize how we make things. So, once we kind of get through that and it’s going to take two to three years working with the customers this product stays out and the new 2b technologies phase in.

And we’ve been encouraged that the underlying problems that we’ve had in that business are not reoccurring and the benefit of the longer term plan that we’ve put in place are all performing as we’ve expected..

Yes. And this is Alex. So I think that probably after another quarter or so not only do we have confidence, but everyone has confidence that fixing is behind us. We’re going to start talking more about the future of business, which is exactly what Bruce said. We have an opportunity to grow that business.

We have a great position technology wise and then we have also extended our position in China. So I hope we could start talking about what we’re doing to grow that business and make it more profitable in the future now that we are getting operations issues behind us..

Yes, I’d probably should just clarify my comments are rolled our North American, European business. One of other initiatives was growing that business in China so that we have made the investment and then that’s the business that we expect to be pretty close double-digit this year..

Great, thank you..

Thanks Rod..

Thank you. (Operator Instructions). Our next is coming from Mr. Mike Wood. Sir you may now proceed..

Hi, thanks for taking my question. In building efficiency things maybe, could have been impacted by a pull forward from the Energy Policy Act expiration at the end of last year and also weather in North America.

Can you give us a sense of how the orders exited the quarter?.

Let me make sure I understand the question.

Is it relates to what orders we have in place or what happened at the back-end of the quarter?.

Yes, the back-end of the quarter, I just feel like the beginning of the quarter may not be representative, so it would be interesting to know what run rate you exited the quarter at?.

I think that you are there is couple of things; I think there is problem asking that type of question.

We are obviously going to see a seasonal benefit on a year-on-year basis, we are seeing some improvement and quite interestingly one of the things that’s really growing is our service business, service contracts and our repair business which is high margin business is benefiting more than the marketplace.

So, there are lots of signs but we’re skittish. And until we have more than a month or so we’re not going to be really bullish talking about growth. But you’re right, it was back-end loaded in the quarter..

Okay.

And also can you give us a sense of the European vehicle production forecast that you have embedded in 2Q, we had another supplier reported this morning had 2% forecast for next quarter wondering if you’re seeing the same moderation, despite the vehicle registration that’s been strong there?.

Yes, it’s Bruce. We’re in that I’d say 2% to 3% is what we’re sort of seeing..

Great, thank you..

Thank you. Our next question is coming from the line of Mr. Italy Michaeli. Sir you may now proceed..

Great, thanks. Good morning everyone..

Good morning..

Good morning..

Just a follow-up to maybe to Rod’s question I was hoping you can just update us on what you’re expecting for revenue by segment just the growth rates that you led out for ‘14 by segment?.

In terms of our guidance here, yes….

Yes, you’re talking now with post electronics and just with the B/E kind of numbers in the quarter just kind of what your significant 1% to 3% growth in building efficiency in ‘14 and about 7% to 8% in power solutions?.

Yes. I’d say right now if you kind of look at it, we’re looking at I don’t have the numbers at the top of my head.

But I can tell you directionally B/E is going to be flattish to slightly down in terms of just given our backlog performance because there are not very lot we can do to move the needle in terms of whether pick up and its impact on the second half of the year.

Power solutions, it is difficult to get some visibility around the aftermarket trends, but they are probably slightly down, maybe 1% to 2% lower than we said before. And automotive will probably be stronger even, the underlying growth in our seating and interiors is stronger.

What I -- I can’t do math in my head here quickly in terms of how that translates into striping out electronics..

Okay. So sure, that’s helpful. And just two follow-up balance sheet questions, one, pretty impressive, you are able to maintain the free cash flow guidance for the year, just maybe talk about what’s going right there.

And then two, I think your prior guidance was to end ‘14 with about 23% or 25% in net debt to cap ratio, I was hoping you can update us on that and if you have a pro forma for where that would be after the recent acquisition announcement, those would be great..

Yes, the free cash flow and just maybe to help you out of couple, our earnings tend to be our backend loaded, so there is more cash flow that comes through because of the earnings seasonality and that’s (inaudible).

Secondly is we tend to have a inventory build towards the first half for the year around some of the equipment and building efficiency that sort of winds back in the second half of the year. In our guidance, we’ve got the proceeds of the electronics divestiture which is 265 million coming in.

We also in the second half of year get our dividends from our equity accounted for Chinese joint ventures, those around couple of hundred million. And those would be the -- those would sort of be the main factors that drive us to the skewing there.

And then your second question in terms of the balance sheet, it’s around 400 basis points to 500 basis points increase, as a result of the financing, the $1.6 billion, the debt that we’ll take on for the ADT acquisition. So, around 29 to 30, I think is the number..

Could I address something before you hang up, just to make sure you get kind of what we look at as it relates to the rest of year on building efficiency. When we start talking about the backlog number, which is flat to last year; that just gives you an indicator of what’s going to happen over the next six months; that usually brings pretty true..

Right, absolutely. Great. Thanks for that clarification Alex and the detail, Bruce. Thanks..

Thanks..

Thank you. Our next question is coming from the line of Mr. Rich Kwas. Sir, you may now proceed..

Good morning everyone..

Hi Rich..

Hi Rich..

On building efficiency, just on the margins here you’ve been able to do pretty good job driving the margin without revenue support.

Alex, where are you in terms of the restructuring benefit, as you look at the balance of this year and into ‘15? Can you still drive margin higher without volume looking out 12 months or so, or do you -- when do you start to need to see the volume come through?.

Well, we’re certainly going to benefit the rest of the year. And we’ll benefit on a percentage basis even more, because remember the revenues will increase. And we’ve taken, both SG&A and cost of goods sold out. So the margins would probably be at low end of where the margins will end up at the rest -- end of the year because the volumes will pick up.

And then over the first couple of quarters and next year, we should continue to see benefit. Because we’re -- particularly in North America, we’re getting close to our target. In fact, in some ways it’s actually more than our targets because of the pressure on the backlog..

Yes, and I’d maybe add to that, Rich, the other thing is I would say, I think on the cost side going to 2015 and then towards the backend of ‘15 and ‘16 and we’ll start to see the accretive benefits of the ADT acquisition that’s accretive to the margin..

That’s right. And fortunately, I can’t tell you when the Hitachi JV will be completed. We’re working diligently on it, but long-term -- mid-term, I’d say that we’re bullish on the [BE] with the a little bit of help, we could be dangerous..

Okay, all right.

And then on GWS with the sales down, the margins up, is that business you are walking away from in terms of just less profitable business or is that just fundamental weakness of the business?.

So a little bit of both. I’d say there was a period where we weren’t securing work, I would say it’s probably a 12 month period because we are working on their own cost basis. We’ve changed our cost basis, you can see that it’s reflected in the numbers; you are seeing it come through.

In fact we are only seeing part of it come through because we give a bunch of that back to our customers. So you see the profitability in that business improve, imagine that we are giving at least half of more than half back to our customers as we change current contracts. When we look at our pipeline, it’s getting stronger and stronger.

Last time we met with GWS folks a couple of weeks ago, the pipeline, they are cautious, but the pipeline looks pretty strong both in the near term and long term..

Okay.

And just the last one from me on China with power solutions, do you expect to be profitable in China power solutions by year end, is that still the target and what’s your confidence on that?.

Yes, go ahead..

Yes. I think I will hang myself on this one for [Brian]. No, it’s -- the issue was if you just were to look at the business that we have today that [profitability] is improving.

We are going to see in May we are launching our second plant, so that’s going to start up and then we are going to start work on sites watching things like for our next plant in China. So, I would say the business will flip to profitability but we are going to make some investments that are going to offset that.

So what I think and I have said this before, and we probably just need to bring more visibility to it. The way that we look at it because of the lumpiness is our plant economics, what is our plant economics, how does that stack up with the rest of our portfolio.

The fact that it’s in China, it means it has a little higher overhead because we don’t have the footprint in place yet. So, we’ll probably bring some more visibility to that, helps people understand where we are. But if we just looked at the profitability, it would be hard for us to add these plants..

Okay, thank you..

Thank you. Our next question is coming from the line of Mr. Ryan Brinkman. Sir you may now proceed..

Hi, thanks for taking my questions. Maybe one just on the automotive in China, the revenue growth of your unconsolidated JVs there, it’s really been outpacing the industry for a few quarters and a lot again this quarter.

So maybe just comment on the drivers there, is it because your levered to the right auto makers that would seem not quite sufficient to explain that proper or are you expanded into new automakers or what, I mean how much longer can we expect this type of outperformance to start in here?.

So I will start, this is Alex, and then Bruce can clean it up. One of the things that we are fortunate is that we do have the presence across the board but what you see is our transplants are doing better than the locals and our share with the transplants is very, very high, particularly you look at the European transplants.

So if you look at our mix of business, our customers are doing well plus we are gaining share. So if both are happening, we certainly have the right customers..

And then I absolutely agree with that. Three other factors I’ll point to, one is our components growth. So we touched on metals but we really weren’t there and we’ve made some investments, so we’re growing there. And then secondly would be if you look at the market SUV, penetration is rising and we’re gaining a lot more dollar content there.

And the third factor would just be we’re seeing increased interiors content in the vehicle market there as particularly China brands try and compete with the transplants. So we’re up contenting the interiors to compete with the transplant vehicles..

Okay, great.

And then just last question on GWS, starting to post some better operating results there despite the top-line headwind, kind of how the -- and presumably on restructuring and expenses and sort of how the turnaround to automobile began and maybe sort of where you’re given out for couple of quarters in building efficiency apart from GWS? So does this change at all your thinking relative to sort of hold versus sale decision you face there?.

I don’t think it impacts our decision because our decision, we knew we were going to get this business fixed. That was never a question. What we need to make sure is strategically does it fit with our portfolio moving forward.

So that’s we’re certainly going to make it more profitable, it’s good for our customers, it’s good for us, but it doesn’t really impact our decision of what we’re going to do with that long-term. And by the way, there is a lot more profitability to come there, they’ve done a great job..

Good to hear. Thanks for the color..

Thanks Ryan..

Thank you. Our next question is coming from the line of Mr. Brian Johnson. Sir you may now proceed..

Brian?.

Brian Johnson.

I just want to go - hello, hello?.

Yes..

Just want to go back to some of your comments on decline in segment in particularly the mix differences as you know a large competitor of yours reported this morning with commercial, HVAC revenues up single-digits and reported decent demand growth in North America.

So when you talk about share is that in the overall market or is that in the segments at the upper end you are competing in and also just as you bring in ADT, is that going to give you more exposure or perhaps more cyclical small and mid commercial where other competitors might have more of the mix currently?.

So let me answer the last part of that question, first, absolutely. So the ADT acquisition has two things, one is the products go across all the segments of the market place, low to high complexity, but it also has a distribution system that’s lower cost and touches those customers, so it gives us both from that standpoint.

Now obviously I didn’t get listen to the call, but what I looked at the release both the today’s release and yesterday I saw that when they talk about commercial HVAC revenues would be flat with the quarter and first quarter commercial bookings being low. So I think we're pretty consistent, we're not losing share I just think we have a bad mix.

When I looked at some of the numbers that came out, they are comparable for us, so we're not losing share, in fact at our UPG business is growing more actively, but we just don’t have -- it is just not as large as our competitors..

Yes, and maybe just put some the number around that Brian. If you look our EPG business in the quarter, we are up about 12% on a revenue perspective..

EPG meaning, unitary?.

Yes..

Yes. Residential, residential like commercial, which I think is a smaller percentage of our business than our competitors’..

Right, I mean is it, as you just kind of look two or three years out, would it be fair to say some of the large institutional markets are not growing as fast as you might have thought? And we can all think of fiscal budgets, pressures on academic institutions, healthcare.

And that you want to pick it up more in the mid and small commercial?.

So, here is how I would look at it. It's certainly going to be last end cycle to come. So, you’ve got residential like commercial and you are seeing it in the numbers are growing quicker. And then within the segment that we are strong, you are seeing the commercial space grow quicker than the institutional.

From a long term debt, the institutional market’s right place for us to be. But what you are also seeing is that like the acquisition and investments you are going to be in products and channels to sure up our lower-end. So we're not kept on the high end market, but we're planning to keep our share, because it will come back.

So, as you see we're making moves in the lower end in marketplace..

Okay. Thanks a lot..

Thank you. Our next question is coming from the line of Mr. Colin Langan. Sir, you may now proceed..

Great, thanks for taking my question. Any color on why auto experience is so much stronger than you're expecting the original guidance for 1% to 2% for the year and I think year-to-date you are up 11%.

I mean it doesn't seem like some of production forecasts or is that materially better, I mean is this the customer mix factor or there is something, it was the 1% to 2% including the divestiture of Electronics?.

No, it would be -- the markets are better than we have thought, so that has certainly an element there. And then the mix, we have got a pretty favorable product mix particularly in Europe. So, I mean I don't think going into the year, we envision Europe being up double digit.

And it's just we have -- I guess what we’re seeing now is the downside and having a lot of launches over the last two years [compass] in our P&L. But we have a higher percent of our sales of our newer vehicles that are performing well in the marketplace with consumers..

And I also think we probably gave our guidance earlier because of our fiscal start at the 1st of October and I could recall we didn’t expect much at all. We were talking about being at the bottom and hopeful. So, it’s really outperformed what we thought..

Okay. And then any comments on the seating business, you keep focusing on the multi-industry.

Is that still a core business or is that something you’d consider selling overtime at the right way?.

Seating business is core..

Okay. And on power solutions just a quick question. And it seems like a pretty steep decline in Europe on the aftermarket, down 15%.

Is that due to tough comp or is that almost sounds like it could be a record low type number; I mean any context on how tough it is in Europe right now?.

I probably wasn’t very clear in my remarks, this is Alex. If you look at that business four years ago, you would flip it and you would see the OE business being down 15%, 20%, 25%. Now what we are seeing is the first wave of replacement being down because the vehicles are there.

We are also seeing the impact of the AGM mix and that’s something that we expected and then the weather is not helping. So I think that there is a lot of things that hit us at once and that’s why it’s so severe.

I’m also having a little concern because Eastern Europe is where we are growing and places like Russia and there is a little uncertainty there today. So, we are not losing share, but we are suffering with the marketplace. And the market will come back, because sales in Middle East came back.

So, it will come back overtime, but unfortunately it’s offsetting all of the growth we’re having in other places..

Okay. Thank you very much..

Thank you. Our next question is coming from the line of Mr. David Leiker. Sir you may now proceed..

Hi, good morning. This is Joe [Vruwink] for David..

Hey Joe..

Hi Joe.

Just looking at building efficiency EBIT, I am wondering how much the ability to grow with the revenue declines is more belt tightening in a difficult end markets versus actions that actually are going to widen your incremental margins later on, because if I just, if I think of your long-term targets, the goal was there about 50 bps on margin annually, you did more than that this quarter with a revenue decline I would just think that going forward when growth returns the margin gains should be bigger?.

So, I will take this, this is Alex. So, I would talk about B/E in a couple of ways. First off, we have retrenched in Europe and I think that that will continue to be the position that we will, we want some profitability in Europe, but not make a lot of investments.

Where we plan to make our investments is Asia specifically China and in North America where we think the market is only going to be stronger, but it’s going to be longer lasting and less cyclical.

We are going to expand our footprint with the type of buildings that we approach and the channels that you see in that that’s evidence of that that’s happening today, but we also think that our cost position, which is not just SG&A, but our operational cost will benefit us in the future in gaining share in the markets we already participate in.

We’ve taken $100 million of cost out of the channel in North America. And I think we are more efficient and more effective than we were in the past. We’ve really streamlined our service to our customers. So, I am pretty bullish, I just need some market to participate in..

So those efficiencies, cost actions those are things you carry forward as the volumes come back, so it just seem to me like the incremental to be as much better is something higher than kind of the 50 bps to that….

I would tell you yes with one caveat. As the market grows, we will be adding to our direct sales force. And that will be a direct P&L hit, that’s not a capital investment. So, when the market comes back we will see the benefit operationally, but we’re committed to grow with the market and we’ll need to add some sales cost, but you’re right overall..

Yes. I think for the -- and we’ve talked about this on previous calls. If you think about B/E business we wanted the people business we have to invest ahead of the curve. So once you see our order intake climbing we have to start to make investments.

And we have said in the past that time is when we’re in a no investment mode, we’ll have opportunity to grow our margins quicker than 50 basis points. And so that’s what you’re kind of seeing right now is (inaudible) adding the investments we’re getting all of the leverage from the cost saving initiatives, but it’s not sustainable..

Yes..

Okay. And then switching over to automotive, there was a lot of talk during the Analyst Day about just being more discipline and going after new business really rationalizing the backlog.

But as you see the returns step up in that segment, you certainly start rebidding on things and maybe weren’t meeting your ROIC targets before suddenly they do it and so maybe automotive is a faster grower in the future?.

We’re not going to change our discipline I think that’s probably the economist in the past. So we’re going to make sure that we are obtaining work not only with the right margin, but the right customer. So I think when we go after work in more aggressive way, there will be a strategic reason to do it.

But certainly we’re going to leverage the footprint we already have and we’re going to make sure we can maximize the investments we’re making in Asia. So, I think that you can see us continue to keep our discipline in place because the good times are always here..

So longer-term the view that seating is basically a no growth but better return as a whole?.

Yes. The no growth is what we said, it was based on some market growth projections, which right now we're seeing better than that. So, based on what we projected in the market to be that will be true. If it continues to be stronger that won’t be true, we’ll benefit from the growth.

But you will see is if this is a pie chart, you will see our business moving more and more into Asia over the long-term from a percentage standpoint..

Okay, great. Thank you..

Thanks Joe..

Thank you. Our next question is coming from the line of Mr. Jeff Sprague. Sir you may now proceed..

Thank you good morning gents..

Hey Jeff..

Alex, I was wondering actually if you could maybe sort of find a point on the overall kind of strategic vision as it relates to multi-industry. And the nature of my question is that in essence you are a multi-industry company, you’ve got improved segments plus or minus a billion dollars of OP.

So, does your vision really (inaudible) and at some point you need entirely new wag although that meaning that the return profile in these businesses just needs to be much higher to really put you in a different lead relative to kind of pure type company?.

Yes. Here is how I would answer that. I think we need to rebalance our portfolio whether that requires another wag or not. Today, just like if you look at ADT acquisition, we're staying near adjacent where we feel comfortable, overtime that may change.

As it relates to our automotive business, we can only get so much margin on our business, it has a theoretical cap and we want to get the most that we can. And we're not sure what the cyclicality of that business, if we’re over weighted in the auto that we’ll look get the benefit of being the multi-industrial.

So, that’s kind of the perspective that I have and continue to see investments outside of automotive and thus making sure that we’re rational in what we do in automotive. And in particular, we have a great position in China and we’d be silly not to take advantage of that..

Do you have a view of how much auto is just right not too much that you’re not penalized for auto?.

No, I guess you guys are going to tell us that. But what I would tell you is we feel mostly the margins go up, because China will grow and we will limit our investment to other places. So, I don’t know the answer to that, but I do think we have some, I know it’s less than what we have today. That’s what I know for sure.

And as I’ve told everyone and I answer the question earlier little flip it, seating is not on the table, but what is more important long-term, I’m committed to be a leading multi-industrial. But today seating is not on the table, but we have clear plan to do in order to meet our objectives..

Yes, it’s important to think about the investments that we’re making in Hitachi and ADT and the ones that sort of making clear in electronics, I mean that’s quite a major shift and it’s just lifted our revenue profile..

So far what I would tell you, we’re doing pretty much what we said and in some ways, I think we’re ahead of schedule..

Okay. Thank you for that additional color.

Just a quick little clean up, the repatriation tax is non-cash, is that the whole idea of the repatriation taxes, what that were in fact cash, that’s why people don’t repatriate cash often?.

Yes, and I can help with that one. You are absolutely right, there is a cash tax payable on repatriation of [foreign] earnings. We have foreign tax credits that we can use to offset that tax, so we have the book charge and we have foreign tax credit that are on deferred tax assets that offset the cash tax payment.

It’s a book charge but not a cash charge..

Okay.

And then just finally on the balance sheet, obviously you need to finance ADT, but as you noted Bruce you also are kind of under short end of the curve, should we expect any kind of financing headwinds term out some of the CP from a near term either separately or as part of the ADT transaction?.

Well, the ADT call we talked about we were going to sort of go out there along, so we are looking at, I think at the call I talked about assuming it’s going to be a blended 4%. So as that stands right now, obviously subject to market conditions, we would think about now the substantial portion of financing being 10 and 30 (inaudible)..

Okay, great. Thank you very much guys..

We have time for one more call..

All right. Our next question is going to be from the line of Mr. Ted Wheeler. Sir, you may now proceed..

Yes, good morning all..

Hi Ted..

You gave us a little detail on building efficiency North America. I wondered if you could give us some more detail on the other segments in the BE for the quarter..

As far as regions?.

Yes, well I guess it’s regions right, you got North America, you got this Asia other and GWS if I look, the units that you put in the filings?.

Are you interested in sort of orders…?.

I’d love anything you can share but I just….

Okay..

Revenues and margins if you could..

We will have those in the in our filings; I don’t -- again we don’t have those with us, we kind of just talk about the business. But I mean I can go through the geographically if you look at our orders, when you out exchange it is down about 1%.

So on that basis what you would see, the Europe was actually up a bit 2%, Asian orders were flat in the quarter, North America is down, Alex commented on the fact that service orders are up and equipment and controls were down, then where we are really seeing pulled out from an order perspective is Middle East and Latin America which tend to be lumpy in terms of large jobs and those were down by 27% and 29% respectively..

The way I’d look at those two is, when we say we are up 30% in the Middle East, I won’t get excited about it and we say we are down 30% in the Middle East I won’t get excited about that because these projects, one project could be almost the size of the entire backlog; these are very large and very lumpy..

And maybe just to help you out a little bit on the margins, some margin, sub margins (inaudible) North America and Asia, we did see good margin. I don’t have the numbers at the top of my head.

On slide that Alex went through on building efficiency, you see that we did reference the fact that we continue to have some contract charges in the Middle East it’s what we have had some in the previous quarter that will pull down the profitability of that segment, now we have headwinds in the quarter of a $0.02 this year..

Okay. And I guess Global Workplace Solutions, I think you gave us a number, I guess we had last years and would you say the profits, could you refresh me? And you said, I think you’ve said Global Workplace Solutions profit is good..

We said the profits were up 24%..

Okay. I’ve got the other..

Yes..

Thank you for the color..

Okay..

Okay. All right thanks Ted..

Okay. So, I want to just wrap up. I appreciate everyone’s great questions. And I wanted to once again thank our employees. There is a lot of opportunity for distractions in our business, a lot of the change going on but our employees’ number one focus on execution and I think you see that in results.

So we’re going to continue to execute; we’re going to continue to meet our commitments and that includes changing our portfolio and meeting our strategic objectives. So, I appreciate all the calls and look forward to talking to you next quarter..

Okay. Thanks Alex, thanks Bruce. And thanks to all on the call for your interest. If you got any further questions, feel free to email or call me at 414-524-2375. Enjoy the rest of your day..

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