Glen Ponczak - Vice President, Investor Relations Alex Molinaroli - Chairman and Chief Executive Officer Bruce McDonald - Executive Vice President and Chief Financial Officer.

Rod Lache - Deutsche Bank Rich Kwas - Wells Fargo Securities Robert Barry - Susquehanna Financial Group Brian Johnson – Barclays Mike Wood - Macquarie David Tamberrino - Goldman Sachs David Leiker - Baird Jeff Sprague - Vertical Research Colin Langan - UBS Joseph Spak - RBC Capital Markets Brett Hoselton - KeyBanc.

Welcome and thank you for standing by. At this time, all participants are in a listen-only mode until the question-and-answer session of today’s conference. (Operator Instructions) I would also like to inform all parties that today’s conference is being recorded. If you have any objections, you may disconnect at this time.

And I would now like to turn the call over to Mr. Glen Ponczak. Thank you, sir. You may begin..

Well, thanks Angela and thank you everyone on the call. Welcome to the Johnson Controls’ third quarter 2014 earnings conference call. The slide presentation 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, Chairman and CEO, Alex Molinaroli will provide some perspective on the quarter. He 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 the prepared remarks, we will open up the call for questions and we are scheduled to end at the top of the hour.

Before we begin, I would like to refer you to our full forward-looking statements disclosure that’s in the news release and also on the 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 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 obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this presentation. And with that, we will get started.

Alex?.

Well, good morning everyone.

Welcome to our call and I’d first want to start and thank our employees of strong quarter and not only a strong quarter, but with some of the conditions, particularly in our buildings business what we are able to accomplish and then all the distractions we have internally with all the changes, I am very proud of our organization.

Let’s start and talk about the environment. What we see in the automotive business is the market remains strong. I am really pleased to see that Europe continues to incrementally get better and we are seeing some benefits from that. Bruce will go over the actual numbers, but overall very happy with how the markets improving.

We talk about demand for the battery business. We are obviously seeing the high OE demand following the – and we are gaining share. So, we are following the strength in the market. And our aftermarket demand is finally picking up in North America, Indonesia, specifically China and outside of Asia.

And in Europe, we are still having demand problems, but I think that what we have seen is that the inventory levels with our distributors is starting to decline. So, hopefully, we are getting through the worst of that. We will talk about later, but we have also had some pretty good wins in our battery business.

In the commercial buildings segment, where we have been struggling or the market has been struggling on our own pipelines, but our improvements in our pipelines that we are seeing forward-looking mirror the marketplace. The biggest challenge that we have is within the federal government business, because of the marketplace.

And then in China, the market remains strong. It’s not the same as it was a few years ago. It remains strong in each one of our markets. I will talk about the buildings market specifically.

As you know, our institutional customers, local government, state, federal, healthcare, higher education, those customers is a large part of our business in North America. It’s always been our sweet spot.

And just to give everyone a flavor for what our team has been dealing with over the last two years, you can see the construction starts are down significantly since when we peaked in 2008.

And if you look at this decline that we saw in our secured business, this is really attributable to mostly federal government and in particular we called it out last year, we had a very large contract last year in the third quarter. It was a $70 million VA Hospital job.

The other thing that I would point out is in the quarter last year we were beneficiary of two very large airports, infrastructure airports in Brazil and also some stadium work. So what we saw last year was a little bit abnormal, what we see this year if you look under the numbers I feel better than what the numbers look like.

But right now we just need to make sure we see it on a consistent basis. We tried to break our numbers out a little bit more from equipment standpoint because as you know we are in the contracting business, so we wanted to show what we are doing within our equipment business as you look at the applied equipment.

We are 9% up in a flat market, so we are gaining share. In our light commercial we are almost up 11%. We are pretty much moving with the marketplace. And in ADT acquisition just for everyone’s note it is exposed across the market, but it gives a lot more exposure to the commercial market and the light commercial market.

So we should see improvements going forward. And then in the residential business we are flat with the market year-to-date. Our quarter was actually down and I think there are a couple reasons. One is last year we saw an incredible increase because of some of the Sandy work.

We were very stronger in Northeast is going through a change in distribution in Texas and Florida. And any other thing that happened is April 1 we put a price increase in place. And our margins for the quarter are up 3.5% in that business. So we will move on – let’s talk about the overall business.

With the revenues being up 3% over last year and the segment income up 15% we see the benefit in the EPS of our buyback with $0.84 per share.

I am pretty pleased that I have talked earlier about where our results are particularly when you look on the right size of this page and you see that we have awful lot of work that’s being done on our portfolio. We closed the ADT transaction. We closed the Electronics transaction here a couple of weeks ago.

We announced and started working on the joint venture with Yanfeng for interiors. And so with all this going on, our team is still able to perform. So we are pretty proud of what they have accomplished. If you go to the marketplace specifically, let’s talk about some of that. On Page 6 we have – we have been awarded $3 billion in new metals programs.

And I think if we were talking 3 to 6 months ago, we weren’t talking about growing that business, we were talking about how we are fixing that business. But $3 billion and that business is a significant amount of business over the period and a lot of that is in the China, which is consistent with our strategy.

We also – we are able to get a Comcast order, a new order with BMW. And you can see its annual revenues are $325 million, it’s also in China. And the feedback we are getting from our customers around the interiors JV has been extremely strong. Our customers see the value in what we are doing and they are anxious for us to get this completed.

In building efficiency, let’s first talk about GWS. We are seeing improvements at the bottom line of GWS. They had a very, very strong quarter from an earnings perspective. And they will also begin to win work. So we have some great projects in the pipeline, but we can talk about Standard Chartered Bank, 22 countries.

And it’s the largest contract we ever had in Asia. So we are pretty happy with that. What it shows is we cannot only get that business fixed, but getting our cost structure right and our team is not distracted and our customers are confident and our services we are being able to grow that business again.

And in our UPG business, we have announced a new product called Prestige. And the reason why that’s important to us, this product is a drop-in replacement of not only for our units but for our competitors’ units.

And that allows us to give access to share of the replacement market that we haven’t had in the past because our market share traditionally hasn’t been as strong. So we are pretty happy that that gives us an opportunity to expand the marketplace for our salespeople and our dealers.

And in power solutions lots of good news there, our OE business in China is expanding both traditionally and in our AGM business. I think we have made a couple of announcements on that. We are starting production in 2016. So we are localizing our production.

And in the United States, Europe and Japan, specifically in the United States we have captured two very large retail customers where we are now sole source. And with the wins we have in both Japan and Europe, it’s about 3 million units, and 3 million units is a significant amount of wins for the power solutions business.

So I am very happy with what we’ve accomplished. With that I will turn it over to Bruce and he will go through each one of the segments..

Okay. Thanks Alex. Good morning everyone. So starting off with power solutions here on Slide 7, you can see for the quarter our sales were up about 6%, lead prices were actually lower year-over-year and if you were to adjust that put them on a constant basis, our revenues were up about 8%. In terms of units, you can see the geographic mix.

Overall, we are up 5% with North America and Asia up more than that and Europe down, really reflecting some destocking of the channels. OE was up 31%, aftermarket and Europe was down about 5%. So we did see our European volumes towards the end of the quarter start to show some year-over-year improvement.

So we are hopeful that the destocking is sort of behind us here. In terms of the aftermarket – AGM volumes you can see they are up about 17% to just below 2 million units here in the quarter. In terms of segment income we have a big improvement of 43% versus last year, up to $193 million.

We are seeing the benefits of not only higher volumes, a richer product mix associated with the AGM units and continued strong operational performance impacted our segment income here. In terms of building efficiency, we were able to improve our margins by about 10 basis points despite the fact our revenues were down about 4% here in the quarter.

At 3 point – if you were to sort of adjust for divestitures and you recall, we divested a year ago our commercial refrigeration business in Europe, if you adjust for that BE sales were down about 1%, GWS sales were down about 4%, so that’s how that would shake out.

Looking at that geographically for building efficiency North America was down 4%, Europe was down to 9%. Again if we adjust the European number for the divestiture it was actually up 6%. And in the Middle East and Latin America we saw double-digit declines.

If you look at our backlog you can see adjusted for FX and divestitures it was down 6% where we really saw softness here was in Latin America and that’s really the rolling off of some of these larger infrastructure jobs that Alex referred to, that was down 37%. Asia and North America were down 5% and 3% respectively.

And we saw slightly higher demand in Europe in the Middle East. In terms of orders, we touched on – we talked about our orders being down about 8%. Alex referred to both the VA Hospital job and some of infrastructure projects in the Middle East if you were to adjust for those items, what you would see is our underlying orders were down about 3%.

Around the same levels, they were last year. Geographically, if you look at our order activity, down 7% in Europe and 9% in North America, again the VA Hospital contributing to that, Asia down 10%, Middle East and Latin America down 1% and 38% respectively.

I would note that if you looked at in our service orders, we did see an increase of 8% in our service order in the quarter, so that sort of bodes well for seeing some signs of improvement in some of our project work. In terms of segment income at $306 million, we are down 3%. And as I said before our segment margins were up 10 basis points.

To look at the margins in BE about 10.3%, that was down 40 basis points versus last year, primarily because of the lower volumes. And we did have transaction-related costs within the segment income number here associated with the work that we are doing with Hitachi primarily.

And in GWS, you can see a significant increase in our profitability here up 46% where we started to see the benefits of some of the business model changes that the team are making there and also with the benefits of some cost restructuring.

In terms of our automotive experience on Slide 9, as we mentioned in our press release last quarter, our automotive electronics business we have reclassified as a discontinued operation. So, our numbers here just like in Q2, exclude electronics.

The other thing I would note before I talk about the numbers here as we did complete the divestiture of our loss-making headliner and sun visor business in the quarter and this was previously part of our automotive interior segment. If you look at the sales, you will see, we are up about 7%. Both seating and interiors were up about the same.

If you look at the markets, you can see North America here up 4%, Europe up 1% and China up 11%. And again on a revenue basis, we are able to exceed the market production levels in all three of the main regions. In terms of China, which we – as everyone knows we largely compete through non-consolidated joint ventures.

Our revenues in the quarter were up about 28% to about $1.8 billion. In terms of profitability, our segment income here was $295 million, up 22% versus last year.

Here we are seeing the benefit from operational improvements, primarily in metals and in our European businesses, both in seating and in interiors, the benefits of cost reduction initiatives and also the higher volumes.

In terms of profitability, our margins in seating were up 20 basis points to 5.6%, some big improvement in interiors, where our profitability was up 240 basis points to 3.5% in the quarter.

I guess, overall sort of takeaway in automotive is we are delivering on the incremental revenue and our restructuring and cost improvement actions are tracking in line with sort of aggressive expectations that we set at the beginning of the year.

In terms of the financials and maybe just before I get into the numbers, we are adjusting it for a number of one-time items, primarily $162 million restructuring charge, which is largely around the retained business operations as part of the interiors joint venture that we talked about in May.

And $140 million from the loss on some of the businesses that I talked about that we divested and then other transaction-related cost associated with the acquisition on ADTI, which closed in June 16 this quarter. So, I am going to exclude those items as I talk through the columns here on the left side of the page.

So, in terms of revenue at $10.8 billion, we are up about 3%. Foreign exchange was a slight headwind for us – a tailwind, I am sorry, for us in the quarter accounted for about 1% of the 3% increase here. In terms of our gross profit, you will see we improved by 50 basis points to 15.4% versus last year.

Here we are really getting the benefit again of mainly the automotive improved operational performance. SG&A remained well-controlled, is up 2% or slightly less than sales. So, we are seeing it tick down as a percent of the sales by about 10 basis points.

And you see a big improvement in terms of equity income and that’s really been driven by the improved profitability of our automotive joint ventures, again primarily in China. So, from a segment income point of view, we are pleased with the margins here at 7.3% were up 70 basis points on a year-over-year basis.

Turning to Slide 11, I’d maybe just comment on the net financing charges. You can see we are sort of comparable to year ago levels at $67 million. You see that at the bottom of the slide, we did issue $1.7 billion of long-dated debt associated with the ADT acquisition. That included most of the debt was 10-year, 30-year and 50-year paper.

And so when we sort of rolled at it from a modeling perspective on a go forward basis, our financing costs are going to be in the $75 million to $80 million per quarter.

In terms of our tax rate, it was 19.8%, a slight decrease from our guidance and that’s really because with repositioning electronics as discontinued operations, it has a obscure impact on our underlying rate, because electronics the tax, a slightly higher rate. And that compares to 17.2% rate in the third quarter of last year.

So, overall, our earnings from continuing operations, excluding items you can see here at $0.84 was a 17% year-over-year improvement. And then just lastly in terms of the balance sheet and our guidance, we are pleased with our cash generation in the quarter. We generated cash of just over $700 million from operating activities.

Our net debt at the end of the quarter was $7.3 billion. And I sort of just put a bridge in here, you can see the $1.7 billion we added to finance the ADT acquisition and $400 million net debt reduction in the quarter from operations. That’s how we get to the $7.3 million at the end of the quarter.

Working capital as a percentage of sales or trade working capital, which is payables receivable and inventory at 7.4% was up about 10 basis points. Here the slightly dilutive impact of the ADT acquisition which is generally higher levels of working capital, we are going to work on that and we expect to offset that headwind as we go forward here.

When you look at the balance sheet that we attached to the press release, just a few comments on ADT, what you will sort of see overall is an uptick in goodwill and intangible about $1.6 billion. And then the working capital and fixed assets associated to that business about $300 million.

And then lastly in terms of our guidance for the fourth quarter here, we are looking at a guidance of about $1 to $1.02 per share, which will be a record for us. If you look at that guidance in context of what we said last quarter, we are coming in at sort of the high end of our previous guidance.

And just as I have noted on here, we are going to start to encourage some transaction related costs associated with the integration of ADT and the formation of our joint venture with interiors, and we are excluding those from the guidance that we are providing here for the fourth quarter. And we will provide some more color with that on our Q4 call.

So with that I will turn it back over to you Glen..

Thanks Bruce. Angela I think we are ready to take questions. And while compiling a queue here, just to remind you to get people – more people a chance to ask the question here. Please limit yourself to a question and a follow-up.

If you got more, you can get back in line again if you can get through a few of the folks who want to talk to us this morning. Angela we are ready..

Okay. Our first question is from Rod Lache with Deutsche Bank. Go ahead. Your line is open..

Hi, everybody..

Hi Rod..

Hi Roc..

A couple of things, but first of all could you talk about the 20 basis point margin improvement in seating, it looks like you had good organic growth and typically incremental margins are in the teens and you had an equity income increase, so was there an offset to that that limited the margin improvement to this level”.

This is Bruce here, hi Rod. I don’t really think so, I think when I look at some of our commercial settlements, I know we reached an agreement with one of our customers and we had to make a year-to-date true up and we had some supplier retro-settlement.

So I would say probably on the commercial side if I was looking at year-over-year, is probably unfavorable muted the margin improvement. So I would view that as timing within the year not structural by the way..

Rod just - this is Alex, if you look underlying numbers, metals continue to improve and Europe continues to improve. So, I can’t point to what you are asking, it’s a good question, but the underlying operating margins are improving..

Okay. And at the beginning of the year actually late last year you were talking about more modest growth for seating going forward 1% to 2% flattish through 2018, do you have any updated thoughts on just given some of the wins, how we should be thinking about that business.

And similarly for the building efficiency businesses given where your order rates have been falling, do you have any kind of early view on how we should be thinking going forward as you look out to next year?.

I think we are probably, we see the same thing you are seeing. I am not ready to give those numbers, it’s a little complex. And I mentioned it in the building efficiency conversation.

We are seeing pipelines that are improving, but I would like to be able to see that a little bit more so maybe next time, we get on the call we will be able to talk about that. We just have been burned a few times, so I just want to make sure we don’t kick that can again. But we are seeing underlying orders improved.

And then obviously that market is a little different than automotive than what we expect and we had lower expectations for Europe..

Yes. Rod, I would say on the auto side, we have been, if you sort of look at this year, we have been pleased with our mix. So, if you look at the vehicles that were on, they have done well on the market generally speaking, the customers that we have high exposure to have done well, particularly in Europe on the premium side.

If you – Alex talked about the metals wins, I think we probably have quite a bit of the different view I would say in terms of the growth of our metals business versus a year ago. So I think we have been very successful capturing some components business here on the metals side.

And that’s enabled us the sort of pull-through seating business wins that we hadn’t expected that China BMW is a good example. We really won that business from a competitor, because of our metals capability in the region.

So, it’s probably not going to affect ‘15 or maybe even ‘16, but I think going a little bit further out, I would say, we feel more positive about the components growth in that business being more than the market..

Okay, thank you..

Our next question is from Rich Kwas with Wells Fargo Securities. Go ahead. Your line is open..

Hi, good morning everyone..

Hi, Rich..

Alex, just a bigger picture question with the residential performance here and given your position in the market and now with the acquisition of ADT, how do you see yourself playing out on the resi light commercial side longer term.

Can you grow this business organically apart from the cycle or are there things you have to add potentially to make it a more robust position?.

It’s a good question, Rich. I don’t see how we can make significant changes in market share. I think our cost position actually is pretty good. And I think our product is doing well. We have seen our fixed cost dramatically lower, but we have a business that has been under shared for a long, long time.

So, when you look at the replacement market, your disadvantage around channels and some of the actual footprint replacements. So, I think we are going to have to do something little more structural. I mean, that’s the best I could do for answering your question.

We will continue to make incremental improvements, but we need to give them some structural help..

Okay.

And then just on Hitachi, could you just provide us an update on potential timing for that, I know you continue to work on that with the negotiation?.

Yes. So, our teams are working hard together. They are now getting to the point where we are having real conversations about the numbers that we said that we couldn’t see we now can see. And so, we are vigorously working together to see if we can make this happen as soon as possible. So, I guess the good news is we are getting close.

We are really talking about making this happen sooner versus later, but I still don’t think as we are going to see this until maybe first quarter – our first quarter and probably the end of that..

Okay, alright..

From a signed definitive agreement..

Definitive agreement, yes..

Okay..

Well, probably like financially speaking, it’s probably back half of 2015 type transaction..

Okay.

In terms of actually closing?.

Yes..

Yes, okay.

And then just quick one, Bruce on buybacks, so you move through the balance of the year, you are going to generate lot of cash here in the fiscal fourth quarter, you still have the authorization, plenty left under that, what’s the level of commitment at this point?.

Well, we – what we talked about was doing $3.6 billion over three years and we have done – we frontloaded that this year. And so I think we are committed to doing what we said we are going to do. We are not looking at bringing it slower if that’s your question and we are not thinking about deferring it.

But I think what you are going to see is as we get in, we are going to – we are not probably going to do what we did this year, which is buy $1.2 billion in Q1. I think we are going to get into more of a normal pattern and acquire stocks throughout the year..

Okay..

The action here that we did in 2014 was really because of such a big change in strategy. We decided to put our money where our mouth was and announced the buyback at do it at the same time..

Great, understood. Okay. Thank so much. I will pass it on..

Take care..

Our next question is from Robert Barry (Susquehanna Financial Group). Go ahead, your line is open..

Hi guys, good morning. Thank you..

Good morning..

So I just wanted to clarify what the bottom line message is here on BE, is that you are starting to see some early signs of a potential inflection point?.

Yes. So this is Alex, what I would – here is what I would talk about. We do a very good job of tracking our pipeline with our direct sales force. We have done this for over a decade, probably decades. And so what we are able to do we track our pipelines based on the previous year just like we would do anything else.

And our models because we have been doing it so long are fairly accurate. And what we have been seeing is and that’s how we talk about our forecast we have been seeing is it just continue to be trending down and trending down. What we are seeing for the first time is a couple of months of some larger projects in some of the institutional markets.

The reason I am hedging my bets is after we have had this long downturn I don’t want to say the market is back, I am just saying that we are starting to see some good news which I haven’t see in the past. So I know that that sounds a little bit of weasel, but I think at this point we kind of earned because the market has been pushed along.

So it’s good news, that’s all I can say, I just don’t know – I can’t for sure if it’s a trend, but we are watching it closely..

I mean during the quarter did the orders improve or was it bumpy?.

No, the orders didn’t improve what we are seeing – so that would track more like the architectural index because what we are talking about tracking projects as they become developed..

Yes. Over the question of when they convert into orders is very uncertain..

That’s right..

Yes..

I think maybe one thing that we had in our slides just to be pointed out is with the ADT acquisition we have doubled our exposure on the light commercial side. May and if you were to talk about the light commercial excluding residential we have probably quadrupled it. And so that part of the market is showing the most signs of life.

And so we have gone from having say $300 million or $250 million exposure there to now versus here at about $1.3 billion of exposure there. So I think if – I am hopeful that as we get in the fourth quarter that we see having more exposure to that sort of the market, that sort of gives us some tailwind..

Could I just on clarify on that comment about the applied HVAC being up 9, is that North America and how do you define that market that you are calling flat, is that only in the verticals where you have exposure or is that..?.

No that would be as reported through AHRI and that is North America. I think it does include Canada..

Okay. Thank you..

Our next question is from Brian Johnson with Barclays. Go ahead. Your line is open..

Yes, good morning. Just following up on the same theme when you look at those kind of maybe the pipeline, is there any signs – is there signs of improvement at all in that institutional business which you do show in the chart on the upper right of Page 4 potentially growing in terms of construction forecast..

I am sorry go ahead..

Yes.

My question was within you have improved what you are seeing in the pipeline for maybe the improvement, is that coming out of the North American institutional business, which you do show up ticking in 2015 but also showed an uptick in 2014 in the construction forecast and that doesn’t seem to be flowing through to your business?.

Yes, it is, not all of the vertical. So, it’s in some more than others like healthcare still seems to be stretched up. But some of the government business seems to be improving state and local government, federal government we are seeing those pipelines improved significantly.

And that – and we are also – what that also means is if there are larger projects. If you dig underneath the numbers we cut things between below $750,000 projects and above $750,000, where we have actually gained business although we have grown is in under $750,000 things that we are creating ourselves.

What hasn’t been on board are these large, large projects. And so what we are seeing is some of the large projects come back. And that’s what really drives the backlog and sometimes the lumpiness of the backlog. And that’s the good news that we are seeing because the large projects have been gone for quite sometime..

And sort of a follow-on I guess two things around ADTI, one, how quickly can you ramp up HVAC equipment sales through that channels and two, you mentioned something around excluding some 4Q integration costs, I think are those operational costs or are those sort of more banker fees or maybe consultant fees or something that truly kind of is one-time?.

Well, we have program costs. We will have some restructuring. We will have costs that are related to the integration. So we are getting at it pretty fast.

As it relates to what products, how quick we are getting the products to go through, I think we will have more information on that but where we are starting is the products that we can essentially swap out or easily move through the channels.

They will obviously have the other products that we will have to do some development or tailoring for the channels, going both ways. So I think we will start seeing it fairly quick. But obviously, it’s going to have to ramp. We have to get our customers and our distribution chain to be able to sell these products..

The improvement we are seeing now is more just the existing ADTI portfolio, just getting deeper?.

That’s right. Yes, right. Participating in the markets that we haven’t participated before..

Okay.

And just when could you get significant HVAC sales through there by year out or year and a half out?.

We will although start seeing some synergies next year, I am sorry I don’t have the numbers in front of me, but they are on the workflow, they are going to see some growth during the fiscal year, next year.

But quite frankly the biggest advance, the biggest integration savings we will have next year will be more on the operational and cost side because that is easier to get after..

Yes. I think Brian the quickest things that we are going to see from a revenue side will be they make things that we buy. So switching our buy on things like filters, grilles and registers and things like that to ADT that’s going to happen pretty quick and those things are on new work are being sort of specified right away..

And vice versa?.

Vice versa they already – basically controls that they already buy that they put on the units..

The channel things like us selling some of our – their products through our branch or vice versa. It takes a little bit of time as we – there are some branding issues and there are some training of our sales both sales people. And so that’s underway and I would think we would start to see that towards – it’s not like years, it’s few quarters out..

Okay. Thanks..

Okay..

Our next question is from Mike Wood with Macquarie. Go ahead. Your line is open..

Alright. Thank you.

You talked that ADT increasing your exposure to the lighter commercial, can you talk about what the impact of the Hitachi JV would have in terms of the tonnage and the vertical exposure and would your future M&A strategy in building efficiency be kind of geared at continuing this switch to keep a more broader exposure there or would you look to take advantage of the more weaker larger institutional verticals?.

Well, so I will answer, this is Alex. First, I think that our opportunity to grow is not in the institutional markets, not because of the market because we have such a strong share and so what we are doing is we are writing the market right now. But our share in the institutional market is significant in North America.

And so what we need to do is broaden our channels and broaden our product line. ADTI gives us both products and channel, Hitachi gives us products. And I would say it’s sort of a mid-market light commercial access, it’s not really residential and that becomes a story unto itself.

I answered the question earlier that we still would have to do something different in order to grow in the residential significantly. But all the stuff that we are doing is expanding our reach within the marketplace..

Understood and on the ADT acquisition where you are saying you are now buying things from them, had you been buying from them previously or will you need to spend some money to increase their production capacity to handle your new demand?.

They have capacity, they have open capacity. And we do buy from them mostly dampers, but we do buy some other things, but there is lots of opportunity for us purchase more..

Okay. Thank you..

Our next question is from David Tamberrino from Goldman Sachs. Go ahead. Your line is open..

Thank you and good morning gentlemen. Heading back over to building efficiency, you have noted improving pipeline.

Can you speak to the cadence of quoting activity? Has the order to backlog to revenue timing continued to extend or be pushed out or have you seen a contraction since earlier quarters in the year?.

That’s a great question. I think that we are so early in the pipeline moving up. I don’t know that I can answer that. But when we see things happen in the pipeline, it’s a forward look around six months, that’s what we track. I mean, we track other things, but that’s the framework. So, a year ago, we would have tracked a six months forward pipeline.

Today, we are tracking a six month forward pipeline. And then they factor that based off of what the probabilities are of us winning and the project going ahead. So, I think that, that’s sort of taken care of, what’s not taken care of is how fast it will revenue.

What’s taken care of is through our pipeline is it really measures year-on-year the same timeframe for when we can secure the project. So, from a quote to secure I feel good about the numbers. From a revenue standpoint, I can’t really speak to that yet..

Understood.

But if I am correct, you have noted in the past that, that’s been extended, right? It’s moved from kind of one quarter in order to one quarter in backlog to one quarter being revenue and it’s been pushed out a little bit in some or a little bit more?.

That’s right. Yes, that’s because of our focus on large, large projects. And so what’s happened as our – the bad news is we have had less large projects, because they haven’t been out there. The good news is that our churn rate around our revenues is actually go up right now.

So, when we secure something smaller, we can see that revenue quicker and that’s one reason why you see our revenues not as bad as our sales secured, because we are flowing quicker, because we don’t have the large projects..

Understood.

And then just on the battery business, can you speak to the cadence of growth in the Stop-Start AGM battery technology and the adoption trend?.

Yes..

I see for the year, volumes have seen decelerating year-over-year growth from Q1 to 3Q now with 26%, 24% and 17%.

Do you kind of anticipate that to continue or is there an inflection point in the near term?.

I’ll give you a little bit color. I am glad you asked the question underneath the numbers. So, that 17% was for the quarter, 22% for the year. You are right this quarter seems to be a deceleration.

What’s really great to look at the numbers you look underneath the numbers, we had almost a – if I can do the math there, almost a 15-fold increase in the only purchase of these batteries in North America. And so we are finally starting to see and I think if you look at just watch the television or watch what’s being announced.

Start-Stop is becoming standard on a lot of products, both Chrysler and their Jeep, the Focus, the Malibu. You go across our portfolio our customers here are starting to use the product and so we are seeing that.

So, even though we are getting more moderate growth now in Europe, because it’s become more standard, where we are really seeing the growth is from a small base is in North America. So, I think we are going to see the rate continue, it will be less dependent on Europe and more dependent on North America and China..

Understood..

It’s good news, because we have been waiting for that to happen..

Okay.

So basically a shift in region there for growth going forward?.

That’s right..

Alright. Thank you for taking my questions..

Our next question is from David Leiker with Baird. Go ahead. Your line is open..

Good morning, everybody..

Hi..

On ADT, I didn’t think there are any questions left here, but as ADT ends up going into the backlog, what kind of impact does that have? What share of that backlog comes out of ADT and what’s the timeline of when it goes into backlog and hits revenue?.

That’s a good question, David. It has – we do have orders in ADT, but it’s very short cycle. And so there is – we are still sort of deep diving this, but right now, our expectation is there will not be an awful lot of backlog if any..

Yes, probably closer to zero. It looks more like our equipments business. We are not, except where we add product to our branch channel, where we wrap our installation around it, that’s usually where we have a backlog. Like I talked about earlier, equipment orders are up 9% and it really doesn’t show up on our backlog.

That’s ordered from the factory and this will be very similar since it’s going through reps..

But we don’t have any – like in our quarter end number, we have no backlog included for ADT..

Okay, great.

And then the other question here is if you look on the power side, you had mentioned some comments about inventory, but as we came through the winter selling season, where do you think we stand from an inventory perspective as you go into stocking here from the fall?.

I think if you look at our inventory, I would say we are bloated, we have some inventory, but that’s more of a management issue and operational issue. I think the channels when I talked about what was happening in Europe, I think the channels are not extended. I think we are in pretty good shape from a channel standpoint.

So assuming that, with whatever normal is I think we are going to be fine. It’s pretty hard for me to figure out normal anymore, but whatever normal is, they are not overstocked. I don’t think there is anything unusual about the inventories in the channel..

Yes. My comments are around the European aftermarket inventory channel has come down..

Yes, yes..

Is there a way to look at the last selling season North America and Europe, what the battery demand ended up being over the course of the season?.

Yes. I don’t have those numbers. Yes, we can get those. That’s something that we have readily available..

Okay, great. Thank you much..

Yes..

Our next question is from Jeff Sprague with Vertical Research. Go ahead. Your line is open..

Thank you..

Hi, Jeff..

Hi, Jeff..

I just wanted to come back also to BE and on the light commercial up 11%, is that also strictly a North America comment?.

Yes, that’s right, that’s right. The numbers that we have that are most robust will be North America. And for us, we are heavily weighted in North America than we are certainly in Europe, so that’s a North American number..

Yes. So, Alex, I understand your reservation on calling a turn given how tough it’s been, but you just posted a quarter with applied up 9% and light commercial up 11%. I mean, that actually sounds pretty decent.

I mean, was there something unusual in that sales pace in the quarter, timing or something?.

No. No, I think that if you remember the last call I was a little bit frustrated, because I think you guys were frustrating, because we haven’t been able to or haven’t either been able or haven’t really showed the numbers underneath. Our equipment share has been growing and growing. So, this is not unusual.

We are gaining share in the equipment business. We are adding new products in our light commercial and we have been gaining share in the heavy equipment business, but unfortunately, that’s not the large part of the market. So, the largest part of the market is what we are trying to participate in the commercial.

So, our branches and our direct selling force is doing great. Our products are doing well. That’s not so unusual. Maybe next time we can talk about what our share improvement has been in that part of the market. That’s what leaves us to say we just can’t screw down much further. We need to keep working on the other channels in the lighter products..

Right. But then on a headline basis, North America is down 4%, so you have got weakness in what energy, energy retrofit and the….

Yes, right. You have our performance contracting orders which as you know are very lumpy. They are a little bit soft and then we have that large construction project, very large $70 million that’s VA Hospital, we call that out last year. And so those words become very lumpy.

So, what you are seeing is the equipment orders are fine, but when we wrap it with our construction services that are building services, that’s where it’s been softer, where we do integrated systems for customers on performance contracts, those kind of things..

Yes.

And your performance contract would be more tied to institutional and governmental also?.

Exactly, exactly..

And then just shifting gears quickly, so it sounds like GWS is kind of getting a new lease on life.

I am just any comment there and maybe more specifically, what if anything has the business done different with the standard chartered contract has, I would guess, secured better forward margins on that project?.

Well, what we have done is and that what the team has done is we have been able to substantially lower their cost structure. And now we can take advantage of that in our quoting going forward. So – and I think it’s – that’s probably the best indicator.

I think that our biggest concern going into the year is we thought fairly confident we can get the cost out. And in fact we are seeing improvements of I think it was over 40% improvement in the quarter and earnings. So, we are really seeing the earnings story improved. What we didn’t know is could we translate that into orders.

And so we have got this, this is indicative, not only this project is very large, but there is other projects they are working on. So, I have turned where we are having trouble growing in some of these segments or the market is not participating. I am feeling better and better about GWS.

And it has a lot to do with the fact that they have got their cost structure in line..

But it’s cost structure accruing positive margin of the year not just allowing you to….

Absolutely, we are – we will double those margins and then hopefully improve on top of that for the overall business..

Thank you very much..

Our next question is from Colin Langan with UBS. Go ahead. Your line is open..

Great. Thanks for taking my question.

This time last year you were talking a lot about changing the portfolio mix of the business, obviously you have done a lot of strategic actions, I mean where do you think you stand now I mean are we done with divestitures at this point, should we expect since you have taken on some large transactions, acquisitions to pause here, any thoughts on where you stand in that process?.

This is Alex. I guess what I would say is we are – I don’t think we are – this is going to be ongoing process. I would say that it’s not going to be a one-time where we review our portfolio. I think as we understand better and better where we add value.

There is more and more opportunity and where we can grow and where we can make more money for ourselves and for our shareholders. So I would say that we are not done, we are never done. I can’t really get into specifics but I think we have got some work to do yet..

Okay.

And then just one follow-up on the metals business within auto experience, any color on how that’s progressing, I know it was losing money over a year ago I think it ended last year breakeven, are you close to the 8% to 9% levels that I think you were before everything fell apart?.

Yes. If I look at the underlying profitability of the metals business, in China we have made great progress there. And just maybe to quote some numbers before we made the acquisitions, our seating market share there is in let’s say 40%, in our metals market share we talked about being 2% or 3%.

If you look at the business that we have won there what were in the 15% to 20%. So we have taken our share up from say 2% or 3% to 15% to 20% and that business we have launched a brand new facility and it is up earning double digit returns.

If you look at the metals business that we have and this would be a combination of the JCI, the Keiper and the Hammerstein in aggregate outside of China. So in North America and Europe in the quarter our return on sales was just a shade below 2%. And if we looked at this quarter last year we were in the red.

There it’s a longer – it’s a little bit of a longer path. Colin to get to the target we talked about because we have got and we have talked about this before is what we have got to do is we got a lead tool our plants to get to standardize the manufacturing process. We got to standardize around the 2D product.

And so we are working our way through I would say we are probably half way through the process of rationalizing the plants, getting the process standardized on the 2D products and trying to switch over some in-flight customers to our go to product line. So we are about halfway through.

We are not sort of behind how long we thought it would going to take to do that. But that’s sort of the timetable because we have got to roll things off before we get to those targets..

I will give you a live example of that. One of the things that we are working quickly on is tracks. And what we see right now, the only thing that’s in our way is to make sure that we got our customers comfortable with it. And we are largely there.

If we get all of our customers that doesn’t help us a whole lot to get 80% of your customers – if we can get all of our customers to switch we don’t have to wait for new models.

And if we saw some progress on that great progress and so I think we are going to start seeing at least in some of the components, but that’s what we are having to do right now..

Okay. Thank you very much..

Our next question is from Joseph Spak from RBC Capital Markets. Go ahead. Your line is open..

Thanks for fitting me in here. I just want to make sure I understood on the light commercial side it sounds like it’s very short cycle, so everything converts pretty quickly and that’s what we should expect of ADT as well. So, orders are not really something that we should be tracking..

The backlog?.

You won’t even see the backlog. There maybe a little backlog, but you won’t even see it. So, what will happen is our business will get more and more disconnected from our backlog. So, when Bruce talked about our service going up, that doesn’t run through our backlog or lot of it doesn’t run through our backlog. We sell parts.

That doesn’t run through our backlog. We sell to distribution like residential and like commercial. That doesn’t go through our backlog.

So, what happens is as we go down market through distribution or the type of products we are going to have is we are going to have to start talking about little bit differently, because our backlog is really relates mostly to contracted work. And that’s mostly large projects..

Okay.

So then can you give I guess some indication of orders or recent trends on ADT on an apples-to-apples basis?.

I don’t have that. I just don’t know the answer to that right now..

I know the orders that we saw and they are relatively small, because we only had them for two weeks, but when I was looking at the numbers prior to the closing, we are really looking Joe at something like around upper single-digit year-over-year order growth..

Okay. On Global WorkPlace Solutions, obviously a great win here this quarter.

Do you think some of your prior commentary around the future of that business has hurt you at all in the bidding process? And is that at all impediment and are you able to overcome that?.

I am sure it comes up. I mean, it would be naïve to think it doesn’t come up, but we have obviously continued to be engaged in that. And I think people understand that it’s a great business with great capability.

So, I don’t – I think in the end it hasn’t cost us anywhere as I am sure that we have to do more explaining that we have been asked, but I don’t think it’s hurt us. I think what’s hurt us has been our cost structure..

Okay.

And then last one real quick, can you just remind us of where we are in the China battery capacity rollout and sort of where we are going to be in a couple year’s timeframe?.

So, where we are now is we have two plants. So, we have filled one and we are filling the other. We are also converting the first plant that we put in place to some of that volume will now become AGM volume. So, we will go through a little bit of a change there, but essentially we have 14 million units capacity right now..

And the goal is still 20 million plus, right?.

Yes, closer to 30 million..

Okay. Alright, thanks a lot guys..

Okay..

Angela, we have got time for one more caller..

Okay. Our last question will come from Brett Hoselton with KeyBanc. Go ahead. Your line is open..

Alright, made it in, thank you, gentlemen..

Alright, no problem Brett. You got a full buzzer..

Yes, so obviously a lot of talk about M&A activity going on in the automotive industry with Zed-F and TRW and so forth.

It’s raised a lot of speculation that maybe a Lear or somebody else might get taken out, which then begs the question, how core is your seating business? I think in the past you have talked about it being a very core business, but yet you have also referred to it as we are always reevaluating our portfolio and so forth.

So, how should we think about your seating business?.

Well, I am pretty happy with the growth that we are having in seating business. I like our China position. And I’d like to get the profile of that business to where we see has been growth-oriented, particularly because of the China exposure. And I am hopeful that everyone just like myself will see that as core..

Excellent. Thank you very much gentlemen. Have a great day..

Okay. Alright, thank you Brett..

Well, thanks everybody.

Before we close here, Alex, do you have a couple of words to say?.

Sure. I just want to close by saying that I have made a big effort to make sure that we are as transparent as we can and we talk about the market as we see it. And I know we hedged our bets a bit on the building efficiency.

I do believe that we are starting to see something, but I am just not willing to commit that the market has turned completely, but I do think we are well-positioned. And so as we keep making the investments that we are making, it just strengthens our position in the building efficiency business.

I am pleased with the progress they have made in the market that’s not growing. And when we come back, a good example is the UPG margins being up 3.5% for the year. That bodes well for our future. So, I want to thank our employees and I just want to make sure that everyone understands it. We are going to continue to meet expectations.

And over a period of time, I think we are going to be happy with the top line. That’s it..

Great. Thanks Alex, thanks Bruce and everyone on the call, thanks for your interest. If you have got further questions, feel free to send me an e-mail or I can be reached at 414-524-2375 and enjoy the rest of your day and weekend..

Thank you. That does conclude today’s conference. Thank you for participating. You may disconnect at this time..