Contracts
-In April 2006, the Company announced that it has been selected by General Motors to supply the seating system and other interior components for the 2007 Saturn Outlook. This includes the "Smart Slide" second-row seat feature. The "Smart Slide" seating feature that enables quick, easy movement of the second-row seats to provide access to the third row of the vehicle. Through an array of pivot points, the second-row seat cushion flips up, while the seat back slides forward toward the front seats.
-In August 2006, Johnson Controls-Saft Advanced Power Solutions (JCS) has been awarded a 24-month contract to develop advanced, lithium-ion (Li-Ion) batteries for hybrid-electric vehicles (HEVs) by the United States Advanced Battery Consortium (USABC). In the project, 50% financed by USABC, engineers and scientists at JCS will enhance lithium-ion battery technology for near-future HEVs. They will focus on accelerating Li- Ion technology development by improving battery power in low temperatures, and creating solutions that reduce battery system costs.
-In September 2006, Johnson Controls- Saft Advanced Power Solutions (JCS) announced that the company has signed a letter of intent (LOI) with a major vehicle manufacturer to supply lithium-ion (Li-Ion) batteries. The LOI is for the development phase, which is expected to lead to volume production for a later date.

-In 2007 the Company will launch major new interior programs in every geographic market as a result of the precedent years contract.
North America
-The Company begin delivery of seats, overhead systems, instrument panels and door systems for the new Toyota Tundra. The Company will provide seating, electronics, door panels, overhead systems and the instrument cluster for the Saturn Outlook crossover vehicle. These programs are in addition to more than a dozen other launches during the year.
Europe
-In Europe, launches include seating, overhead systems and trim for the Volvo C30, and seating, overhead systems and door systems for the Kia CEED. The Company has also been awarded future business with European automakers where, historically, it had lower than average market shares.
Asia
-Major 2007 launches in China include seating, overhead systems and instrument panels for the Mercedes E-Class, as well as for the Volkswagen Bora.

Business Partnership
-In October 2005, the Company and Saft announced that the companies have signed a memorandum of understanding to form a joint venture for advanced technology batteries to accelerate their participation in the hybrid vehicle market. The joint venture will develop, manufacture and sell nickel metal hydride and lithium ion batteries for hybrid electric vehicles (HEVs) and electric vehicles globally. The companies expect the joint venture agreement to be finalized in early 2006 and will commence joint sales and marketing activities immediately.
-In January 2005, the Company and Saft announced they launched their new joint venture, to supply advanced-technology batteries for current- and future-generation hybrid-electric vehicles (HEVs) and electric vehicles (Evs). The new joint venture is involved worldwide in the development, production and sale of nickel-metal-hydride and lithium-ion batteries for HEVs and Evs. Saft has contributed licenses for its nickel metal hydride and lithium-ion technologies, plus manufacturing know-how, for a 49% stake in a new company, Johnson Controls-Saft Advanced Power Solutions. Johnson Controls has contributed licenses for its technologies, plus manufacturing know-how and will contribute $40m in cash and assets, for a 51% stake. HEV and EV batteries for military applications will remain outside the scope of the joint venture.

Acquisitions
-On December 9, 2005, the Company completed its acquisition of York International Corporation (York), a leading global provider of heating, ventilating, air conditioning (HVAC) equipment and services.The Company paid $56.50 for each outstanding share of York common stock. The total cost of the acquisition, excluding cash acquired, was approximately $3.1 billion, including the assumption of $563 million of debt, change in control payments and direct costs of the transaction.
-Also in fiscal year 2006, the Company completed six additional acquisitions for a combined purchase price of $111 million, including the assumption of debt, none of which were material to the Company窶冱 consolidated financial statements. In connection with these acquisitions, the Company recorded goodwill of $57 million.

>>>Previous Acquisitions

Joint-Ventures
-In February 2006, the Company signed a contract with Dongfeng Electronic Technology Co., Ltd. (DETC) to set up a joint venture, Shanghai Johnson Controls Automotive Electronics Co., Ltd.. The joint company is capitalized at 5 million dollars, and 50.01% of its capital is invested by Dongfeng Electronic Technology and 49.99 % by Johnson Controls. The new company produces electronic components for automobiles, including instrument meters for passenger cars, information displays and body controllers.
-In December 2006, the Company announced a new joint venture with Chery, one of the largest independents, to provide interior systems starting in 2008. The Company has been a key supplier to Chinese automakers like BAIC, SAIC and FAW for more than a decade. It operate 12 manufacturing plants to support its customers there.

Divestitures
-In January 2006, Gill Industries announced it has signed a letter of intent to purchase the Eansa plant near Mexico City from Johnson Controls. The Mexico plant will add processes, wire and tube bending, and products such as seat frames and tracks. Terms were not disclosed in the sale, which is expected to be completed by Jan. 31.

Restructuring
- As part of its continuing efforts to reduce costs and improve the efficiency of its global operations, the Company committed to a restructuring plan (2006 Plan) in the third quarter of fiscal year 2006 and recorded a $197 million restructuring charge. The 2006 Plan, which primarily includes workforce reductions and plant consolidations in the automotive experience and building efficiency businesses, is expected to be substantially completed by the end of the third quarter of fiscal year 2007.
- The automotive experience business related restructuring is focused on improving the profitability associated with the manufacturing and supply of instrument panels, headliners and other interior components in North America and increasing the efficiency of seating component operations in Europe.
- During the fourth quarter of fiscal year 2006, automotive experience 窶 North America recorded an additional $8 million for employee severance and termination benefits. The Company expects to incur other related and ancillary costs associated with some of these restructuring activities in future periods. These costs are not expected to be material and will be expensed as incurred.
-The 2006 Plan includes workforce reductions of approximately 4,700 employees (2,200 for automotive experience 窶 North America, 1,400 for automotive experience 窶 Europe, 200 for building efficiency 窶 North America, 600 for building efficiency 窶 Europe, 280 for building efficiency 窶 rest of world and 20 for power solutions). Restructuring charges associated with employee severance and termination benefits will be paid over the severance period granted to each employee and on a lump sum basis when required in accordance with individual severance agreements. As of September 30, 2006, approximately 350 employees have been separated from the Company. In addition, the 2006 Plan includes 15 plant closures (10 in automotive experience 窶 North America, 3 in automotive experience 窶 Europe, 1 in
building efficiency 窶 Europe and 1 in building efficiency 窶 rest of world). The restructuring charge for the impairment of the long-lived assets associated with the plant closures was determined using an undiscounted cash flow analysis.
-The Company recorded the restructuring charge as a result of management窶冱 ongoing review of the Company窶冱 cost structure, the sharp increase in commodity costs, and the current economic difficulties facing some of its most significant customers. Company management is continually analyzing its businesses for opportunities to consolidate current operations and to locate its facilities in low cost countries in close proximity to its customers. This ongoing
analysis includes the review of its manufacturing, engineering and purchasing operations as well as its overall Company footprint.

Environmental Activities
-At the manufacturing facilities in 2006 the Company launched a comprehensive energy services program focused on identifying opportunities for energy improvement. The program includes a five-phase assessment focused on the following areas: energy supply management, energy asset management, utility bill management, energy information management, and regulatory compliance and sustainability. In the program窶冱 first year, the Company audited five of our U.S.-based manufacturing facilities. Best practices are being identified for global implementation as the program moves into the regulatory compliance and sustainability phase.
-Recycling and waste reduction are also critical components of the internal environmental objectives. The Company is a leading company in the development of a recycling process for automotive batteries, making them the most recycled consumer product in the United States 窶 99 percent recycled versus 45 percent for aluminum cans and 50 percent for paper. The Company is taking that expertise global through a partnership with the National Development and Reform Commission (NDRC) in the People窶冱 Republic of China, where the Company is working together to develop an improved process for environmentally-friendly recycling of automotive batteries.
-In Europe, the Company has developed processes for reusing glass-fiber reinforced plastics from automotive instrument panels into air ducts and mouldings for engine compartments, adding up to savings of approximately 400 tons per year of glass fiber reinforced plastics. Additionally, natural products like coconut husk fibers are used in high-end car seats resulting in economic and ecologic savings.

Outlook
Net Sales
-In fiscal year 2007, the Company anticipates that net sales will grow to approximately $34 billion, an increase of 6% from prior year net sales. The increase assumes a euro to U.S. dollar exchange rate of $1.25, which is slightly higher than the average exchange rate of $1.23 in fiscal year 2006.
-The Company expects building efficiency net sales to increase approximately 25% from the prior year, primarily due to the full year impact of the York acquisition, service growth, enhanced global capabilities, expansion into emerging markets and realization of acquisition synergies from joint-selling and cross-selling a full range of product and service offerings.
-The Company expects automotive experience net sales to decrease approximately 3% to 5% from the prior year, primarily reflecting lower revenue in North America. Lower industry production volume, unfavorable vehicle mix between light trucks and passenger cars and vehicle program rationalization are the key factors contributing to the decrease.
-At September 30, 2006, automotive experience had an incremental backlog of net new incremental business to be executed within the next three fiscal years of $3.5 billion, $1.0 billion of which relates to fiscal year 2007. The backlog is generally subject to a number of risks and uncertainties, such as related vehicle production volumes and the timing of
production launches.
-The Company expects power solutions net sales to increase approximately 5% from the prior year, primarily due to growth in the aftermarket and the pass-through of higher lead prices.

Operating Margin
-The Company anticipates that the overall operating margin percentage in fiscal year 2007 will increase from fiscal year 2006, excluding restructuring costs. The margin improvement reflects the growth and synergy realization in the building efficiency business.
-Except for volatility in lead prices, the Company expects other key commodity costs, such as copper, steel, foam chemicals, resin and fuel to be stable in fiscal year 2007, with the possibility of some softening during the year.
-The Company expects building efficiency operating margin percentage for fiscal year 2007 to improve as compared to the prior year, primarily due to the realization of York integration cost synergies and restructuring benefits, nonrecurring acquisition accounting expenses taken in fiscal year 2006 and market growth initiatives in all operating segments.
-The Company expects power solutions operating margin percentage to be level with the prior year, primarily due to continued operational efficiency improvements and benefits from the Delphi battery integration offset by advanced technology spending and a favorable environmental litigation settlement in the prior year.
-The Company expects automotive experience operating margin percentage for fiscal year 2007 to decrease slightly compared to the prior year, primarily due to lower production volumes, vehicle program rationalization, unfavorable product mix in North America and higher engineering and launch costs, partially offset by continued strong performance in Europe. Automotive experience has supply agreements with certain of its customers that provide for annual sales price reductions and, in some instances, for the recovery of material cost increases. The business expects to continue its historical trend of being able to significantly offset any sales price changes with cost reductions from design changes and productivity improvements and through similar programs with its own suppliers.

New Product Development
-In January 2006, the company announced that the Company's HomeLink Wireless Control System with QuickTrain technology will be in production on numerous 2007 model-year vehicles. The patented HomeLink system is integrated into a vehicle's overhead console, sun visor or rear-view mirror. With the addition of the QuickTrain feature, training the HomeLink module is not only much easier, but it also takes less time.
-In January 2005, the Company announced that it has developed a new, highly durable type of foam pad for vehicle seating that improves occupant comfort. The Company's VibraTech Foam product offers major improvements in comfort, durability and craftsmanship. In addition, thinner-profile seating can be created using VibraTech Foam, offering the same or better comfort vs. current seats while freeing up valuable space inside a vehicle's cabin. The VibraTech Foam product currently is used in seats manufactured for Lexus RX330. Another automaker will include VibraTech foam in a 2007 model-year vehicle.

- FastForward Seating System
FastForward Seating provides consumers with many options for modifying their vehicle interiors. Second- and third-row seats can be used in the upright position for transporting as many as six passengers. In addition, these seats can be folded flat automatically in only 10 seconds, with the simple push of a button located either on a key fob or in the rear area of the vehicle. FastForward Seating provides high levels of occupant comfort in virtually every seat location, thanks to its "Open Seating" technology. By applying this technology, the Company can deliver the comfort and styling reflected in industry-leading front seats to all seating positions. The seats, which are thin and well-styled, offer enhanced comfort via broad distribution of back pressure, as well as increased lateral support that matches the support provided by front-row bucket seats. The FastForward Seating System is available now for integration into 2008 model-year vehicles.

- Hydride Battery
A 7.2-volt nickel-metal-hydride battery was developed using technologies from the Company's Varta Battery Automotive Business in Europe, where buses have run on the supplier's nickel-hydride batteries for the past decade. Its new nickel-hydride battery incorporates a more advanced design than the batteries used in busses and is targeted to meet the power needs of sport utility vehicles and hybrid models already on the market.

-Door Trim Module Concept
One of the benefits of this integrated approach is the lower weight of the whole door system, since the door cassettes often used in the past are no longer needed. The components can be integrated directly into the ready-to-install door panel. In addition, the number of assembly steps is reduced and a simplification of the assembly process is achieved in the interface with the door.

-RIM alpha
In contrast to the conventional RIM (Reaction Injection Molding) technique, which involves the use of two material components, RIM alpha requires only one material, aliphatic polyurethane. This new process enables production of a high-quality and cost-effective molded skin that allows even very complex designs to be applied over large surfaces.

-Tire Pressure Monitoring System
This system constantly monitors the air pressure of the tires, informing the driver about the air pressure of all four tires via a convenient display. The Company is supplying the new Renault Modus with this system.

Capital Expenditure (Year ended September 30)