[Please refer to Appendix. Johnson Controls, Inc. (JCI) Solid FQ3 Beat; FQ4 Outlook in Line with Expectations RESEARCH UPDATE

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1 July 21, 2016 Baird Equity Research Global Automotive Johnson Controls, Inc. (JCI) Solid FQ3 Beat; FQ4 Outlook in Line with Expectations Reiterate Outperform we remain buyers. FQ3 EPS of $1.07 vs. $0.91 (+18% yoy) topped our $1.04 estimate/$1.03 consensus. Organic growth shortfall in Auto/Power more than offset by strong margin performance; EBIT finished 3% above our estimate/6% above consensus. Fiscal 2016 outlook narrowed to high end of prior range, with FQ4 seen at $ vs. $1.04 (+12-15% yoy), capturing our $1.19 estimate/$1.20 consensus. Adient spin-off remains on track by end of October while expected close of Tyco merger moved forward to September 2. Reiterate Outperform. We believe the stock should trade up today following recent pullback (down 4% vs. market over last month) and positive financial results. Negative variances in the quarter were concentrated within Automotive, whereas JCI-Tyco focused investors should view Industrial performance favorably: organic growth of +4-5% with near-10% organic EBIT growth. FQ3 results above expectations. EPS of $1.07 vs. $0.91 (+18%) topped our $1.04 estimate/$1.03 consensus. Revenues finished 1-2% below expectations, primarily on shortfalls in Automotive (NA program roll offs) and Power Solutions (decline in OE shipments); Building Efficiency growth of +4% was in line with our expectations with order growth of +5%. EBIT finished 3% ($0.04/share) above our estimates, increasing 18% year over year with 170bp of margin expansion. Both Power Solutions (17.2% vs. 15.9% yoy) and Building Efficiency (10.9% vs. 10.0% yoy) finished more than 100bp above our estimates. Automotive EBIT increased +1% with a 160bp rise in margin, but was below expectations (management calling out lower Interiors performance). FQ4 guidance captures consensus. Management anticipates FQ4 EPS of $ (+13-15% at the midpoint) versus our estimate/consensus of $ Tyco/JCI merger timing pushed forward. Management expects to close the JCI/Tyco merger on September 2 versus prior expectation for October 1. Adient is still going to be officially spun out on October 31. RESEARCH UPDATE 1-Year Price Chart A S-15 O-15 Stock Data N-15 D-15 J-16 Rating: Outperform Suitability: Lower Risk Price Target: $53 Price (7/20/16): $44.32 Market Cap (mil): $28,932 Shares Out (mil): Average Daily Vol (mil): 4.70 Dividend Yield: 2.3% Estimates FY Sep 2015A 2016E 2017E Q A 0.82 A 0.89 E Q A 0.86 A 0.95 E Q A 1.07 A 1.10 E Q A 1.19 E 1.26 E Fiscal EPS 3.42 A 3.91 E 4.20 E Fiscal P/E 13.0x 11.3x 10.6x Calendar EPS 3.51 A 3.98 E 4.32 E Calendar P/E 12.6x 11.1x 10.3x Chart/Table Sources: FactSet and Baird Data. Price chart reflects most recent closing price. 34 F-16 M-16 A-16 M-16 EPS (Net): Results reflect Automotive Electronics as discontinued operation. J-16 J-16 Headquartered in Milwaukee, Wisconsin, Johnson Controls is a global market leader in automotive systems, batteries, and facility management and control. [Please refer to Appendix - Important Disclosures and Analyst Certification] David Leiker, CFA Sr. Research Analyst dleiker@rwbaird.com Joseph Vruwink, CFA Sr. Research Associate jvruwink@rwbaird.com Adam C. Schmitz Research Associate aschmitz@rwbaird.com

2 Details Income Statement Variance *Restated for Interiors JV Jun-16 Jun-15 RWB Estimate Variance Income Statement $ % Change $ % $ % % Per Share (In $ Millions) NA Light Vehicle Production 4,600-2% 4,512-4,600-0% - Dollar Content (Adient) $379 - (21%) $479 - $397 - (4%) - Automotive Experience 4, % (19.3%) 5, % 4, % (4.3%) (0.05) Power Solutions 1, % 3.1% 1, % 1, % (3.8%) (0.01) Building Efficiency 3, % 33.0% 2, % 3, % 0.8% 0.01 Total Revenue 9, % (1.0%) 9, % 9, % (2.4%) (0.06) Automotive Experience % 0.6% % % (9.0%) (0.04) Power Solutions % 12.0% % % 3.4% 0.01 margin ex-lead 16.1% 15.5% 15.9% NM Building Efficiency % 46.0% % % 16.1% 0.07 Segment EBIT 1, % 18.3% % % 3.0% 0.04 Interest Income (Expense) (69.0) (0.7%) 8.0% (75.0) (0.8%) (74.4) (0.8%) 7.3% 0.01 Other Income (Expense) % NM % % NM 0.00 Pretax Income % 20.8% % % 3.9% 0.04 Income Taxes (Rate) % 11.2% % % 4.1% (0.00) less Minority Interest % 169.0% % % 8.2% (0.01) Net Income % 16.0% % % 3.4% 0.04 Memo: Gross Profit (est.) 1, % 10.6% 1, % 1, % 0.5% 0.07 Selling, General, Admin. (est.) 1, % 7.3% % 1, % (1.1%) 0.02 Equity Income % 47.3% % % 5.8% 0.01 Depreciation % 7.8% % % 8.3% (0.02) EBITDA 1, % 13.2% % 1, % 3.8% 0.05 FC Est = $9,617m / $ First Call EPS % % 0.03 Diluted Shares Outstanding (1.8%) (0.1%) , RWB Adjusted EPS (operations) % % Restructuring NM NM Impairment NM NM Gains/Losses NM NM Headcount NM NM Other NM NM Interest-related NM NM Tax-related NM NM 0.00 GAAP EPS % % 0.03 Source: Company reports, Baird estimates Investment Thesis Our recommendation of Johnson Controls is supported by mid-teens EPS growth near term with longer-term upside as Automotive and "Industrial" (Building and Battery) operate as standalone companies. With management raising guidance for the second half of fiscal 2016, we have elevated confidence in the fundamental story in front of catalysts that occur in the fall: merger with Tyco and separation of Adient. Earnings driven by company-specific margin drivers. At the analyst day, the company outlined 14 different margin drivers: Power Solutions. Gains from: 1) AGM battery growth (2x revenue and 3x profits); 2) leveraging capacity in China; 3) higher volume; 4) vertical integration; and 5) positive price/cost dynamics. Building Efficiency. Gains from: 1) growing product revenues versus services; 2) operational gains; and 3) emerging market growth (higher margins). Automotive. Gains from: 1) more disciplined contract bidding (meaning slower revenue growth); 2) stronger growth in components vs. JIT assembly (5x higher margin); 3) operational/restructuring gains in Europe and South America; and 4) strong China JV performance (40% share of a market growing 10% annually). 5) Interiors JV operationally boosts margins in addition to the optics of being unconsolidated. Corporate. Adoption of Johnson Controls Operating System (leverage corporate procurement, 2

3 manufacturing and engineering), along with continued pruning of low-roic businesses/contracts. Supplementing our margin-focused thesis is additional upside/opportunity from capital deployment: dividends, share buybacks (expected to resume in back-half of fiscal 2016), and closing on announced M&A (Hitachi HVAC joint venture and Automotive Interiors joint venture). Collectively, these actions are expected to add an additional ~5% to annualized shareholder returns, bringing total returns near 20% over a multi-year horizon. Power solutions. In addition to a modest cyclical recovery in aftermarket volumes, the company s revenue growth should benefit from secular opportunities such as penetration of AGM batteries ( start-stop hybrids) and traditional lead-acid volume in China and emerging markets. Margin expansion opportunities come from increasing sales of higher-margin AGM batteries, vertical integration, and capacity expansion in China (greater domestic production). Building efficiency. While top-line growth has been slowed in prior years by pullbacks in institutional spending levels, margins have continued to track higher given internal pricing initiatives and benefits from prior restructuring efforts. Secular growth opportunities arise from the demand to improve the energy efficiency of existing buildings and strong new non-residential construction in emerging markets. Margin expansion is expected to be driven by improving product mix, operational improvements, growth in emerging markets (higher margin), and productivity gains in the global service network. Importantly, the ABI index is showing an inflection in institutional activity, which should hit the top line in 6-12 months. Automotive experience. We expect global light vehicle production to increase 2-3% annually from CY , with Johnson Controls growing slightly below the market after the company pared back its investment in the segment. The main near-term driver of margin recovery will be disciplined investment and contract bidding, higher sales of components, stabilizing losses in Europe/South America, and equity income from China. JV with Yanfeng will increase JCI's exposure to China, while reducing the company's automotive revenue mix. Additional margin expansion opportunities arise from operating leverage as light vehicle production rebounds, higher-margin new business launches, and vertical integration to capture more value-add. - Johnson Controls announced the intention to spin-off the Automotive business, which will be led by Bruce McDonald. This is expected to be complete during the fall of Capital reinvestment. Johnson Controls has a strong balance sheet and we expect the company to generate significant cash flow over the next several years. Management has historically deployed free cash flow to fund acquisitions, which the company views as new platforms to support continued growth. In November 2013, the company announced a $3.65 billion share repurchase program. Johnson Controls also increased its dividend by 16%, representing a 1.8% yield. Over the past several years, the company has recently shown that it is dedicated to pursuing acquisitions in the Building Efficiency business. Johnson Controls acquired 60% of Hitachi's global air conditioning business in December This joint venture gave JCI access to technologies like VRF (variable refrigerant flow) which it can put through its extensive distribution channels. In April 2014, JCI acquired Air Distribution Technologies (ADT) for $1.6 billion, which gave JCI new products (namely airside) and distribution channels. Because ADT sells products in every part of the HVAC market, JCI will be aware of almost every potential opportunity in the market. Recently, JCI announced that it would be acquiring Tyco International, the global leader in Fire and Security products. This acquisition brings additional scale and products to JCI's current HVAC business, which also leading to meaningful revenue and cost synergies. Valuation. The stock recently traded at x 2016E EBITDA, a discount to the 10.0x median valuation during the current cycle. We believe the stock holds this multiple while driving outperformance through earnings growth, free cash flow yield, dividend yield, and ROIC that compares favorably to other S&P 500 Industrials. Key risks include: 1) uncertainty regarding the pace and trajectory of the recovery in global light vehicle production, particularly in Europe and China; 2) the pace and recovery of residential and non-residential new construction markets (about 5-10% of total sales); 3) the automotive and new construction environment; 4) major customers; 5) automotive new business; 6) raw material prices; 7) acquisitions; 8) foreign exchange; and 9) post-retirement liabilities. 3

4 Price target. Our $52 price target is based on a sum-of-the-parts valuing Industrial EBITDA (Building + Battery) at 9.7x ($42), Automotive EBITDA at 5.0x, and Automotive Equity Income at 10.0x P/E (Combined Auto = $10). Risks & Caveats Key Risks to our Recommendation - Execution: The single largest factor driving earnings higher over the next two years is execution on current strategy of driving margins/returns higher across the business model through internal actions; most of our estimated EPS growth through 2016 comes from EBIT margin improvement, NOT cyclical demand recovery, acquisitions/divestitures or share repurchases; these are all upside to our earnings estimates and target price. - Cycle: Any setback in end-market demand would raise the risk to our earnings estimates; our greatest concern is another leg down in European demand that is now 20% below the last cycle peak. Any other market risk would be tied directly to economic activity in the major regions, North America, Europe, China that currently are stable to improving. - Management: The shift in JCI s business model requires a varied set of management skills from running some businesses for cash (automotive), investing in organic growth (China and batteries) and acquiring businesses to drive higher volume (Building Efficiency). Retaining and attracting leaders with these skills will be critical to the long-term success of this repositioning. Automotive environment. The automotive industry is cyclical and highly impacted by economic activity. There is continuing price pressure from OEMs to reduce costs. Generally, if a supplier is unable to generate sufficient cost savings in the future to offset customer cost reductions, margins could be adversely affected. Major customers. Revenues to the North American OEMs (GM, Ford, Chrysler) in North America account for less than 10% of sales. A business disruption or market share losses at these or other major customers could have an adverse effect on revenues and earnings. - Further, the company s Building Efficiency business has significant exposure to the U.S. government and related entities. A failure to comply with laws and regulations necessary to participate in government bidding could adversely impact earnings. Automotive new business. Incremental costs associated with bringing on and launching new automotive business, or losing current business to competitors, could have a negative impact on earnings. New construction environment. The company s Building Efficiency business is in part dependent on new construction in the residential and commercial markets. If economic and credit market conditions worsen, residential and commercial construction could decline and earnings could be adversely affected. Raw material prices. Though the company has significantly increased its contractual price protections, the company uses significant amounts of aluminum, steel, lead, copper, and petroleum-based products such as resin. A sudden and sharp increase in the price of these raw materials could adversely affect earnings. Acquisitions. Though the company has a strong track record of acquisition integration, there is no assurance that future acquisitions will be integrated smoothly, which could result in increased costs, loss of business, or other outcomes that could adversely impact earnings. Foreign exchange. Approximately 60-65% of the company s revenue is realized in currencies other than the U.S. dollar, notably the euro, British pound, and Japanese yen. While the company does employ hedging activities to reduce the impact of exchange rate volatility, a decline in the U.S. dollar relative to other currencies could adversely affect revenue and earnings. Currently, the company hedges approximately 70-90% of the nominal amount of F/X exposures. 4

5 Post-retirement liabilities. The company had underfunded post-retirement liabilities of $747 million at the end of fiscal 2014 consisting of $742 million of unfunded pension liabilities and $5 million of unfunded other post-retirement liabilities. Company Description Headquartered in Milwaukee, Wisconsin, Johnson Controls is a global market leader in automotive systems and facility management and control. In the automotive market, Johnson Controls is a major supplier of seating and interior systems, electronics, lead-acid batteries, and advanced lithium-ion batteries for hybrid and electric vehicle applications. For non-residential facilities, JCI provides building control systems and services, energy management and integrated facility management. 5

6 Appendix - Important Disclosures and Analyst Certification Approved on 21 July :38EDT/ Published on 21 July :38EDT. Rating and Price Target History for: Johnson Controls, Inc. (JCI) as of /30/13 O:$56 12/16/13 O:$62 12/19/13 O:$61 01/23/14 O:$60 10/20/14 O:$52 10/31/14 O:$55 12/03/14 O:$62 01/21/15 O:$60 01/23/15 O:$61 04/24/15 O:$ Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q /14/15 O:$59 07/27/15 O:$61 11/24/15 O:$58 12/02/15 O:$56 01/25/16 O:$51 01/29/16 O:$50 04/20/16 O:$51 04/22/16 O:$52 07/14/16 O:$53 Created by BlueMatrix 1 Incorporated makes a market in the securities of JCI. 10 Incorporated and/or its affiliates have been compensated by Johnson Controls, Inc. for non-investment banking-securities related services in the past 12 months. Appendix Important Disclosures and Analyst Certification Incorporated and/or its affiliates expect to receive or intend to seek investment-banking related compensation from the company or companies mentioned in this report within the next three months. Incorporated may not be licensed to execute transactions in all foreign listed securities directly. Transactions in foreign listed securities may be prohibited for residents of the United States. Please contact a Baird representative for more information. Investment Ratings: Outperform (O) - Expected to outperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12 months. Neutral (N) - Expected to perform in line with the broader U.S. equity market over the next 12 months. Underperform (U) - Expected to underperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12 months. Risk Ratings: L - Lower Risk - Higher-quality companies for investors seeking capital appreciation or income with an emphasis on safety. Company characteristics may include: stable earnings, conservative balance sheets, and an established history of revenue and earnings. A - Average Risk - Growth situations for investors seeking capital appreciation with an emphasis on safety. Company characteristics may include: moderate volatility, modest balance-sheet leverage, and stable patterns of revenue and earnings. H - Higher Risk - Higher-growth situations appropriate for investors seeking capital appreciation with the acceptance of risk. Company characteristics may include: higher balance-sheet leverage, dynamic business environments, and higher levels of earnings and price volatility. S - Speculative Risk - High-growth situations appropriate only for investors willing to accept a high degree of volatility and risk. Company characteristics may include: unpredictable earnings, small capitalization, aggressive growth strategies, rapidly changing market dynamics, high leverage, extreme price volatility and unknown competitive challenges. Valuation, Ratings and Risks. The recommendation and price target contained within this report are based on a time horizon of 12 months but there is no guarantee the objective will be achieved within the specified time horizon. Price targets are determined by a subjective review of fundamental and/or quantitative factors of the issuer, its industry, and the security type. A variety of methods may be used to determine the value of a security including, but not limited to, discounted cash flow, earnings multiples, peer group comparisons, and sum of the parts. Overall market risk, interest rate risk, and general economic risks impact all securities. Specific information regarding the price target and recommendation is provided in the text of our most recent research report. Distribution of Investment Ratings. As of June 30, 2016, Baird U.S. Equity Research covered 711 companies, with 51% rated Outperform/Buy, 48% rated Neutral/Hold and 1% rated Underperform/Sell. Within these rating categories, 13% of Outperform/Buy-rated and 5% of Neutral/Hold-rated companies have compensated Baird for investment banking services in the past 12 months and/or Baird managed or co-managed a public offering of securities for these companies in the past 12 months. Analyst Compensation. Analyst compensation is based on: 1) the correlation between the analyst's recommendations and stock price performance; 2) ratings and direct feedback from our investing clients, our institutional and retail sales force (as applicable) and from independent rating services; 3) the analyst's productivity, including the quality of the analyst's research and the analyst's contribution to the growth and development of our overall research effort and 4) compliance with all of Robert W. Baird s internal policies and procedures. This compensation criteria and actual compensation is reviewed and approved on an annual basis by Baird's Research 6

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