Welcome and thank you for standing by. At this time, all participants are in listen-only mode. Today's call is being recorded. If you have any objections you may disconnect at this point. I'll now turn the meeting over to Ms. Kathie Campbell. Ma'am, you may begin

Thank you, Jen, and welcome to the review of John Controls second quarter 2016 earnings call. If you didn't already receive it, the slide presentation can be accessed at our Investor page at johnsoncontrols.com. This morning, President, Chairman and CEO, Alex Molinaroli, will provide perspective on the quarter as well as some progress updates on our transformation. He'll be followed by Executive Vice President and Chief Financial Officer, Brian Stief, who will review the results of the individual businesses as well as the company's overall financial performance. Following those prepared remarks, we will open the call for questions, and we are scheduled to end at the top of the hour. Before we begin, just want to remind you that today's comments will include forward-looking statements that are subject to risks, uncertainties and assumptions that could cause the actual results to be materially different from those expressed or implied by such forward-looking statements. The factors that could cause results to differ are discussed in the cautionary statement included in today's news release and the presentation document. We also remind you to review the extended disclosures related to the proposed transaction with Tyco, which can also be found in the earnings document today. With that, I will turn it over to Alex. Alex A. Molinaroli - Chairman, President & Chief Executive Officer: Great. Thank you, Kathie. Good morning, everyone. So, I'm extremely pleased to talk to you today about our results and our outlook and our future. Before I get started, I'd just like to make a couple of comments. I was reflecting about our discussion at the Analyst Day in December, and I thought I might just spend a couple of minutes reviewing a few things with everyone. In December, we talked about opportunity, opportunity that was in front of Johnson…

Operator, we'll now start the Q&A. We have a long queue today, so if you could please limit it to one question and one follow-up and then get back in the queue, it would be much appreciated. Operator?

Thank you. And our first question comes from the line of Colin Langan from UBS. Your line is now open.

Oh, great. Thanks for taking my question. I guess, my question is pretty straightforward, but any update on the stranded costs post the Adient spin? I think at the Investor Day, you said it was $150 million to $200 million. Is that still the range or is that actually maybe a little worse or better? Brian J. Stief - Chief Financial Officer & Executive Vice President: The $150 million to $200 million is still a good number and we're on track to take those costs out prior to entering fiscal 2017.

And I guess one – and then one maybe a quick follow-up here. Any color on free cash flow conversion? That would be a popular topic among investors. Do you think the 77% is still on track? And you're on track to get it to your midterm of, I think, it was 80%, 85%? Brian J. Stief - Chief Financial Officer & Executive Vice President: Yeah, I think, Colin, when we put the free cash flow conversion slide together at Analyst Day, we did have a couple of pro forma adjustments in there for tax payments that would be one-time related to transactions, but we were $200 million ahead in the second quarter and we're $100 million ahead in the first quarter. Some of that might be a bit of timing, but I think the 77% that we gave you, I like to think there's a bit of upside to that, but we're certainly comfortable with the 77% still. Alex A. Molinaroli - Chairman, President & Chief Executive Officer: Thanks, Colin.

Okay. All right. Thank you very much. I'll get back in the queue.

Thank you. And our next question comes from the line of Josh Pokrzywinski from Buckingham Research. Your line is now open.

Hi. Good morning, guys. Alex A. Molinaroli - Chairman, President & Chief Executive Officer: Good morning. Brian J. Stief - Chief Financial Officer & Executive Vice President: Good morning.

Good morning, Josh.

Just a follow-up on the BE guidance, Alex, I think the 2% to 4% probably more in line with where you guys are tracking on sales and orders. But could you maybe hash out how that looks on an EBIT basis because, clearly, margins are performing better here in the interim? Alex A. Molinaroli - Chairman, President & Chief Executive Officer: Yeah. So I think that what you probably heard and maybe this is a good opportunity to even talk about a little bit is, what you're seeing is, we're seeing an improvement in Hitachi better than what we expected. But one of the things that's causing us a little bit of tentativeness here is we're spending an awful lot of money in the core business outside of the Hitachi joint venture in order to build a pipeline. So our sales efforts in North America, Europe and parts of Asia and South America are outside of the joint venture. And so that will impact our core margins a bit. So when we talk about our margins, it will be very difficult for us to talk about core margins versus consolidated margins, because we're doing stuff in and outside of the joint venture, but I think what we're seeing some – we're seeing leverage on the BE business more than what we expected, even though we're making the investments we're making. I don't know that we have a guidance at this point, but we probably just need to follow up on that.

Okay. That's fair. And then just as a follow-up, I noticed when you guys reiterated the $650 million of synergies, it didn't quite get bucketed out. Should we still think of it as a $500 million of operational, $150 million of tax? And maybe as a corollary to that, you mentioned some of these integration teams coming together and the excitement building. Do think that means that those numbers look conservative? We're realizing them earlier? How should we think about some of that early excitement? Alex A. Molinaroli - Chairman, President & Chief Executive Officer: Well, I think that the early excitement should translate into more synergies. Obviously when you get teams together, they're probably more excited about the revenue opportunities than anything else and that's one of the things that we still haven't talked about and, hopefully, we'll be able to, at a minimum, start giving examples. But what I would say is we want to break out the $650 million. Obviously, the new regulations do have – would have an impact on our tax planning. And so it wasn't without us having to go back and revisit what the tax planning would be to see what we could recover from the new regulations. But I don't know that we're comfortable talking about what the split is, but the new regulations did have an impact on us, but we are going to be able to achieve tax synergies, but they're global tax synergies. It's not always in the U.S. when you look at where our opportunity is. I don't know if you have any more comment on that. Brian J. Stief - Chief Financial Officer & Executive Vice President: Yeah, I would just add to that. When we came up with the synergy numbers of $500 million and $150 million, that was early on in the process and we obviously had ranges around each of those areas; synergies from costs and synergies from taxes. And I would just say that as we've gone back and looked at the opportunities for global tax planning as well as understanding Tyco's tax footprint and their understanding of ours, that the range that we had for tax, we're still very comfortable that we're going to be able to be within the range of tax synergies that we quoted previously. So I think from our standpoint, it's full speed ahead.

Perfect. Thanks for the color, guys.

Thanks, Josh.

Thank you. And our next question comes from the line of Robert Barry from Susquehanna. Your line is now open.

Hey, guys. Good morning. Alex A. Molinaroli - Chairman, President & Chief Executive Officer: Good morning. Brian J. Stief - Chief Financial Officer & Executive Vice President: Good morning, Rob.

Hey, Rob.

I had a question on tax as well. I just wanted to clarify. So, as we think about JCI ex Adient, so the piece that's merging with Tyco, is it going to be joining with Tyco having this 17% tax rate? Is that the idea? Brian J. Stief - Chief Financial Officer & Executive Vice President: Yeah, I think, what we're saying, Rob, is our tax rate in the near term we think is sustainable at 17%. So when I say near term that takes us through fiscal 2017. The Tyco tax rate, I think, has historically been in that 17% to 18% range. So if you put the two companies together and then layer on, over a three-year period, that we think there's $150 million of tax synergies, I think that's kind of the way to think about it. So as we put the two companies together, we're just going to have to kind of work through what the ultimate rate is. But I think we've been talking in terms of 17% to 18%, and I would say that the guide down to JCI of 17% means that we think we may do a little better than that.

Got you. Okay. I just wanted to clarify that. And then maybe just... Alex A. Molinaroli - Chairman, President & Chief Executive Officer: Rob?

Yeah? Alex A. Molinaroli - Chairman, President & Chief Executive Officer: Just wanted to make sure that you also – kind of the news on this was the Adient tax rate was something that we hadn't talked about previously also.

Yes, indeed. And it was pretty striking to see it at that level. So I was curious if somehow the split between the two impacted the way the business would look as it entered the merger. Alex A. Molinaroli - Chairman, President & Chief Executive Officer: No, in fact, a big part of the integration process is to make sure that as we do our planning that we do tax planning during the – I'm sorry, the separation over the last year.

Got you. And then maybe just on BE, it looks like there's definitely some good momentum building there, especially, in North America. I think, Alex, you called out healthcare and education was where you were seeing the strength and so, perhaps, is government a lagging? Any color on the verticals? And then, if you could also just comment on pricing. As this order momentum builds, is the pricing of the backlog, would you say, accretive or dilutive to the segment margins? Thank you. Alex A. Molinaroli - Chairman, President & Chief Executive Officer: I think that – I don't know that (33:04) these are mostly contracts, so I think it's really a variable margin play. I don't know that we're really looking at a fixed cost play. So I do think that it's accretive. Now, it's going to come down to the mix of the size of projects. Typically, the larger the project, the lower the margin, but also, it has lower SG&A to go along with that. So I think that we're going to see accretive – the business is going to be accretive as volume runs through it, particularly, as we have pull-through. Again, a lot of this business is not performance contracting business, so a lot of this business is core construction business, which means it's going to drag along equipment and controls, which will have an accretive component to our business. Those are real positives. The other thing that I'd say is around the verticals. We talk about transportation, I would call that really more of a state and local government vertical, which is infrastructure related. That seems to be holding up; education, healthcare. We're also – and we didn't talk about it in our comments, we're also seeing in our commercial business is doing pretty well, and that's really on the back of our CBRE business. We're seeing significant orders through our relationship with CB Richard Ellis. So, we're hitting on a lot of key initiatives and the market seems to be holding up with an 8% pipeline in front of us.

Great. Thank you.

Thank you. And our next question comes from the line of Mike Wood from Macquarie Capital. Your line is now open.

Hi. Thanks for that color on the commercial verticals. Could you also provide some trends on commercial in terms of split between renovation activity and new construction and what you're seeing in the pipeline? And also maybe the various size tonnage equipment and where you're seeing most of that pipeline come from? Thank you. Alex A. Molinaroli - Chairman, President & Chief Executive Officer: Well, so this is kind of a global picture. If you look at from a global perspective, actually, our large tonnage business is not doing well as more of our mid-market or mid-tonnage spends. And that's primarily driven by markets like the Middle East, markets that are driven by infrastructure spending. When you look at North America, I think what we're seeing is, basically, the same thing. It's kind of a mid-market on revenue, but on the secured, there's some very, very large infrastructure projects. So I think, today, our mix would probably be more toward mid-size equipment. I think that the secured pipeline is looking toward larger projects and larger tonnage.

And you'd mentioned Hitachi exceeding expectations initially. Is that sales or margins? And do you have a clear plan at this point now with how to fix the resi business or has that began? Alex A. Molinaroli - Chairman, President & Chief Executive Officer: So, I would tell you, on the Hitachi, we're seeing both the top line has been something that's been a pleasant surprise. Tremendous growth, particularly, in the Asian markets in market share, and we're also seeing margins better than what we expected. So I think, on both counts, we're seeing with Hitachi. As it relates to residential, right now, the plan that we have in residential, we have a lot of new products that are out in the marketplace. We're making some initiatives, but nothing transformative at this point.

Thank you.

Thanks, Mike.

Thank you. And our next question comes from the line of Julian Mitchell from Credit Suisse. Your line is now open. Julian Mitchell - Credit Suisse Securities (USA) LLC (Broker): Hi. Thank you. Just a first question maybe on Power Solutions. You had obviously enjoyed exceptional margin expansion and then, obviously, that seems to be sort of leveling out a little bit. I just wondered if you could call out how severe and how long do you expect the headwind from those China launch costs to be? Was that sort of a blip that you saw in Q2 and the second half margin expansion should be more considerable? Any color there? Brian J. Stief - Chief Financial Officer & Executive Vice President: Yeah. So when we talked at the December meeting, we actually guided margins down 50 basis points from 17.5% to 17%, and I think we called out at that meeting there was going to be some China launch costs, certainly, throughout fiscal 2016. So, we're starting to see those now. Even with those, we had a 10-basis point improvement in Power Solutions margins, and year-to-date, they're still up pretty strong. So there will be more of that in the second half of the year. And then, as you know, we're also in the middle of constructing a plant in the north in China, and so I think the investment and some of the launch costs in China we're going to continue to see for a period of time. But I would tell you, sitting here today, when we look at the margins for Power Solutions, the 17% that we guided to in December, we're well ahead of that pace right now for fiscal 2016. Julian Mitchell - Credit Suisse Securities (USA) LLC (Broker): Got it. Thank you. And…

Thanks, Julian.

Thank you. And our next question comes from the line of Jeffrey Sprague from Vertical Research Partners. Your line is now open.

Thank you. Good morning. Alex A. Molinaroli - Chairman, President & Chief Executive Officer: Good Morning, Jeff.

Good Morning, Jeff.

Hey. A couple of follow-ups. First, just on the Target deal, I'm intrigued by that. Your name doesn't usually come to top of mind when I'm thinking kind of big retail retrofit job, so congrats on that. But could you elaborate on what drove that? Was there – it sounds like there were some performance contracting tied to it. And do you have a pipeline of some additional opportunities there? Alex A. Molinaroli - Chairman, President & Chief Executive Officer: No, actually, it wasn't a performance contract, it was more of a – it was based off of energy savings, but it really wasn't a performance contract, and I think that what you should see is that, over time, I think we'll continue having more activity there, but it's probably something that we are under-utilizing. I agree. It's something that you don't see a lot. I do think that we have a set of new products that makes us more competitive in that market, so we probably haven't been approaching it aggressively, so, hopefully, you'll see more in the future.

And on the government side, Alex, things have been hung up there for a while. This Navy project broke free. Do you have a decent size front log (40:44) on the U.S. government side in particular? And how do you think that plays out over the balance of the year? Alex A. Molinaroli - Chairman, President & Chief Executive Officer: Yeah, I think we talked about, about $150 million if I remember the recall that got hung up. I think we're going to see about half of that and the Navy project would be in that half as it relates to projects that were hung up. Moving forward, we still have a headwind around the U.S. federal government related to our historical plans. So, we're not really counting on that this year to save our day until we get kind of through this fiscal situation that we have with the U.S. government. But we are glad to see that we were able to get that project freed up. There are probably a few more, but we'll get about half of what we expected.

Yeah. Thank you. And then just a quick one on Adient, should we still be kind of thinking dividend roughly two terms on EBITDA? Alex A. Molinaroli - Chairman, President & Chief Executive Officer: I'm going to let Bruce talk to you about that. Robert Bruce McDonald - Vice Chairman & Executive Vice President: Well, actually, I think, on the slide in the deck here, when we talk about the Adient separation, we're just finally icing that with our advisors. The first turn here of the Form 10, it won't have the dividend in there, but that's something that is top of mind for us and we're working with Brian and his team on that.

All right. Thank you.

Thanks, Jeff.

Thank you. And our next question comes from the line of Richard Kwas from Wells Fargo. Your line is now open.

Hi. Good morning, everyone. Just a follow up on Power, so Start-Stop coming in at 18% for the quarter, that's good growth, but down pretty considerably from the 30% and 40%s run rate that you've been realizing over the last several quarters. Just curious in terms of was there a timing of launches around in North America or China that affected the growth rate. How should we think about the progression of the growth rate? Alex A. Molinaroli - Chairman, President & Chief Executive Officer: Well, two things. One is, the numbers are getting bigger and the second thing is that we're capacity constrained. So, if you remember as we talked about last year, things were happening much quicker than what we expected, and so as we're putting in capacity, we're chasing a little bit here.

And, Alex, are the economics still the same with regards to the price and the margin dollars two times, three times on sales and operating profit, respectively? Alex A. Molinaroli - Chairman, President & Chief Executive Officer: Pretty much. Even though you see the basis volume – you kind of have to look through the numbers, but if you look at our unit growth rate and you look at our margin growth rate, you can sort of see it. There's so many moving parts with lead costs and FX, but we are seeing that, and as we're able to continue that capacity, more and more of that will get realized on the bottom line, but, yeah, we're still seeing it.

Okay. And then just a quick one on Auto for Bruce, so in the deck it says European softness on production here in Q1 or fiscal Q2, I should say. You've had production get raised here recently. Just curious is that a customer-specific issue or what's going on? Robert Bruce McDonald - Vice Chairman & Executive Vice President: It really just relates to some business that we have that's rolling off. So, as you know, the last couple years, we had some business losses that we didn't renew in Europe and so we're just sort of seeing the tail-end of that.

And that would be pure seating, not including Interiors? Robert Bruce McDonald - Vice Chairman & Executive Vice President: Correct.

Okay. All right. Thank you. Alex A. Molinaroli - Chairman, President & Chief Executive Officer: Thanks, Rich.

Thank you. And our next question comes from the line Pat Archambault from Goldman Sachs. Your line is now open. Patrick Archambault - Goldman Sachs & Co.: Great. Thanks, again. Yeah, just two for me. Number one is, what's the pricing like on those seating contracts? It just strikes me as obviously fairly remarkable acceleration, right? To do sort of all of what you did in bookings in a half a year in terms of compared to what you did a year ago in a whole year. Are you finding that the environment is just willing to take in some new orders at reasonable pricing or is this kind of an aggressive push to kind of reassert yourself at your proper share? How should we think about that? Robert Bruce McDonald - Vice Chairman & Executive Vice President: Well, first of all, it's great progress, and I think when you think about the rationale for spinning off the Automotive business, it's really been because we wanted to free up Automotive to reinvest the cash flows to grow the business. And so, if you were to look at our reinvestment ratio in the Auto business compared to our closest North American competitor, what you would see is our reinvestment ratio is about 30% to 40% lower than theirs. And so, our growth has been stunted because of our lack of commitment on future CapEx and engineering expense. So it's not that we are chasing things at lower prices here, it is – our business – and probably the best way to think about (46:01) around for a while is, we have a long 20-year, 30-year track record of aggressive growth in Automotive and we're giving them back the access to resources and let them flourish again. And that's what we're seeing…

Thank you.

Thank you. And our next question comes from the line of Noah Kaye from Oppenheimer. Your line is now open. Noah Kaye - Oppenheimer & Co., Inc. (Broker): Good morning, and thank you. Let's start with Building Efficiency. You had mentioned the new Metasys launch in June. So as you work towards the Tyco merger and the integration, I was wondering to what extent are you already starting to design building automation products for integrating some of their fire and security products and controls? It seems like a good opportunity and just wondering how much of that might be baked into how you think about synergies versus potential upside, and maybe what you think the integration of those product suites will do for your competitive positioning. Alex A. Molinaroli - Chairman, President & Chief Executive Officer: Well, as you probably know, the Metasys platform has been around for a long time. It's an evolving product platform. And it already has an integrating capability with lots of fire alarm products, including products like the Simplex products through open protocols. I think what you're going to see is a much tighter integration. We haven't really gotten into the details of the product planning. You have to remember, we're still two public companies, and there's certain planning that we can't do until we're further along in this process. But, clearly, when we talk about – and I think Tyco talks about their Tyco On product and we talk about Metasys, that's really a convergence of technology that will need an integrating platform. What that really looks like, the opportunity to look under the cover, we really can't do that yet. So I'm excited about that as part of the synergy opportunity. It wouldn't be the near-term synergy opportunity; it would be like the second wave of opportunity. The first wave of opportunity is going to really be cross-selling and commercial opportunity. Noah Kaye - Oppenheimer & Co., Inc. (Broker): We'll look for that. And then just a question on Power Solutions; you mentioned in your guidance for the year, the change in the guidance earlier, just wondering how you think about regional volumes in kind of the remainder of the year, North America, China versus Europe and kind of the puts and takes of that and where you think that might end up impacting pricing. Alex A. Molinaroli - Chairman, President & Chief Executive Officer: I think that the mix will be very similar to what it's been up to this point. We have actually gained share. There's been a little bit of market growth in North America. Europe has had a pretty mild weather. It hasn't lost share, but it's pretty competitive in Europe. And so what I would expect is that our share will continue to grow pivoting toward Asia, specifically China, and we'll see moderate growth in the other regions. Noah Kaye - Oppenheimer & Co., Inc. (Broker): Okay. Great. Thank you very much.

Thanks, Noah.

Thank you. And our last question comes from the line of Joseph Spak from RBC. Your line is now open.

Oh, thanks for squeezing me in here. Just one quick one on, I guess, the Yanfeng JV, where we just get a little transparency. It seems like things have really accelerated there by some of the clues you dropped here; China up 51%, but only 9% ex that JV. And then if you could just sort of back out the margin improvement as well, is that – I guess, is that just the fruits of some increased business, because it seems to be up way more than China production would have otherwise suggested? Robert Bruce McDonald - Vice Chairman & Executive Vice President: I just want to clarify. You're talking about the Interiors joint venture, correct?

Yes. Yeah. Robert Bruce McDonald - Vice Chairman & Executive Vice President: Well, yeah. Keep in mind, Joe, it's a global joint venture. So, roughly speaking, it's a little bit more than 50% is China and the balance of it is North America and Europe, just to remind those on the call that maybe aren't familiar with it. But we – this joint venture, we basically took Johnson Controls' business, which was a global Interiors joint venture, or operation, and combined it with Yanfeng's business, which was almost all in China. I think they had one North American plant. And really, the rationale here was combining the Chinese cost base that they brought and access to low-cost tooling and capital, and marrying it up with our global footprint and our global customer relationships. And what you've sort of seen there is putting that all together, is we've got a business that's got a return on sales of more than 6%. That's somewhat stunted because of the costs that we're incurring to set it up as a separate entity. We see good strong growth and we've got a global business that's growing nicely. And we see the $7 billion of – that's lifetime awards of revenue, so it's not the same as our backlog. But that – if I looked at that backlog, that's the customer validation of the investment thesis and I think if you look underneath that, about two-thirds of the new business is Daimler, BMW and Porsche on business, and that's a global mix, so it's not just winning it in one region. So, great customer acceptance, the marrying of the customer relationships and the cost base, it just has played out perfectly for us and we're real excited about how that venture's starting off year.

And just to confirm that it's the after-tax portion of that JV that you're reporting in that segment income number, right? So, I guess, the difference suggests sort of something about like almost $50 million contribution which just seems to be a little bit higher than, I guess, some of the initial color you had. Robert Bruce McDonald - Vice Chairman & Executive Vice President: Yeah, I don't think the – maybe after the call, Kathie can straighten you out there, but I think it's not quite – I don't think its $50 million from the Interiors joint venture. But your point is actually bigger than you said. All of our Chinese equity income, which is more than $50 million in the quarter is all after-tax income, and I think one of the things that, from a value perspective, is generally speaking I think people give us an EBITDA type multiple on our equity income rather than a PE type multiple, and I think there's lost value there. Brian J. Stief - Chief Financial Officer & Executive Vice President: Yeah, we can walk through the math afterwards, but remember that's a 30% – we've got a 30% interest in that joint venture and you're correct, it is after-tax. So we can walk you through those numbers.

All right. We can take it offline. Thanks. Brian J. Stief - Chief Financial Officer & Executive Vice President: Yeah.

Thanks, Joe. Alex A. Molinaroli - Chairman, President & Chief Executive Officer: Okay.

Alex, closing comments? Alex A. Molinaroli - Chairman, President & Chief Executive Officer: All right. Appreciate it. I thank everyone for joining the call today and I just want to just to mention, just as I always do, but it can't go unmentioned is that how could you not be more proud of our employees and what they're accomplishing. We've got a significant amount of things going on. If you look at the summer we have ahead of us, it's not slowing down, but I think we can see the path to be clear of all this. Things are becoming much more clear for our employees, for our customers, and I think that the execution that they're delivering on is something to really be proud of. So, I just want to thank our employees and I want to appreciate everyone's great, great questions, and sticking with us through this transformation. We're going to be – we're a great company today and we're going to be an even be a greater company, a great two companies when we come out of this. So thanks a lot. Have a great day.

Thank you.

Thank you, speakers. And that concludes today's conference call. Thank you all for joining, and you may now disconnect.