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No. of Recommendations: 3
Before I compose this post into the Abyss of this under-followed company, I want to disclose a few things.

I really like this company and wish I had purchased shares when I was first considering it around $58 this year.
I don't have any financial interest in the stock.
I've been loosely watching it for two years.

A friend who is a little more of a gunslinger than I am with his investing (trading) style recently took out a short position in JCI based on my hunch and research last night which I will get on with in a second.

I was too chicken to do it myself, primarily because I think it is an excellently managed company, but as you'll see, I think something is going on:
All of the following is circumstantial evidence of seemingly unsavory activity, there is no smoking gun here, but I'm going to put it out there, because there are a lot of little things that don't quite add up to my previous view of the company.

SO, Tuesday last week, JCI puts a 1/2 page advert in the journal and Financial times touting stock performance over the last ten years, complete with a chart that is well, incredibly impressive.

I think to myself, "that's wierd, one thing I love about this company is that they don't play that game, they aren't really self-promoting at all, and this add was shameless." I didn't think much more about it for a week.

So THis Tuesday I look in the Journal, and Lo and Behold, the CEO has sold 331,000 shares at $73 and change. #1 on the insider sellers list
-Advert on tuesday, stock sales on wednesday and thursday.

NOW, this sale I asssume was essentially his year end bonus, and he still owns some shares in trusts and in his IRA, AND, He's getting lots more shares soon (at $61 per share,) so don't worry that he's cashing out or cutting and running.

So, Last night, (one week after the insider sales) I find three new 10-Q/A filings that are restatements for the first three quarters of 2005. I assume that a 10-K restatement is forthcoming.

I compared the original filings to the restatements:

The earnings don't change by a penny for the quarters, JCI says that the SEC told them to take a certain subsidiary off of their books and account for it by the equity method. And to break up revenue into more business segments.
(this was announced in NOV. At least the subsidiary stuff)

All that changes significantly is some of the notes, and a tiny proportion of the cash which was given to the subsidiary is no longer on the books, assets and liabilities are down equally, NOTHING TOO Suspicious that I found.

THey also say that the "guarantees" are no longer Guaranteed, but have become different inter-company agreements.

The Quarterlies are restated for three quarters in the notes broken up into Parent, Guarantor, and "Eliminations" the eliminations basically take 21 billion in assets "Investments in subsidiaries" and 21 Billion in Shareholder Equity off the books as far as I can tell.

This was a 27 Billion dollar company in the FT advertisement.

General state of the business:
JCI is the Leader of the pack in Automotive interiors, especially for the big three.
THey have worldwide operations
THey diversified into building controls and batteries in the last few years, but still derived most of their revenue from Auto interiors in 2004-05 (around 77%) and a full 14% of revenue was from GM, 30% from the big three.

The COmpany acquired York air conditioning and heating this year.

Could it be that JCI has DI-Worsified and the earnings are going to suffer from indigestion? Moody's and S+P both cut JCI's debt ratings slightly due to the new debt from the acquisition of York.

Or is the company Rock solid going into A new business Climate with strong new territory in Batteries and Building systems.

Before the coincidence of the insider sale and the out of the blue advertisement, I was pretty sure that JCI was a Buffett company, and looking for an entry point.

Now, I don't know.

What do you think?
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