Company Quick10K Filing
Quick10K
Johnson Controls
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$33.77 910 $30,720
10-Q 2018-12-31 Quarter: 2018-12-31
10-K 2018-09-30 Annual: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-24 Quarter: 2016-06-24
10-Q 2016-03-25 Quarter: 2016-03-25
10-Q 2015-12-25 Quarter: 2015-12-25
8-K 2019-02-01 Earnings, Exhibits
8-K 2019-01-11 Off-BS Arrangement, Exhibits
8-K 2018-12-05 Officers, Exhibits
8-K 2018-11-13 Enter Agreement, Exhibits
8-K 2018-11-08 Earnings, Exhibits
8-K 2018-07-31 Earnings, Exhibits
8-K 2018-06-13 Officers, Exhibits
8-K 2018-05-01 Earnings, Exhibits
8-K 2018-03-12 Regulation FD, Other Events, Exhibits
8-K 2018-03-08 Shareholder Vote
8-K 2018-01-31 Earnings, Exhibits
8-K 2018-01-09 Officers
SERV Servicemaster Global Holdings
STRA Strategic Education
EVH Evolent Health
TISI Team
ASPS Altisource Portfolio Solutions
FC Franklin Covey
CRAI CRA
PFMT Performant Financial
DLPN Dolphin Entertainment
APDN Applied Dna Sciences
JCI 2018-12-31
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.2 q1ex102optionrsupsuagreeme.htm
EX-10.3 q1ex103optionrsuagreements.htm
EX-31.1 q1ex311fy1910-q.htm
EX-31.2 q1ex312fy1910-q.htm
EX-32.1 q1ex32fy1910-q.htm

Johnson Controls Earnings 2018-12-31

JCI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 q1fy1910-q.htm 10-Q Document


 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
 
 
Form 10-Q
 
 
 
 
 
  
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2018
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-13836 
 
 
 
 
 
 
JOHNSON CONTROLS INTERNATIONAL PLC
(Exact name of registrant as specified in its charter) 
 
 
 
 
 
 
Ireland
 
98-0390500
(Jurisdiction of Incorporation)
 
(I.R.S. Employer Identification No.)
 
 
One Albert Quay
Cork, Ireland
(Address of principal executive offices)
353-21-423-5000

(Registrant’s telephone number)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report) 
 
 
 
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
 
 
Accelerated filer
¨

Non-accelerated filer
¨

 
 
Smaller reporting company
¨

 
 
 
 
Emerging growth company
¨

 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Ordinary Shares Outstanding at December 31, 2018
Ordinary Shares, $0.01 par value per share
 
912,713,145
 
 
 
 
 

1


JOHNSON CONTROLS INTERNATIONAL PLC
FORM 10-Q
Report Index

  
Page
Part I. Financial Information
 
 
 
Item 1. Financial Statements (unaudited)
 
 
 
Consolidated Statements of Financial Position at December 31, 2018 and September 30, 2018
 
 
Consolidated Statements of Income for the Three Month Periods Ended December 31, 2018 and 2017
 
 
Consolidated Statements of Comprehensive Income (Loss) for the Three Month Periods Ended December 31, 2018 and 2017
 
 
Consolidated Statements of Cash Flows for the Three Month Periods Ended December 31, 2018 and 2017
 
 
Consolidated Statements of Shareholders' Equity Attributable to
Johnson Controls Ordinary Shareholders for the Three Month Periods Ended December 31, 2018 and 2017
 
 
Notes to Consolidated Financial Statements
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
 
Item 4. Controls and Procedures
 
 
Part II. Other Information
 
 
 
Item 1. Legal Proceedings
 
 
Item 1A. Risk Factors
 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 
Item 6. Exhibits
 
 
Signatures

2



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
Johnson Controls International plc
Consolidated Statements of Financial Position
(in millions, except par value; unaudited)
 
 
 
 
 
December 31, 2018
 
September 30, 2018
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
292

 
$
185

Accounts receivable - net
5,442

 
5,622

Inventories
2,027

 
1,819

Assets held for sale
3,042

 
3,015

Other current assets
1,152

 
1,182

Current assets
11,955

 
11,823

 
 
 
 
Property, plant and equipment - net
3,314

 
3,300

Goodwill
18,291

 
18,381

Other intangible assets - net
6,080

 
6,187

Investments in partially-owned affiliates
887

 
848

Noncurrent assets held for sale
5,159

 
5,188

Other noncurrent assets
2,330

 
3,070

Total assets
$
48,016

 
$
48,797

 
 
 
 
Liabilities and Equity
 
 
 
 
 
 
 
Short-term debt
$
2,319

 
$
1,306

Current portion of long-term debt
1

 
1

Accounts payable
3,273

 
3,407

Accrued compensation and benefits
868

 
1,021

Deferred revenue
1,378

 
1,326

Liabilities held for sale
1,636

 
1,791

Other current liabilities
2,178

 
2,398

Current liabilities
11,653

 
11,250

 
 
 
 
Long-term debt
9,588

 
9,623

Pension and postretirement benefits
569

 
616

Noncurrent liabilities held for sale
201

 
207

Other noncurrent liabilities
4,598

 
4,643

Long-term liabilities
14,956

 
15,089

 
 
 
 
Commitments and contingencies (Note 20)


 


 
 
 
 
Ordinary shares, $0.01 par value
10

 
10

Ordinary A shares, €1.00 par value

 

Preferred shares, $0.01 par value

 

Ordinary shares held in treasury, at cost
(1,543
)
 
(1,053
)
Capital in excess of par value
16,579

 
16,549

Retained earnings
6,136

 
6,604

Accumulated other comprehensive loss
(1,080
)
 
(946
)
Shareholders’ equity attributable to Johnson Controls
20,102

 
21,164

Noncontrolling interests
1,305

 
1,294

Total equity
21,407

 
22,458

Total liabilities and equity
$
48,016

 
$
48,797


The accompanying notes are an integral part of the consolidated financial statements.

3



Johnson Controls International plc
Consolidated Statements of Income
(in millions, except per share data; unaudited)
 
 
 
 
 
Three Months Ended
December 31,
 
2018
 
2017
Net sales
 
 
 
Products and systems
$
3,922

 
$
3,816

Services
1,542

 
1,489

 
5,464

 
5,305

Cost of sales
 
 
 
Products and systems
2,824

 
2,790

Services
915

 
817

 
3,739

 
3,607

 
 
 
 
Gross profit
1,725

 
1,698

 
 
 
 
Selling, general and administrative expenses
(1,438
)
 
(1,319
)
Restructuring and impairment costs

 
(154
)
Net financing charges
(85
)
 
(102
)
Equity income
42

 
47

 
 
 
 
Income from continuing operations before income taxes
244

 
170

 
 
 
 
Income tax provision
108

 
217

 
 
 
 
Income (loss) from continuing operations
136

 
(47
)
 
 
 
 
Income from discontinued operations, net of tax (Note 4)
263

 
318

 
 
 
 
Net income
399

 
271

 
 
 
 
Income from continuing operations attributable to noncontrolling
   interests
29

 
28

 
 
 
 
Income from discontinued operations attributable to noncontrolling
   interests
15

 
13

 
 
 
 
Net income attributable to Johnson Controls
$
355

 
$
230

 
 
 
 
Amounts attributable to Johnson Controls ordinary shareholders:
 
 
 
Income (loss) from continuing operations
$
107

 
$
(75
)
        Income from discontinued operations
248

 
305

Net income
$
355

 
$
230

 
 
 
 
Basic earnings (loss) per share attributable to Johnson Controls
 
 
 
Continuing operations
$
0.12

 
$
(0.08
)
Discontinued operations
0.27

 
0.33

Net income
$
0.39

 
$
0.25

 
 
 
 
Diluted earnings (loss) per share attributable to Johnson Controls
 
 
 
Continuing operations
$
0.12

 
$
(0.08
)
Discontinued operations
0.27

 
0.33

Net income *
$
0.38

 
$
0.25

*
Certain items do not sum due to rounding.
The accompanying notes are an integral part of the consolidated financial statements.

4



Johnson Controls International plc
Consolidated Statements of Comprehensive Income (Loss)
(in millions; unaudited)
 
 
 
 
 
Three Months Ended
December 31,
 
2018
 
2017
 
 
 
 
Net income
$
399

 
$
271

 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation adjustments
(118
)
 
79

Realized and unrealized gains (losses) on derivatives
2

 
(1
)
 
 
 
 
Other comprehensive income (loss)
(116
)
 
78

 
 
 
 
Total comprehensive income
283

 
349

 
 
 
 
Comprehensive income attributable to noncontrolling interests
54

 
60

 
 
 
 
Comprehensive income attributable to Johnson Controls
$
229

 
$
289


The accompanying notes are an integral part of the consolidated financial statements.

5



Johnson Controls International plc
Consolidated Statements of Cash Flows
(in millions; unaudited)
 
Three Months Ended December 31,
 
2018
 
2017
Operating Activities of Continuing Operations
 
 
 
Net income (loss) from continuing operations attributable to Johnson Controls
$
107

 
$
(75
)
Income from continuing operations attributable to noncontrolling interests
29

 
28

Net income (loss) from continuing operations
136

 
(47
)
Adjustments to reconcile net income (loss) from continuing operations to cash used by operating activities:
 
 
 
Depreciation and amortization
211

 
210

Pension and postretirement benefit income
(29
)
 
(36
)
Pension and postretirement contributions
(21
)
 
(23
)
Equity in earnings of partially-owned affiliates, net of dividends received
(36
)
 
(33
)
Deferred income taxes
43

 
(80
)
Non-cash restructuring and impairment charges

 
28

Gain on Scott Safety business divestiture

 
(114
)
Equity-based compensation
18

 
27

Other - net
10

 

Changes in assets and liabilities, excluding acquisitions and divestitures:
 
 
 
Accounts receivable
146

 
(10
)
Inventories
(222
)
 
(196
)
Other assets
(63
)
 
(137
)
Restructuring reserves
(25
)
 
96

Accounts payable and accrued liabilities
(226
)
 
(259
)
Accrued income taxes
(21
)
 
441

Cash used by operating activities from continuing operations
(79
)
 
(133
)
 
 
 
 
Investing Activities of Continuing Operations
 
 
 
Capital expenditures
(153
)
 
(114
)
Sale of property, plant and equipment
2

 
5

Acquisition of businesses, net of cash acquired
(13
)
 

Business divestitures, net of cash divested
6

 
2,011

Proceeds (payments) for equity swap
7

 
(15
)
Changes in long-term investments
15

 
(7
)
Cash provided (used) by investing activities from continuing operations
(136
)
 
1,880

 
 
 
 
Financing Activities of Continuing Operations
 
 
 
Increase in short-term debt - net
1,014

 
292

Increase in long-term debt

 
885

Repayment of long-term debt

 
(2,233
)
Debt financing costs

 
(4
)
Stock repurchases
(467
)
 
(150
)
Payment of cash dividends
(240
)
 
(232
)
Proceeds from the exercise of stock options
13

 
16

Employee equity-based compensation withholding taxes
(21
)
 
(24
)
Dividends paid to noncontrolling interests
(43
)
 

Cash provided (used) by financing activities from continuing operations
256

 
(1,450
)
 
 
 
 
Discontinued Operations
 
 
 
Cash provided by operating activities
193

 
6

Cash used by investing activities
(66
)
 
(121
)
Cash provided (used) by financing activities
(11
)
 
10

Cash provided (used) by discontinued operations
116

 
(105
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(43
)
 
17

Change in cash held for sale
(2
)
 
10

Increase in cash, cash equivalents and restricted cash
112

 
219

Cash, cash equivalents and restricted cash at beginning of period
200

 
332

Cash, cash equivalents and restricted cash at end of period
312

 
551

Less: Restricted cash
20

 
18

Cash and cash equivalents at end of period
$
292

 
$
533


The accompanying notes are an integral part of the consolidated financial statements.

6




Johnson Controls International plc
Consolidated Statements of Shareholders' Equity Attributable to Johnson Controls Ordinary Shareholders
(in millions, except per share data; unaudited)
 
Total
 
Ordinary
Shares
 
Capital in
Excess of
Par Value
 
Retained
Earnings
 
Treasury
Stock,
at Cost
 
Accumulated
Other
Comprehensive Loss
At September 30, 2017
$
20,447

 
$
9

 
$
16,390

 
$
5,231

 
$
(710
)
 
$
(473
)
Comprehensive income
289

 

 

 
230

 

 
59

Cash dividends
Ordinary ($0.26 per share)
(242
)
 

 

 
(242
)
 

 

Repurchases of ordinary shares
(150
)
 

 

 

 
(150
)
 

Adoption of ASU 2016-09
179

 

 

 
179

 

 

Other, including options exercised
12

 

 
37

 

 
(25
)
 

At December 31, 2017
$
20,535

 
$
9

 
$
16,427

 
$
5,398

 
$
(885
)
 
$
(414
)

At September 30, 2018
$
21,164

 
$
10

 
$
16,549

 
$
6,604

 
$
(1,053
)
 
$
(946
)
Comprehensive income (loss)
229

 

 

 
355

 

 
(126
)
Cash dividends
Ordinary ($0.26 per share)
(240
)
 

 

 
(240
)
 

 

Repurchases of ordinary shares
(467
)
 

 

 

 
(467
)
 

Adoption of ASC 606
(45
)
 

 

 
(45
)
 

 

Adoption of ASU 2016-01

 

 

 
8

 

 
(8
)
Adoption of ASU 2016-16
(546
)
 

 

 
(546
)
 

 

Other, including options exercised
7

 

 
30

 

 
(23
)
 

At December 31, 2018
$
20,102

 
$
10

 
$
16,579

 
$
6,136

 
$
(1,543
)
 
$
(1,080
)

The accompanying notes are an integral part of the consolidated financial statements.


7


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)


1.
Financial Statements

The consolidated financial statements include the consolidated accounts of Johnson Controls International plc, a corporation organized under the laws of Ireland, and its subsidiaries (Johnson Controls International plc and all its subsidiaries, hereinafter collectively referred to as the "Company" or "Johnson Controls"). In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (which include normal recurring adjustments) necessary to state fairly the financial position, results of operations and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC"). These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2018 filed with the SEC on November 20, 2018. The results of operations for the three month period ended December 31, 2018 are not necessarily indicative of results for the Company’s 2019 fiscal year because of seasonal and other factors.

Nature of Operations

Johnson Controls International plc, headquartered in Cork, Ireland, is a global diversified technology and multi industrial leader serving a wide range of customers in more than 150 countries. The Company creates intelligent buildings, efficient energy solutions, integrated infrastructure and next generation transportation systems that work seamlessly together to deliver on the promise of smart cities and communities. The Company is committed to helping our customers win and creating greater value for all of its stakeholders through strategic focus on our buildings and energy growth platforms.

The Building Technologies & Solutions ("Buildings") business is a global market leader in engineering, developing, manufacturing and installing building products and systems around the world, including heating, ventilating, air-conditioning ("HVAC") equipment, HVAC controls, energy-management systems, security systems, fire detection systems and fire suppression solutions. The Buildings business further serves customers by providing technical services (in the HVAC, security and fire-protection space), energy-management consulting and data-driven solutions via its data-enabled business. Finally, the Company has a strong presence in the North American residential air conditioning and heating systems market and is a global market leader in industrial refrigeration products.

The Power Solutions business is a leading global supplier of lead-acid automotive batteries for virtually every type of passenger car, light truck and utility vehicle. The Company serves both automotive original equipment manufacturers and the general vehicle battery aftermarket. The Company also supplies advanced battery technologies to power start-stop, hybrid and electric vehicles. During the first quarter of fiscal 2019, the Company determined that its Power Solutions business met the criteria to be classified as a discontinued operation, which required retrospective application to financial information for all periods presented. Refer to Note 4, "Discontinued Operations" of the notes to consolidated financial statements for further information.

Principles of Consolidation

The consolidated financial statements include the consolidated accounts of Johnson Controls International plc and its subsidiaries that are consolidated in conformity with U.S. GAAP. All significant intercompany transactions have been eliminated. The results of companies acquired or disposed of during the year are included in the consolidated financial statements from the effective date of acquisition or up to the date of disposal. Investments in partially-owned affiliates are accounted for by the equity method when the Company’s interest exceeds 20% and the Company does not have a controlling interest.

Under certain criteria as provided for in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 810, "Consolidation," the Company may consolidate a partially-owned affiliate. To determine whether to consolidate a partially-owned affiliate, the Company first determines if the entity is a variable interest entity ("VIE"). An entity is considered to be a VIE if it has one of the following characteristics: 1) the entity is thinly capitalized; 2) residual equity holders do not control the entity; 3) equity holders are shielded from economic losses or do not participate fully in the entity’s residual economics; or 4) the entity was established with non-substantive voting rights. If the entity meets one of these characteristics, the Company then determines if it is the primary beneficiary of the VIE. The party with the power to direct activities of the

8


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)

VIE that most significantly impact the VIE’s economic performance and the potential to absorb benefits or losses that could be significant to the VIE is considered the primary beneficiary and consolidates the VIE. If the entity is not considered a VIE, then the Company applies the voting interest model to determine whether or not the Company shall consolidate the partially-owned affiliate.

The Company did not have a significant variable interest in any consolidated or nonconsolidated VIEs in its continuing operations for the presented reporting periods.

Restricted Cash

At December 31, 2018, the Company held restricted cash of approximately $20 million, all of which was recorded within other current assets in the consolidated statements of financial position. These amounts were related to cash restricted for payment of asbestos liabilities. At September 30, 2018, the Company held restricted cash of approximately $15 million, of which $6 million was recorded within other current assets in the consolidated statements of financial position and $9 million was recorded within other noncurrent assets in the consolidated statements of financial position.

Retrospective Changes

During the first quarter of fiscal 2019, the Company determined that its Power Solutions business met the criteria to be classified as a discontinued operation, which required retrospective application to financial information for all periods presented. Refer to Note 4, "Discontinued Operations" of the notes to consolidated financial statements for further information regarding the Company's discontinued operations.

In November 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)." The ASU requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU No. 2016-18 was effective retrospectively for the quarter ended December 31, 2018. The impact of this guidance did not have a significant impact on the Company's consolidated financial statements for the periods presented.

In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments." ASU No. 2016-15 provides clarification guidance on eight specific cash flow presentation issues in order to reduce the diversity in practice. ASU No. 2016-15 was effective retrospectively for the Company for the quarter ending December 31, 2018. The adoption of this guidance had an impact on the presentation of equity swap funding and settlement activities since the activity changed from an operating activity to an investing activity.

2. 
New Accounting Standards

Recently Adopted Accounting Pronouncements

On August 17, 2018, the SEC issued the final rule under SEC Release No. 33-10532, "Disclosure Update and Simplification," that amends certain of its disclosure requirements that have become redundant, duplicative, overlapping, outdated or superseded. The final rule extends to interim periods the annual disclosure requirement of presenting changes in each caption of stockholders' equity and the amount of dividends per share. These disclosures are required to be provided for the current and comparative interim periods. As a result, the Company has included the Consolidated Statements of Shareholders' Equity Attributable to Johnson Controls Ordinary Shareholders for the three month periods ended December 31, 2018 and 2017 in this quarterly report on Form 10-Q.

In March 2018, the FASB issued ASU No. 2018-05, "Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118," to add various SEC paragraphs pursuant to the issuance of SEC Staff Accounting Bulletin No. 118 ("SAB 118") to ASC 740 "Income Taxes." SAB 118 was issued by the SEC in December 2017 to provide immediate guidance for accounting implications of U.S. Tax Reform under the "Tax Cuts and Jobs Act" in the period of enactment. SAB 118 provides for a provisional one year measurement period for entities to finalize their accounting for certain income tax effects related to the "Tax Cuts and Jobs Act." The Company applied this guidance to its consolidated financial

9


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)

statements and related disclosures beginning in the first quarter of fiscal 2018. In the first quarter of fiscal 2019, the Company completed its analysis of all enactment-date income tax effects of the U.S. tax law change. Refer to Note 9, "Income Taxes," of the notes to consolidated financial statements for further information.

In March 2017, the FASB issued ASU No. 2017-07, "Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." The ASU requires the service cost component of net periodic benefit cost to be presented with other compensation costs. The other components of net periodic benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The ASU also allows only the service cost component of net periodic benefit cost to be eligible for capitalization. ASU No. 2017-07 was effective for the quarter ended December 31, 2018. The guidance was effective retrospectively except for the capitalization of the service cost component which was applied prospectively. The adoption of this guidance did not have a significant impact on the Company's consolidated financial statements as the Company does not present a subtotal of income from operations within its consolidated statements of income.

In October 2016, the FASB issued ASU No. 2016-16, "Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory." The ASU requires the tax effects of all intra-entity sales of assets other than inventory to be recognized in the period in which the transaction occurs. The guidance was effective for the Company for the quarter ending December 31, 2018. The changes were applied by means of a cumulative-effect adjustment which resulted in a reduction to retained earnings and other noncurrent assets of $546 million.

In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." ASU No. 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments, including marketable securities. Additionally in February 2018, the FASB issued ASU No. 2018-03, "Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," which provides additional clarification on certain topics addressed in ASU No. 2016-01. ASU No. 2016-01 and ASU No. 2018-03 were effective for the Company for the quarter ending December 31, 2018. The changes were applied by means of a cumulative-effect adjustment which resulted in an increase to retained earnings of $8 million. The new standard requires the mark-to-market of marketable securities investments previously recorded within accumulated other comprehensive income on the statement of financial position be recorded in the statement of income on a prospective basis beginning as of the adoption date. As these restricted investments do not relate to the underlying operating performance of its business, the Company’s definition of segment earnings excludes the mark-to-market adjustments beginning in the first quarter of fiscal 2019. Refer to Note 18, "Segment Information," of the notes to consolidated financial statements for further information.

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." ASU No. 2014-09 and its related amendments (collectively, the “New Revenue Standard”) clarify the principles for recognizing revenue when an entity either enters into a contract with customers to transfer goods or services or enters into a contract for the transfer of non-financial assets. The Company adopted the New Revenue Standard on October 1, 2018 using a modified retrospective approach. Under the New Revenue Standard, revenue recognition is mostly consistent with the previous guidance, with the exception of the Power Solutions business, which is now reported as a discontinued operation beginning in the first quarter of fiscal 2019. Within the Power Solutions business, certain customers return battery cores which are now included in the transaction price as noncash consideration. The New Revenue Standard did not have a material impact on the Company’s consolidated statements of financial position, consolidated statements of income or its consolidated statements of cash flows. As of October 1, 2018, the Company applied the New Revenue Standard to contracts that were not completed as of this date and recognized a cumulative-effect adjustment of a reduction to retained earnings of $45 million, which relates primarily to deferred revenue recorded for certain battery core returns that represent a material right provided to customers. The prior period comparative information has not been restated and continues to be reported under the previous guidance.

The impact of adoption of the New Revenue Standard to the Company's consolidated statement of income for the three months ended December 31, 2018 for continuing operations was an increase to net sales of approximately $1 million, with the impact to income before taxes of less than $1 million. The impact of adoption of the New Revenue Standard to the Company's consolidated statement of income for the three months ended December 31, 2018 for discontinued operations was an increase to net sales of $318 million, with an immaterial impact to income from discontinued operations, net of tax.


10


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)

The impact of adoption of the New Revenue Standard to the Company's consolidated statement of financial position as of December 31, 2018 is as follows (in millions):

 
December 31, 2018
 
As reported
 
Under previous accounting guidance
 
Impact from adopting the New Revenue Standard
Consolidated Statement of Financial Position
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Accounts receivable - net
$
5,442

 
$
5,476

 
$
(34
)
Inventories
2,027

 
2,041

 
(14
)
Assets held for sale
3,042

 
3,032

 
10

Other current assets
1,152

 
1,174

 
(22
)
Property, plant and equipment - net
3,314

 
3,274

 
40

Noncurrent assets held for sale
5,159

 
5,153

 
6

Other noncurrent assets
2,330

 
2,303

 
27

 
 
 
 
 
 
Liabilities and Equity
 
 
 
 
 
 
 
 
 
 
 
Deferred revenue
1,378

 
1,369

 
9

Liabilities held for sale
1,636

 
1,597

 
39

Retained earnings
6,136

 
6,171

 
(35
)
 
 
 
 
 
 

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." ASU No. 2016-02 requires recognition of operating leases as lease assets and liabilities on the balance sheet, and disclosure of key information about leasing arrangements. The original standard was effective retrospectively for the Company for the quarter ending December 31, 2019 with early adoption permitted; however in July 2018 the FASB issued ASU No. 2018-11, "Leases (Topic 842): Targeted Improvements," which provides an additional transition method that permits changes to be applied by means of a cumulative-effect adjustment recorded in retained earnings as of the beginning of the fiscal year of adoption. The Company has elected this transition method at the adoption date of October 1, 2019. The FASB further amended Topic 842 by issuing ASU No. 2018-01, "Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842," which provides an optional transition practical expedient for existing or expired land easements that were not previously recorded as leases, ASU No. 2018-10, "Codification Improvements to Topic 842, Leases," and ASU No. 2018-20, "Leases (Topic 842): Narrow-Scope Improvements for Lessors." The Company is currently assessing the impact adoption of this guidance will have on its consolidated financial statements. The Company has started the assessment process by evaluating the population of leases under the revised definition of what qualifies as a leased asset. The Company is the lessee under various agreements for facilities and equipment that are currently accounted for as operating leases. The new guidance will require the Company to record operating leases on the balance sheet with a right-of-use asset and corresponding liability for future payment obligations. The Company expects the new guidance will have a material impact on its consolidated statements of financial position for the addition of right-of-use assets and lease liabilities, but the Company does not expect it to have a material impact on its consolidated statements of income and its consolidated statements of cash flows.
Other recently issued accounting pronouncements are not expected to have a material impact on the Company's consolidated financial statements.

11


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)


3.
Acquisitions and Divestitures

In the first quarter of fiscal 2019, the Company completed an acquisition for a purchase price of $13 million, all of which was paid as of December 31, 2018. The acquisition was not material to the Company's consolidated financial statements. In connection with the acquisition, the Company recorded goodwill of $9 million within the Global Products segment.

In the first quarter of fiscal 2019, the Company completed certain divestitures within the Global Products business. The combined selling price was $6 million, all of which was received as of December 31, 2018. The divestitures in the aggregate were not material to the Company's consolidated financial statements.

In the first quarter of fiscal 2018, the Company completed the sale of its Scott Safety business to 3M Company. The selling price, net of cash divested, was $2.0 billion, all of which was received as of December 31, 2017. In connection with the sale, the Company recorded a pre-tax gain of $114 million within selling, general and administrative expenses in the consolidated statements of income and reduced goodwill in the consolidated statements of financial position by $1.2 billion. The gain, net of tax, recorded was $84 million. Net cash proceeds from the transaction of approximately $1.9 billion were used to repay a significant portion of the Tyco International Holding S.a.r.L.'s ("TSarl") $4.0 billion of merger-related debt.

4.
Discontinued Operations

On November 13, 2018, the Company entered into a Stock and Asset Purchase Agreement (“Purchase Agreement”) with BCP Acquisitions LLC (“Purchaser”). The Purchaser is a newly-formed entity controlled by investment funds managed by Brookfield Capital Partners LLC. Pursuant to the Purchase Agreement, on the terms and subject to the conditions therein, the Company has agreed to sell, and Purchaser has agreed to acquire, the Company’s Power Solutions business for a purchase price of $13.2 billion. Net cash proceeds are expected to be $11.4 billion after tax and transaction-related expenses. The transaction is expected to close by June 30, 2019, subject to customary closing conditions and required regulatory approvals.

During the first quarter of fiscal 2019, the Company determined that its Power Solutions business met the criteria to be classified as a discontinued operation and, as a result, Power Solutions' historical financial results are reflected in the Company's consolidated financial statements as a discontinued operation, and assets and liabilities were retrospectively reclassified as assets and liabilities held for sale. The Company did not allocate any general corporate overhead to discontinued operations.

The following table summarizes the results of Power Solutions reclassified as discontinued operations for the three month periods ended December 31, 2018 and 2017 (in millions):
 
Three Months Ended
December 31,
 
2018
 
2017
 
 
 
 
Net sales
$
2,427

 
$
2,130

 
 
 
 
Income from discontinued operations before income taxes
390

 
368

Provision for income taxes on discontinued operations
(127
)
 
(50
)
Income from discontinued operations attributable to noncontrolling interests, net of tax
(15
)
 
(13
)
Income from discontinued operations
$
248

 
$
305


For the three months ended December 31, 2018, the income from discontinued operations before income taxes included transaction costs of $28 million and a favorable impact of $32 million for ceasing depreciation and amortization expense as the business was held for sale. The increase in net sales for the three months ended December 31, 2018 was primarily due to the impact of the adoption of the New Revenue Standard. Refer to Note 2, "New Accounting Standards," of the notes to consolidated financial statements for further information.


12


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)

For the three months ended December 31, 2018, the effective tax rate was more than the Irish statutory rate of 12.5% primarily due to establishment of a deferred tax liability on the outside basis difference of the Company’s investment in certain subsidiaries related to the planned divestiture of the business and tax rate differentials. For the three months ended December 31, 2017, the effective tax rate was more than the Irish statutory rate of 12.5% primarily due to tax rate differentials.

Assets and Liabilities Held for Sale

The following table summarizes the carrying value of the Power Solutions assets and liabilities held for sale at December 31, 2018 and September 30, 2018 (in millions):
 
December 31, 2018
 
September 30, 2018
 
 
 
 
Cash
$
17

 
$
15

Accounts receivable - net
1,466

 
1,443

Inventories
1,370

 
1,405

Other current assets
189

 
152

Assets held for sale
$
3,042

 
$
3,015

 
 
 
 
Property, plant and equipment - net
$
2,900

 
$
2,871

Goodwill
1,085

 
1,092

Other intangible assets - net
156

 
161

Investments in partially-owned affiliates
463

 
453

Other noncurrent assets
555

 
611

Noncurrent assets held for sale
$
5,159

 
$
5,188

 
 
 
 
Short-term debt
$
7

 
$
9

Current portion of long-term debt
23

 
25

Accounts payable
1,048

 
1,237

Accrued compensation and benefits
94

 
125

Deferred revenue
40

 

Other current liabilities
424

 
395

Liabilities held for sale
$
1,636

 
$
1,791

 
 
 
 
Long-term debt
$
30

 
$
31

Pension and postretirement benefits
101

 
101

Other noncurrent liabilities
70

 
75

Noncurrent liabilities held for sale
$
201

 
$
207


5.
Revenue Recognition

The Company designs, manufactures and installs building products and systems around the world, including HVAC equipment, HVAC controls, energy-management systems, security systems, fire detection systems and fire suppression solutions. The Company also provides energy efficiency solutions and technical services, including inspection, scheduled maintenance, and repair and replacement of mechanical and control systems.

The Company recognizes revenue from certain long-term contracts to design, manufacture and install building products and systems as well as unscheduled repair or replacement services on an over time basis, with progress towards completion measured using a cost-to-cost input method based on the relationship between actual costs incurred and total estimated costs at completion. The cost-to-cost input method is used as it best depicts the transfer of control to the customer that occurs as the Company incurs costs. Changes to the original estimates may be required during the life of the contract and such estimates are reviewed monthly. If contract modifications result in additional goods or services that are distinct from those transferred before the modification, they are accounted for prospectively as if the Company entered into a new contract. If the goods or

13


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)

services in the modification are not distinct from those in the original contract, sales and gross profit are adjusted using the cumulative catch-up method for revisions in estimated total contract costs and contract values. Estimated losses are recorded when identified. Claims against customers are recognized as revenue upon settlement. The Company elected the practical expedient which permits the promised amount of consideration to not be adjusted for the effects of a significant financing component as at contract inception the Company expects to receive the payment within the twelve months of transfer of goods or services.

The Company enters into extended warranties and long-term service and maintenance agreements with certain customers. For these arrangements, revenue is recognized over time on a straight-line basis over the respective contract term.

The Company also sells certain HVAC and refrigeration products and services in bundled arrangements with multiple performance obligations, such as equipment, commissioning, service labor and extended warranties. Approximately four to twelve months separate the timing of the first deliverable until the last piece of equipment is delivered, and there may be extended warranty arrangements with duration of one to five years commencing upon the end of the standard warranty period. In addition, the Company sells security monitoring systems that may have multiple performance obligations, including equipment, installation, monitoring services and maintenance agreements. Revenues associated with sale of equipment and related installations are recognized over time on a cost-to-cost input method, while the revenue for monitoring and maintenance services are recognized over time as services are rendered. The transaction price is allocated to each performance obligation based on the relative selling price method. In order to estimate relative selling price, market data and transfer price studies are utilized. If the standalone selling price is not directly observable, the Company estimates the standalone selling price using an adjusted market assessment approach or expected cost plus margin approach. Revenue recognized for security monitoring equipment and installation is limited to the lesser of their allocated amounts under the estimated selling price hierarchy or the non-contingent up-front consideration received at the time of installation, since collection of future amounts under the arrangement with the customer is contingent upon the delivery of monitoring and maintenance services. For transactions in which the Company retains ownership of the subscriber system asset, fees for monitoring and maintenance services are recognized over time on a straight-line basis over the contract term. Non-refundable fees received in connection with the initiation of a monitoring contract, along with associated direct and incremental selling costs, are deferred and amortized over the estimated life of the contract.

In all other cases, the Company recognizes revenue at the point in time when control over the goods or services transfers to the customer.

The Company considers the contractual consideration payable by the customer and assess variable consideration that may affect the total transaction price, including discounts, rebates, refunds, credits or other similar  sources of variable consideration, when determining the transaction price of each contract. The Company includes variable consideration in the estimated transaction price when it is probable that significant reversal of revenue recognized would not occur when the uncertainty associated with variable consideration is subsequently resolved. These estimates are based on the amount of consideration that the Company expects to be entitled to.

Shipping and handling costs billed to customers are included in sales and the related costs are included in cost of sales when control transfers to the customer. The Company has elected to present amounts collected from customers for sales and other taxes net of the related amounts remitted.


14


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)

Disaggregated Revenue

The following table presents the Company's revenues disaggregated by segment and by product versus services revenue for the three months ended December 31, 2018 (in millions):

 
 
Products & Systems
 
Services
 
Total
Building Solutions North America
 
$
1,321

 
$
795

 
$
2,116

Building Solutions EMEA/LA
 
417

 
490

 
907

Building Solutions Asia Pacific
 
356

 
257

 
613

Global Products
 
1,828

 

 
1,828

 
 
 
 
 
 
 
Total
 
$
3,922

 
$
1,542


$
5,464


The following table presents further disaggregation of Global Products segment revenues by product type for the three months ended December 31, 2018 (in millions):

 
 
Three Months Ended
December 31,
 
 
2018
Building Management
 
$
281

HVAC & Refrigeration Equipment
 
1,285

Specialty
 
262

Total Global Products
 
$
1,828


Contract Balances

Contract assets relate to the Company’s right to consideration for performance obligations satisfied but not billed and consist of unbilled receivable and costs in excess of billings. Contract liabilities relate to customer payments received in advance of satisfaction of performance obligations under the contract. Contract liabilities consist of deferred revenue. Contract balances are classified as assets or liabilities on a contract-by-contract basis at the end of each reporting period. 

The following table presents the location and amount of contract balances in the the Company's consolidated statements of financial position (in millions):

 
 
Location of contract balances
 
December 31, 2018

 
October 1, 2018

Contract assets - current
 
Accounts receivable - net
 
$
1,320

 
$
1,261

Contract assets - noncurrent
 
Other noncurrent assets
 
73

 
85

Contract liabilities - current
 
Deferred revenue
 
(1,378
)
 
(1,335
)
Contract liabilities - noncurrent
 
Other noncurrent liabilities
 
(110
)
 
(113
)
Total
 
 
 
$
(95
)
 
$
(102
)

For the three months ended December 31, 2018, the Company recognized revenue of $712 million that was included in the beginning of period contract liability balance.
  

15


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)

Performance Obligations

A performance obligation is a distinct good, service, or a bundle of goods and services promised in a contract. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. When contracts with customers require significant and complex integration, contain goods or services which are highly interdependent or interrelated, or are goods or services which significantly modify or customize other promises in the contracts and, therefore, are not distinct, then the entire contract is accounted for as a single performance obligation. For any contracts with multiple performance obligations, the contract’s transaction price is allocated to each performance obligation based on the estimated relative standalone selling price of each distinct good or service in the contract. For product sales, each product sold to a customer typically represents a distinct performance obligation.

Performance obligations are satisfied as of a point in time or over time. Performance obligations are supported by contracts with customers, providing a framework for the nature of the distinct goods, services, or bundle of goods and services. The timing of satisfying the performance obligation is typically indicated by the terms of the contract. As of December 31, 2018, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $13.7 billion, of which approximately 60% is expected to be recognized as revenue over the next two years. The remaining performance obligations expected to be recognized in revenue beyond two years primarily relate to large, multi-purpose contracts to construct hospitals, schools and other governmental buildings, which include services to be performed over the building's lifetime, with initial contract terms of 25 to 35 years. Future contract modifications could affect both the timing and the amount of the remaining performance obligations. The Company has applied the practical expedient for certain revenue streams to exclude the value of remaining performance obligations for contracts with an original expected duration of one year or less.

Costs to Obtain or Fulfill a Contract

The Company recognizes the incremental costs incurred to obtain or fulfill a contract with a customer as an asset when these costs are recoverable. These costs consist primarily of sales commissions and bid/proposal costs. Costs to obtain or fulfill a contract are capitalized and amortized to revenue over the period of contract performance.

As of December 31, 2018, the Company recorded the costs to obtain or fulfill a contract of $175 million, of which $91 million is recorded within other current assets and $84 million is recorded within other noncurrent assets in the consolidated statements of financial position.

During the three months ended December 31, 2018, the Company recognized amortization expense of $35 million related to costs to obtain or fulfill a contract. There were no impairment losses recognized in the three months ended December 31, 2018.

6.
Inventories

Inventories consisted of the following (in millions):
 
December 31, 2018
 
September 30, 2018
 
 
 
 
Raw materials and supplies
$
647

 
$
606

Work-in-process
183

 
155

Finished goods
1,197

 
1,058

Inventories
$
2,027

 
$
1,819



16


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)

7.
Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill in each of the Company’s reportable segments for the three month period ended December 31, 2018 were as follows (in millions):
 
 
 
Business Acquisitions
 
Currency Translation and Other
 
 
 
September 30,
 
 
 
December 31,
 
2018
 
 
 
2018
 
 
 
 
 
 
 
 
     Building Solutions North America
$
9,603

 
$

 
$
(31
)
 
$
9,572

     Building Solutions EMEA/LA
1,950

 

 
(37
)
 
1,913

     Building Solutions Asia Pacific
1,235

 

 

 
1,235

     Global Products
5,593

 
9

 
(31
)
 
5,571

Total
$
18,381

 
$
9

 
$
(99
)
 
$
18,291


At September 30, 2018, accumulated goodwill impairment charges included $47 million related to the Building Solutions EMEA/LA - Latin America reporting unit.

The Company’s other intangible assets, primarily from business acquisitions valued based on independent appraisals, consisted of (in millions):
 
December 31, 2018
 
September 30, 2018
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Amortized intangible assets
 
 
 
 
 
 
 
 
 
 
 
Technology
$
1,306

 
$
(279
)
 
$
1,027

 
$
1,317

 
$
(251
)
 
$
1,066

Customer relationships
2,926

 
(649
)
 
2,277

 
2,941

 
(599
)
 
2,342

Miscellaneous
518

 
(201
)
 
317

 
458

 
(185
)
 
273

Total amortized intangible assets
4,750

 
(1,129
)
 
3,621

 
4,716

 
(1,035
)
 
3,681

Unamortized intangible assets
 
 
 
 
 
 
 
 
 
 
 
Trademarks/trade names
2,369

 

 
2,369

 
2,386

 

 
2,386

Miscellaneous
90

 

 
90

 
120

 

 
120

 
2,459

 

 
2,459

 
2,506

 

 
2,506

Total intangible assets
$
7,209

 
$
(1,129
)
 
$
6,080


$
7,222


$
(1,035
)

$
6,187


Amortization of other intangible assets included within continuing operations for the three month periods ended December 31, 2018 and 2017 was $97 million and $92 million, respectively. Excluding the impact of any future acquisitions, the Company anticipates amortization for fiscal 2020, 2021, 2022, 2023 and 2024 will be approximately $388 million, $385 million, $376 million, $362 million and $348 million per year, respectively.


17


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)

8.
Significant Restructuring and Impairment Costs

To better align its resources with its growth strategies and reduce the cost structure of its global operations in certain underlying markets, the Company commits to restructuring plans as necessary.

In fiscal 2018, the Company committed to a significant restructuring plan (2018 Plan) and recorded $255 million of restructuring and impairment costs for continuing operations in the consolidated statements of income. This was the total amount incurred to date and the total amount expected to be incurred for this restructuring plan. The restructuring actions related to cost reduction initiatives in the Company’s Building Technologies & Solutions businesses and at Corporate. The costs consist primarily of workforce reductions, plant closures and asset impairments. Of the restructuring and impairment costs recorded, $113 million related to the Global Products segment, $56 million related to the Building Solutions EMEA/LA segment, $50 million related to Corporate, $20 million related to the Building Solutions North America segment and $16 million related to the Building Solutions Asia Pacific segment. The restructuring actions are expected to be substantially complete in 2020.

Additionally, the Company recorded $8 million of restructuring and impairment costs related to Power Solutions in fiscal 2018. This is reported within discontinued operations.

The following table summarizes the changes in the Company’s 2018 Plan reserve, included within other current liabilities in the consolidated statements of financial position (in millions):
 
Employee Severance and Termination Benefits
 
Long-Lived Asset Impairments
 
Other
 
Total
 
 
 
 
 
 
 
 
Original reserve
$
209

 
$
42

 
$
12

 
$
263

Utilized—cash
(45
)
 

 
(2
)
 
(47
)
Utilized—noncash

 
(42
)
 

 
(42
)
Balance at September 30, 2018
$
164

 
$

 
$
10

 
$
174

Utilized—cash
(12
)
 

 
(3
)
 
(15
)
Transfer to liabilities held for sale
(4
)
 

 

 
(4
)
Balance at December 31, 2018
$
148

 
$

 
$
7

 
$
155


In fiscal 2017, the Company committed to a significant restructuring plan (2017 Plan) and recorded $347 million of restructuring and impairment costs for continuing operations in the consolidated statements of income. This was the total amount incurred to date and the total amount expected to be incurred for this restructuring plan. The restructuring actions related to cost reduction initiatives in the Company’s Building Technologies & Solutions businesses and at Corporate. The costs consist primarily of workforce reductions, plant closures and asset impairments. Of the restructuring and impairment costs recorded, $166 million related to Corporate, $74 million related to the Building Solutions EMEA/LA segment, $59 million related to the Building Solutions North America segment, $32 million related to the Global Products segment and $16 million related to the Building Solutions Asia Pacific segment. The restructuring actions are expected to be substantially complete in fiscal 2019.

Additionally, the Company recorded $20 million of restructuring and impairment costs related to Power Solutions in fiscal 2017. This is reported within discontinued operations.


18


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)

The following table summarizes the changes in the Company’s 2017 Plan reserve, included within other current liabilities in the consolidated statements of financial position (in millions):

 
Employee Severance and Termination Benefits
 
Long-Lived Asset Impairments
 
Other
 
Currency
Translation
 
Total
 
 
 
 
 
 
 
 
 
 
Original reserve
$
276

 
$
77

 
$
14

 
$

 
$
367

Utilized—cash
(75
)
 

 

 

 
(75
)
Utilized—noncash

 
(77
)
 
(1
)
 

 
(78
)
   Adjustment to restructuring reserves
25

 

 

 

 
25

Balance at September 30, 2017
$
226


$


$
13


$


$
239

Utilized—cash
(152
)
 

 
(6
)
 

 
(158
)
Utilized—noncash

 

 

 
(1
)
 
(1
)
Balance at September 30, 2018
$
74

 
$

 
$
7


$
(1
)
 
$
80

Utilized—cash
(2
)
 

 

 

 
(2
)
Utilized—noncash

 

 

 
(2
)
 
(2
)
Transfer to liabilities held for sale
(3
)
 

 

 

 
(3
)
Balance at December 31, 2018
$
69

 
$

 
$
7

 
$
(3
)
 
$
73


In fiscal 2016, the Company committed to a significant restructuring plan (2016 Plan) and recorded $222 million of restructuring and impairment costs for continuing operations in the consolidated statements of income. This was the total amount incurred to date and the total amount expected to be incurred for this restructuring plan. The restructuring actions related to cost reduction initiatives in the Company’s Building Technologies & Solutions businesses and at Corporate. The costs consist primarily of workforce reductions, plant closures, asset impairments and change-in-control payments. Of the restructuring and impairment costs recorded, $161 million related to Corporate, $44 million related to the Global Products segment and $17 million related to the Building Solutions EMEA/LA segment. The restructuring actions are expected to be substantially complete in fiscal 2019. Included in the reserve is $56 million of committed restructuring actions taken by Tyco for liabilities assumed as part of the Tyco acquisition.

Additionally, the Company recorded $398 million of restructuring and impairment costs related to Adient and Power Solutions in fiscal 2016. This is reported within discontinued operations.


19


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)

The following table summarizes the changes in the Company’s 2016 Plan reserve, included within other current liabilities in the consolidated statements of financial position (in millions):

Employee Severance and Termination Benefits
 
Long-Lived Asset Impairments
 
Other
 
Currency
Translation
 
Total
 
 
 
 
 
 
 
 
 
 
Original reserve
$
368

 
$
190

 
$
62

 
$

 
$
620

Acquired Tyco restructuring
     reserves
78

 

 

 

 
78

Utilized—cash
(32
)
 

 

 

 
(32
)
Utilized—noncash

 
(190
)
 
(32
)
 
1

 
(221
)
Balance at September 30, 2016
$
414

 
$

 
$
30

 
$
1

 
$
445

Adient spin-off impact
(194
)
 

 
(22
)
 

 
(216
)
Utilized—cash
(86
)
 

 
(2
)
 

 
(88
)
Utilized—noncash

 

 

 
1

 
1

 Adjustment to restructuring
    reserves
(25
)
 

 

 

 
(25
)
Transfer to liabilities held for sale
(3
)
 

 

 

 
(3
)
Adjustment to acquired Tyco
     restructuring reserves
(22
)
 

 

 

 
(22
)
Balance at September 30, 2017
$
84

 
$

 
$
6

 
$
2

 
$
92

Utilized—cash
(17
)
 

 
(2
)
 

 
(19
)
Balance at September 30, 2018
$
67

 
$

 
$
4

 
$
2

 
$
73

Utilized—cash
(8
)
 

 

 

 
(8
)
Balance at December 31, 2018
$
59

 
$

 
$
4

 
$
2

 
$
65


The Company's fiscal 2018, 2017 and 2016 restructuring plans included workforce reductions of approximately 11,300 employees (9,100 for the Building Technologies & Solutions business and 2,200 for Corporate). Restructuring charges associated with employee severance and termination benefits are paid over the severance period granted to each employee or on a lump sum basis in accordance with individual severance agreements. As of December 31, 2018, approximately 5,000 of the employees have been separated from the Company pursuant to the restructuring plans. In addition, the restructuring plans included twelve plant closures in the Building Technologies & Solutions business. As of December 31, 2018, eight of the twelve plants have been closed.

Company management closely monitors its overall cost structure and continually analyzes each of its businesses for opportunities to consolidate current operations, improve operating efficiencies and locate facilities in close proximity to customers. This ongoing analysis includes a review of its manufacturing, engineering and purchasing operations, as well as the overall global footprint for all its businesses.

9.
Income Taxes

In calculating the provision for income taxes, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances known at each interim period. On a quarterly basis, the actual effective tax rate is adjusted, as appropriate, based upon changed facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter.

The statutory tax rate in Ireland is being used as a comparison since the Company is domiciled in Ireland. For the three months ended December 31, 2018, the Company's effective tax rate for continuing operations was 44% and was higher than the statutory tax rate of 12.5% primarily due to valuation allowance adjustments as a result of tax law changes and tax rate differentials, partially offset by the benefits of continuing global tax planning initiatives. For the three months ended December

20


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)

31, 2017, the Company's effective tax rate for continuing operations was 128% and was higher than the statutory tax rate of 12.5% primarily due to the discrete net impacts of U.S. Tax Reform, the tax impact of the divestiture of the Scott Safety business and tax rate differentials, partially offset by the benefits of continuing global tax planning initiatives and tax audit closures.

Valuation Allowance

The Company reviews the realizability of its deferred tax assets on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or consolidated group recording the net deferred tax asset are considered, along with any other positive or negative evidence. Since future financial results may differ from previous estimates, periodic adjustments to the Company’s valuation allowances may be necessary.

In the first quarter of fiscal 2019, as a result of changes to U.S. tax law, the Company recorded a discrete tax charge of $76 million related to valuation allowance on certain U.S. deferred tax assets.

Uncertain Tax Positions

At September 30, 2018, the Company had gross tax effected unrecognized tax benefits of $2,358 million, of which $2,225 million, if recognized, would impact the effective tax rate. Total net accrued interest at September 30, 2018 was approximately $119 million (net of tax benefit). The interest and penalties accrued during the three months ended December 31, 2018 and 2017 were immaterial. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.

In the first quarter of fiscal 2018, tax audit resolutions resulted in a $25 million net benefit to income tax expense.

In the U.S., fiscal years 2015 through 2016 are currently under exam by the Internal Revenue Service ("IRS") for certain legal entities. Additionally, the Company is currently under exam in the following major non-U.S. jurisdictions:
Tax Jurisdiction
 
Tax Years Covered
 
 
 
Belgium
 
2015 - 2017
China
 
2008 - 2016
France
 
2010 - 2012; 2015 - 2016
Germany
 
2007 - 2016
United Kingdom
 
2012 - 2015

Impacts of Tax Legislation

On December 22, 2017, the “Tax Cuts and Jobs Act” (H.R. 1) was enacted and significantly revised U.S. corporate income tax by, among other things, lowering corporate income tax rates, imposing a one-time transition tax on deemed repatriated earnings of non-U.S. subsidiaries, and implementing a territorial tax system and various base erosion minimum tax provisions.

In connection with the Company’s analysis of the impact of the U.S. tax law changes, the Company recorded a provisional net tax charge of $108 million during fiscal 2018 consistent with guidance prescribed by Staff Accounting Bulletin 118. This provisional net tax charge arises from a benefit of $108 million due to the remeasurement of U.S. deferred tax assets and liabilities, offset by the Company’s tax charge relating to the one-time transition tax on deemed repatriated earnings, inclusive of all relevant taxes, of $216 million. The Company’s estimated benefit of the remeasurement of U.S. deferred tax assets and liabilities increased from $101 million as of December 31, 2017 to $108 million as of September 30, 2018 due to calculation refinement of the Company’s estimated impact. The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21% or the blended fiscal 2018 rate of 24.5%. The Company’s tax charge for transition tax decreased from $305 million as of December 31, 2017 to $216 million as of September 30, 2018 due to further analysis of the Company’s post-1986 non-U.S. earnings and profits (“E&P”) previously

21


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)

deferred from U.S. federal taxation and refinement of the estimated impact of tax law changes. In the first quarter of fiscal 2019, the Company completed its analysis of all enactment-date income tax effects of the U.S. tax law change with no further adjustment to the provisional amounts recorded as of September 30, 2018.

During the three months ended December 31, 2018 and 2017, other tax legislation was adopted in various jurisdictions. These law changes did not have a material impact on the Company's consolidated financial statements.

Other Tax Matters

In the first quarter of fiscal 2018, the Company completed the sale of its Scott Safety business to 3M Company. Refer to Note 3, "Acquisitions and Divestitures," of the notes to consolidated financial statements for additional information. In connection with the sale, the Company recorded a pre-tax gain of $114 million and income tax expense of $30 million.

In the first quarter of fiscal 2018, the Company recorded $154 million of significant restructuring and impairment costs. Refer to Note 8, "Significant Restructuring and Impairment Costs," of the notes to consolidated financial statements for additional information. The restructuring costs generated a $23 million tax benefit, which reflects the Company’s current tax position in these jurisdictions.

10.
Pension and Postretirement Plans

The components of the Company’s net periodic benefit costs from continuing operations associated with its defined benefit pension and postretirement plans, which are primarily recorded in selling, general and administrative expenses in the consolidated statements of income, are shown in the tables below in accordance with ASC 715, "Compensation – Retirement Benefits" (in millions):
 
U.S. Pension Plans
 
Three Months Ended
December 31,
 
2018
 
2017
 
 
 
 
Interest cost
$
25

 
$
23

Expected return on plan assets
(46
)
 
(50
)
Net periodic benefit credit
$
(21
)
 
$
(27
)

 
Non-U.S. Pension Plans
 
Three Months Ended
December 31,
 
2018
 
2017
 
 
 
 
Service cost
$
5

 
$
5

Interest cost
14

 
14

Expected return on plan assets
(27
)
 
(28
)
Net periodic benefit credit
$
(8
)
 
$
(9
)


22


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)

 
Postretirement Benefits
 
Three Months Ended
December 31,
 
2018
 
2017
 
 
 
 
Interest cost
$
2

 
$
2

Expected return on plan assets
(2
)
 
(2
)
Net periodic benefit credit
$

 
$


11.
Debt and Financing Arrangements

Net Financing Charges

The Company's net financing charges line item in the consolidated statements of income for the three months ended December 31, 2018 and 2017 contained the following components (in millions):
 
Three Months Ended
December 31,
 
2018
 
2017
 
 
 
 
Interest expense, net of capitalized interest costs
$
91

 
$
102

Banking fees and bond cost amortization
6

 
7

Interest income
(7
)
 
(7
)
Net foreign exchange results for financing activities
(5
)
 

Net financing charges
$
85

 
$
102



23


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)

12.
Stock-Based Compensation

During September 2016, the Board of Directors of the Company approved amendments to the Johnson Controls International plc 2012 Share and Incentive Plan (the "Plan"). The types of awards authorized by the Plan comprise of stock options, stock appreciation rights, performance shares, performance units and other stock-based compensation awards. The Compensation Committee of the Company's Board of Directors determines the types of awards to be granted to individual participants and the terms and conditions of the awards. Awards are typically granted annually in the Company’s fiscal first quarter. A summary of the stock-based awards granted during the three month periods ended December 31, 2018 and 2017 is presented below:
 
Three Months Ended December 31,
 
2018
 
2017
 
Number Granted
 
Weighted Average Grant Date Fair Value
 
Number Granted
 
Weighted Average Grant Date Fair Value
 
 
 
 
 
 
 
 
Stock options
1,713,733

 
$
5.56

 
1,355,595

 
$
7.05

Restricted stock/units
2,143,457

 
33.39

 
2,051,817

 
37.36

Performance shares
574,716

 
36.28

 
496,478

 
36.31


Stock Options

Stock options are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Stock option awards typically vest between two and three years after the grant date and expire ten years from the grant date.

The fair value of each option is estimated on the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in the following table. The expected life of options represents the period of time that options granted are expected to be outstanding, assessed separately for executives and non-executives. The risk-free interest rate for periods during the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. For fiscal 2019 and fiscal 2018, the expected volatility is based on the historical volatility of the Company’s stock since October 2016 blended with the historical volatility of certain peer companies’ stock prior to October 2016 over the most recent period corresponding to the expected life as of the grant date. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of the Company’s ordinary shares as of the grant date. The Company uses historical data to estimate option exercises and employee terminations within the valuation model.
 
Three Months Ended
December 31,
 
2018
 
2017
Expected life of option (years)
6.4
 
6.5
Risk-free interest rate
2.77%
 
2.28%
Expected volatility of the Company’s stock
21.8%
 
23.7%
Expected dividend yield on the Company’s stock
3.29%
 
2.78%

Restricted (Nonvested) Stock / Units

The Plan provides for the award of restricted stock or restricted stock units to certain employees. These awards are typically share settled unless the employee is a non-U.S. employee or elects to defer settlement until retirement at which point the award would be settled in cash. Restricted awards typically vest over a period of three years from the grant date. The Plan allows for different vesting terms on specific grants with approval by the Board of Directors. The fair value of each share-settled restricted award is based on the closing market value of the Company’s ordinary shares on the date of grant. The fair value of each cash-settled restricted award is recalculated at the end of each reporting period based on the closing market value of the Company's ordinary shares at the end of the reporting period, and the liability and expense are adjusted based on the new fair value.


24


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)

Performance Share Awards

The Plan permits the grant of performance-based share unit ("PSU") awards. The PSUs are generally contingent on the achievement of pre-determined performance goals over a three-year performance period as well as on the award holder's continuous employment until the vesting date. The PSUs are also indexed to the achievement of specified levels of total shareholder return versus a peer group over the performance period. Each PSU that is earned will be settled with shares of the Company's ordinary shares following the completion of the performance period, unless the award holder elected to defer a portion or all of the award until retirement which would then be settled in cash.

The fair value of each PSU is estimated on the date of grant with the use of a Monte Carlo simulation that uses the assumptions noted in the following table. The risk-free interest rate for periods during the contractual life of the PSU is based on the U.S. Treasury yield curve in effect at the time of grant. For fiscal 2019 and fiscal 2018, the expected volatility is based on the historical volatility of the Company’s stock after October 2016 blended with the historical volatility of certain peer companies’ stock prior to October 2016 over the most recent three-year period as of the grant date.
 
Three Months Ended
December 31,
 
2018
 
2017
Risk-free interest rate
2.76%
 
1.92%
Expected volatility of the Company’s stock
22.9%
 
21.7%

13.
Earnings Per Share

The Company presents both basic and diluted earnings per share ("EPS") amounts. Basic EPS is calculated by dividing net income attributable to Johnson Controls by the weighted average number of ordinary shares outstanding during the reporting period. Diluted EPS is calculated by dividing net income attributable to Johnson Controls by the weighted average number of ordinary shares and ordinary equivalent shares outstanding during the reporting period that are calculated using the treasury stock method for stock options, unvested restricted stock and unvested performance share awards. The treasury stock method assumes that the Company uses the proceeds from the exercise of stock option awards to repurchase ordinary shares at the average market price during the period. The assumed proceeds under the treasury stock method include the purchase price that the grantee will pay in the future and compensation cost for future service that the Company has not yet recognized. For unvested restricted stock and unvested performance share awards, assumed proceeds under the treasury stock method would include unamortized compensation cost.


25


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)

The following table reconciles the numerators and denominators used to calculate basic and diluted earnings per share (in millions):
 
Three Months Ended
December 31,
 
2018
 
2017
Income Available to Ordinary Shareholders
 
 
 
Income (loss) from continuing operations
$
107

 
$
(75
)
Income from discontinued operations
248

 
305

Basic and diluted income available to
   shareholders
$
355

 
$
230

 
 
 
 
Weighted Average Shares Outstanding
 
 
 
Basic weighted average shares outstanding
921.6

 
926.1

Effect of dilutive securities:
 
 
 
Stock options, unvested restricted stock and
     unvested performance share awards
3.6

 

Diluted weighted average shares outstanding
925.2

 
926.1

 
 
 
 
Antidilutive Securities
 
 
 
Options to purchase shares
2.7

 


For the three months ended December 31, 2017, the total weighted average of potential dilutive shares due to stock options, unvested restricted stock and unvested performance share awards was 7.2 million. However, these items were not included in the computation of diluted EPS for the three months ended December 31, 2017, since to do so would decrease the loss per share for continuing operations.

During the three months ended December 31, 2018 and 2017, the Company declared dividends of $0.26 per share. The Company paid all dividends in the month subsequent to the end of each fiscal quarter.

26


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)

14.
Equity and Noncontrolling Interests

Other comprehensive income includes activity relating to discontinued operations. The following schedules present changes in consolidated equity attributable to Johnson Controls and noncontrolling interests (in millions, net of tax):
    
 
Three Months Ended December 31, 2018
 
Three Months Ended December 31, 2017
 
Equity
Attributable to
Johnson Controls International plc
 
Equity
Attributable to
Noncontrolling
Interests
 
Total
Equity
 
Equity
Attributable to
Johnson Controls International plc
 
Equity
Attributable to
Noncontrolling
Interests
 
Total
Equity
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance, September 30,
$
21,164

 
$
1,294

 
$
22,458

 
$
20,447

 
$
920

 
$
21,367

Total comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Net income
355

 
44

 
399

 
230

 
28

 
258

Foreign currency translation adjustments
(127
)
 
9

 
(118
)
 
58

 
16

 
74

Realized and unrealized gains on derivatives
1

 
1

 
2

 
1

 
1

 
2

    Other comprehensive income (loss)
(126
)
 
10

 
(116
)
 
59

 
17

 
76

Comprehensive income
229

 
54

 
283

 
289

 
45

 
334

 
 
 
 
 
 
 
 
 
 
 
 
Other changes in equity:
 
 
 
 
 
 
 
 
 
 
 
Cash dividends—ordinary shares
(240
)
 

 
(240
)
 
(242
)
 

 
(242
)
Dividends attributable to noncontrolling
     interests

 
(43
)
 
(43
)
 

 

 

Repurchases of ordinary shares
(467
)
 

 
(467
)
 
(150
)
 

 
(150
)
Adoption of ASC 606
(45
)
 

 
(45
)
 

 

 

Adoption of ASU 2016-16
(546
)
 

 
(546
)
 

 

 

Adoption of ASU 2016-09

 

 

 
179

 

 
179

Other, including options exercised
7

 

 
7

 
12

 

 
12

Ending balance, December 31
$
20,102

 
$
1,305

 
$
21,407

 
$
20,535

 
$
965

 
$
21,500

 
 
 
 
 
 
 
 
 
 
 
 

As previously disclosed, during the quarter ended December 31, 2018, the Company adopted ASC 606, "Revenue from Contracts with Customers." As a result, the Company recorded $45 million to beginning retained earnings, which relates primarily to deferred revenue recorded for the Power Solutions business for certain battery core returns that represent a material right provided to customers.

As previously disclosed, during the quarter ended December 31, 2018, the Company adopted ASU 2016-16, "Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other Than Inventory." As a result, the Company recognized deferred taxes of $546 million related to the tax effects of all intra-entity sales of assets other than inventory on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of October 1, 2018.

As previously disclosed, during the quarter ended December 31, 2017, the Company adopted ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting." As a result, the Company recognized deferred tax assets of $179 million related to certain operating loss carryforwards resulting from the exercise of employee stock options and restricted stock vestings on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of October 1, 2017.

Following the Tyco Merger, the Company adopted, subject to the ongoing existence of sufficient distributable reserves, the existing Tyco International plc $1 billion share repurchase program in September 2016. In December 2017, the Company's Board of Directors approved a $1 billion increase to its share repurchase authorization. In November 2018, the Company's Board of Directors approved an additional $1 billion increase to its share repurchase authorization. The share repurchase

27


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)

program does not have an expiration date and may be amended or terminated by the Board of Directors at any time without prior notice. For the three months ended December 31, 2018 and 2017, the Company repurchased $467 million and $150 million of its ordinary shares, respectively. As of December 31, 2018, approximately $1.6 billion remains available under the share repurchase program.

The Company consolidates certain subsidiaries in which the noncontrolling interest party has within its control the right to require the Company to redeem all or a portion of its interest in the subsidiary. The redeemable noncontrolling interests are reported at their estimated redemption value. Any adjustment to the redemption value impacts retained earnings but does not impact net income. Redeemable noncontrolling interests which are redeemable only upon future events, the occurrence of which is not currently probable, are recorded at carrying value. Beginning in the fourth quarter of fiscal 2018, the Company does not have any subsidiaries for which the noncontrolling interest party has within their control the right to require the Company to redeem any portion of its interests.

The following schedule present changes in the redeemable noncontrolling interests for the three months ended December 31, 2017 (in millions):
Beginning balance, September 30, 2017
$
211

Net income
13

Foreign currency translation adjustments
5

Realized and unrealized losses on derivatives
(3
)
Ending balance, December 31, 2017
$
226

 
 
 
 

28


Johnson Controls International plc
Notes to Consolidated Financial Statements
December 31, 2018
(unaudited)

The following schedules present changes in accumulated other comprehensive income ("AOCI") attributable to Johnson Controls (in millions, net of tax):
 
Three Months Ended
December 31,
 
2018
 
2017
 
 
 
 
Foreign currency translation adjustments ("CTA")
 
 
 
Balance at beginning of period
$
(939
)
 
$
(481
)
Aggregate adjustment for the period (net of tax effect of $0 and $1) *
(127
)
 
58

Balance at end of period
(1,066
)
 
(423
)
 
 
 
 
Realized and unrealized gains (losses) on derivatives
 
 
 
Balance at beginning of period
(13
)
 
6

Current period changes in fair value (net of tax effect of $(2) and $3)
(4
)
 
6

Reclassification to income (net of tax effect of $1 and $(2)) **
5

 
(5
)
Balance at end of period
(12
)
 
7

 
 
 
 
Realized and unrealized gains on marketable securities
 
 
 
Balance at beginning of period
8

 
4

Adoption of ASU 2016-01 ***
(8
)
 

Balance at end of period

 
4

 
 
 
 
Pension and postretirement plans