UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission File Number: 001-13836 

 

(Exact name of registrant as specified in its charter) 

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.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

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

Johnson Controls International plc

Consolidated Statements of Cash Flows

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)("U.S. GAAP") have been omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC)("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, 20162017 filed with the SEC on November 23, 2016, portions of which (including Part I, Item 1. Business and Item 3. Legal Proceedings, and the following items from Part II of the Annual Report: Item 6. Selected Financial Data, Item 7. Management’s Discussion and Analysis, and Item 8. Financial Statements and Supplementary Data) were recast in the Company's Current Report on Form 8-K filed with the SEC on February 23,21, 2017. The results of operations for the three and six month periodsperiod ended MarchDecember 31, 2017 are not necessarily indicative of results for the Company’s 20172018 fiscal year because of seasonal and other factors.

Nature of Operations

In the fourth quarter of fiscal 2016, Johnson Controls, Inc. ("JCI Inc.") and Tyco International plc (“Tyco”("Tyco") completed their combination pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of January 24, 2016, as amended by Amendment No. 1, dated as of July 1, 2016, by and among JCI Inc., Tyco and certain other parties named therein, including Jagara Merger Sub LLC, an indirect wholly owned subsidiary of Tyco (“Merger Sub”). Pursuant to the terms of the Merger Agreement, on September 2, 2016, Merger Sub merged with and into JCI Inc., with JCI Inc. being the surviving corporation in the merger andmerging with a wholly owned,wholly-owned, indirect subsidiary of Tyco (the “Merger”"Merger"). Following the Merger, Tyco changed its name to “Johnson Controls International plc” and JCI Inc. is a wholly-owned subsidiary of Johnson Controls International plc.” The Merger changed the jurisdiction of organization from the United States to Ireland. The domicile to Ireland became effective on September 2, 2016.

On October 31, 2016,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 recently launch data-enabled business. Finally, the Company completed the spin-offis a North American market leader in residential air conditioning and heating systems and a global market leader in industrial refrigeration products.

The Power Solutions business is a leading global supplier of its Automotive Experience business by waylead-acid automotive batteries for virtually every type of the transfer of the Automotive Experience Business from Johnson Controls to Adient plcpassenger car, light truck and utility vehicle. The Company serves both automotive original equipment manufacturers and the issuance of ordinary shares of Adient directly to holders of Johnson Controls ordinary shares on a pro rata basis. Prior to the open of business on October 31, 2016, each of the Company's shareholders received one ordinary share of Adient plc for every 10 ordinary shares of Johnson Controls held as of the close of business on October 19, 2016, the record date for the distribution. Company shareholders received cash in lieu of fractional shares of Adient, if any. Following the separation and distribution, Adient plc is now an independent public company trading on the New York Stock Exchange (NYSE) under the symbol "ADNT."general vehicle battery aftermarket. The Company did not retain any equity interest in Adient plc. Adient’s historical financial results are reflected in the Company’s consolidated financial statements as a discontinued operation. Referalso supplies advanced battery technologies to Note 5, "Discontinued Operations," of the notes to consolidated financial statements for further information.power start-stop, hybrid and electric vehicles.

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)("FASB") 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)("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 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.

Consolidated VIEs    

Based upon the criteria set forth in ASC 810, the Company has determined that it was not the primary beneficiary in any VIEs for the reporting period ended December 31, 2017 and that it was the primary beneficiary in one VIE for the reporting period ended March 31, 2017 and three VIEs for the reporting period ended  September 30, 2016,2017, as the Company absorbsabsorbed significant economics of the entitiesentity and hashad the power to direct the activities that are considered most significant to the entities.

In fiscal 2012, a pre-existing VIE accounted for under the equity method was reorganized into three separate investments as a result of the counterparty exercising its option to put its interest to the Company. The Company acquired additional interests in two of the reorganized group entities. The reorganized group entities are considered to be VIEs as the other owner party has been provided decision making rights but does not have equity at risk. The Company iswas considered the primary beneficiary of one of the entities due to the Company’s power pertaining to decisions over significant activities of the entity. As such, this VIE has beenwas consolidated within the Company’s consolidated statements of financial position.position as of September 30, 2017. The impact of consolidation of the entity on the Company’s consolidated statements of income for the three and six month periods ended MarchDecember 31, 2017 and 2016 waswere not material. During the quarter ended December 31, 2017, certain joint venture agreements were amended, and as a result, the Company can no longer make key operating decisions considered to be most significant to the VIE. As such, the Company is no longer considered the primary beneficiary of this entity, and the Company deconsolidated the entity during the quarter ended December 31, 2017.

The carrying amounts and classification of assets (none of which are restricted) and liabilities included in the Company’s consolidated statements of financial position for the consolidated VIE is as follows (in millions):

As mentioned previously within the "Consolidated VIEs" section above, in fisca1 2012, a pre-existing VIE was reorganized into three separate investments as a result of the counterparty exercising its option to put its interest to the Company. The reorganized group entities are considered to be VIEs as the other owner party has been provided decision making rights but does not have equity at risk. The VIEs are named as a co-obligorco-obligors under a third party debt agreement in the amount of $168$162 million, maturing in fiscal 2020, under which ita VIE could become subject to paying more than its allocated share of the third

party debt in the event of bankruptcy of one or more of the other co-obligors. The other co-obligors, all related parties in which the Company is an equity investor, consist of the remaining group entities involved in the reorganization. As part of the overall reorganization transaction, the Company has also provided financial support to the group entities in the form of loans totaling $37 million, which are subordinate to the third party debt agreement. The Company is a significant customer of certain co-obligors, resulting in a remote possibility of loss. Additionally, the Company is subject to a floor guaranty expiring in fiscal 2022; in the event that the other owner party no longer owns any part of the group entities due to sale or transfer, the Company has guaranteed that the proceeds received from the sale or transfer will not be less than $25 million. The Company has partnered with the group entities to design and manufacture battery components for the Power Solutions business.

The Company did not have a significant variable interest in any other unconsolidated VIEs for the presented reporting periods.

At MarchDecember 31, 2017, the Company held restricted cash of approximately $42$19 million, of which $33$10 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. At September 30, 2017, the Company held restricted cash of approximately $31 million, of which $22 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. These amounts were primarily related to cash restricted for payment of asbestos liabilities. At September 30, 2016, the Company held restricted cash of approximately $88 million, of which $79 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. These amounts were primarily related to cash held in escrow from business divestitures and cash restricted for payment of asbestos liabilities.

Retrospective Changes

In March 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." During the quarter ended December 31, 2017, the Company adopted ASU No. 2016-09. As a result, employee withholding taxes paid to taxing authorities for equity-based compensation transactions, previously classified as cash flows from operating activities, were reclassified to financing activities in the consolidated statements of cash flows for the three months ended December 31, 2016. Refer to Note 2, "New Accounting Standards," of the notes to consolidated financial statements for further information regarding the Company's discontinued operations.

In the first six monthsquarter of fiscal 2017,2018, the Company completed three acquisitions for a combined purchase price, netthe sale of cash acquired, of $9 million, $6 million of which was paid in the six months ended March 31, 2017. The acquisitions in the aggregate were not material to the Company’s consolidated financial statements. In connection with the acquisitions, the Company recorded goodwill of $2 million.

In the secondfirst quarter of fiscal 2017, the Company completed the sale of its ADT security business in South Africa within the Tyco segment. The sellingtwo acquisitions for a combined purchase price, net of cash divested, was $129acquired, of $6 million, all$3 million of which was receivedpaid in the sixthree months ended MarchDecember 31, 2017.2016. The acquisitions in the aggregate were not material to the Company’s consolidated financial statements. In connection with the sale,acquisitions, the Company reducedrecorded goodwill in assets held for sale by $92of $1 million. The divestiture was not material to the Company's consolidated financial statements.

In the first six monthsquarter of fiscal 2017, the Company completed one additional divestiture for a sales price of $4 million, allnone of which was received in the sixthree months ended MarchDecember 31, 2017.2016. The divestiture decreased the Company's ownership from a controlling to noncontrolling interest, and as a result, the Company deconsolidated cash of $5 million.Themillion. The divestiture was not material to the Company's consolidated financial statements.

InDuring the first six monthsquarter of fiscal 2017, the Company received $52 million in net cash proceeds related to prior year business divestitures.

As discussed in Note 1, "Financial Statements," of the notes to consolidated financial statements, onOn October 31, 2016, the Company completed the spin-off of its Automotive Experience business by way of the transfer of the Automotive Experience Businessbusiness from Johnson Controls to Adient plc.plc and the issuance of ordinary shares of Adient directly to holders of Johnson Controls ordinary shares on a pro rata basis. Prior to the open of business on October 31, 2016, each of the Company's shareholders received one ordinary share of Adient plc for every 10 ordinary shares of Johnson Controls held as of the close of business on October 19, 2016, the record date for the distribution. Company shareholders received cash in lieu of fractional shares of Adient, if any. Following the separation and distribution, Adient plc is now an independent public company trading on the New York Stock Exchange ("NYSE") under the symbol "ADNT." The Company did not retain any equity interest in Adient plc. During the first quarter of fiscal 2017, the Company determined that Adient met the criteria to be classified as a discontinued operation and, as a result, Adient’s 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.operation. The Company did not allocate any general corporate overhead to discontinued operations.

The following table summarizes the results of Adient, reclassified as discontinued operations for the sixthree month period ended March 31, 2017, and the three and six month periods ended MarchDecember 31, 2016 (in millions). As the Adient spin-off occurred on October 31, 2016, there is only one month of Adient results included in the sixthree month period ended MarchDecember 31, 2017.2016.

For the sixthree months ended MarchDecember 31, 2017,2016, the income from discontinued operations before income taxes included separation costs of $79 million. For the three and six months ended March 31, 2016, the income from discontinued operations before income taxes included separation costs of $90 million and $160 million, respectively.

For the sixthree months ended MarchDecember 31, 2017,2016, the effective tax rate was more than the U.S. federal statutory rate of 35% primarily due to the tax impacts of separation costs and Adient spin-off related tax expense, partially offset by non-U.S. tax rate differentials. For the three and six months ended March 31, 2016, the effective tax rate was more than the U.S. federal statutory rate of 35% primarily due to $780 million of income tax expense recorded on foreign undistributed earnings of certain non-U.S. subsidiaries, the jurisdictional mix of restructuring and impairment costs, and the tax impacts of separation costs, partially offset by non-U.S. tax rate differentials.

The following table summarizes depreciation and amortization, capital expenditures, and significant operating and investing noncash items related to Adient for the sixthree month period ended March 31, 2017, and the three and six month periods ended MarchDecember 31, 2016 (in millions):

During the second quarter of fiscal 2017, the Company completed the divestiture of its ADT security business in South Africa within the Tyco segment. The assetsAssets and liabilities of this business were presented as heldLiabilities Held for sale in the consolidated statements of financial position as of September 30, 2016. The business did not meet the criteria to be classified as a discontinued operation.Sale

During the second quarter of fiscal 2017, the Company signed a definitive agreement to sell its Scott Safety business of the TycoGlobal Products segment to 3M Company. The transaction is expected to close in the second half of calendar 2017, subject to customary closing conditions including required regulatory approval.closed on October 4, 2017. The assets and liabilities of this business wereare presented as held for sale in the consolidated statements of financial position as of March 31,September 30, 2017. The business did not meet the criteria to be classified as a discontinued operation as the divestiture of the Scott Safety business willdid not have a major effect on the Company’s operations and financial results.

The following table summarizes the carrying value of the Tyco segmentScott Safety assets and liabilities held for sale at March 31, 2017 and September 30, 20162017 (in millions):

At September 30, 2016, $17December 31, 2017, $22 million of certain Corporate assets were classified as held for sale. The assets were sold during the second quarter of fiscal 2017.

The Building Technologies & Solutions business records certain long-term contracts under the percentage-of-completion method of accounting. Under this method, sales and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at completion. The Company records costs and earnings in excess of billings on uncompleted contracts primarily within accounts receivable - net and billings in excess of costs and earnings on uncompleted contracts primarily within other current liabilitiesdeferred revenue in the consolidated statements of financial position. Costs and earnings in excess of billings related to these contracts were $863$975 million and $841$908 million at MarchDecember 31, 2017 and September 30, 2016,2017, respectively. Billings in excess of costs and earnings related to these contracts were $472$567 million and $431$451 million at MarchDecember 31, 2017 and September 30, 2016,2017, respectively.

Inventories consisted of the following (in millions):

At September 30, 2016,2017, accumulated goodwill impairment charges included $47 million related to the Building Efficiency Rest of WorldSolutions EMEA/LA - Latin America reporting unit. The sixthree months ended MarchDecember 31, 2017 TycoGlobal Products business divestiture amount includes $1,261$18 million of goodwill transferred to assets held for sale onin the consolidated statementstatements of financial position. Refer to Note 5,4, "Discontinued Operations," of the notes to consolidated financial statements for further information regarding the Company's assets and liabilities held for sale.

The Company’s other intangible assets, primarily from business acquisitions valued based on independent appraisals, consisted of (in millions):

Amortization of other intangible assets included within continuing operations for the three month periods ended MarchDecember 31, 2017 and 2016 was $126$94 million and $20 million, respectively. Amortization of other intangible assets included within continuing operations for the six month periods ended March 31, 2017 and 2016 was $275 million and $40$149 million, respectively. Excluding the impact of any future acquisitions, the Company anticipates amortization for fiscal 2018, 2019, 2020, 2021, 2022 and 20222023 will be approximately $389$376 million, $376$371 million, $365 million, $359$355 million and $351$346 million per year, respectively.

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

In fiscal 2017,2018, the Company committed to a significant restructuring plan (2017(2018 Plan) and recorded $177$158 million of restructuring and impairment costs in the consolidated statements of income, of which $78 millionincome. This was recorded in the first quarter and $99 million was recorded in the second quarter of fiscal 2017. This is 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 businessand Power Solutions businesses and at Corporate. The costs consist primarily of workforce reductions, plant closures and asset impairments. Of the restructuring and impairment costs recorded, $67 million related to Corporate, $49$76 million related to the TycoGlobal Products segment, $27$32 million related to the Building Efficiency ProductsSolutions EMEA/LA segment, $24 million related to Corporate, $14 million related to the Building Solutions Asia Pacific segment, $8 million related to the Building Solutions North America segment and $4 million related to the Power Solutions segment. The restructuring actions are expected to be substantially complete in 2020.

In fiscal 2017, the Company committed to a significant restructuring plan (2017 Plan) and recorded $367 million of restructuring and impairment costs 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 and Power 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, $20 million related to the Power Solutions segment and $16 million related to the Building Efficiency Rest of World segment, $9 million related to the Building EfficiencySolutions Asia segment and $9 million related to the Building Efficiency Systems and Service North AmericaPacific segment. The restructuring actions are expected to be substantially complete in fiscal 2018.

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):

In fiscal 2016, the Company committed to a significant restructuring plan (2016 Plan) and recorded $288 million of restructuring and impairment costs in the consolidated statements of income. This iswas 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 and Power 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, $66 million related to the Power Solutions segment, $26$44 million related to the Global Products segment and $17 million related to the Building Efficiency Asia segment, $16 million related to the Building Efficiency Rest of World segment, $9 million related to the Building Efficiency Products North America segment, $8 million related to the Tyco segment, and $2 million related to the Building Efficiency Systems and Service North AmericaSolutions EMEA/LA segment. The restructuring actions are expected to be substantially complete in fiscal 2018. Included in the 2016 Planreserve is $74$56 million of committed restructuring actions taken by Tyco for liabilities assumed as part of the Tyco acquisition.

Additionally, the Company recorded $332 million of restructuring and impairment costs within discontinued operations related to Adient in fiscal 2016.

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

The Company's fiscal 2018, 2017 and 2016 restructuring plans included workforce reductions of approximately 4,5009,200 employees (3,900(7,300 for the Building Technologies & Solutions business, 1,700 for Corporate and 600200 for Corporate)Power Solutions). 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 MarchDecember 31, 2017, approximately 9001,800 of the employees have been separated from the Company pursuant to the restructuring plans. In addition, the restructuring plans included twelveeleven plant closures in the Building Technologies & Solutions business. As of MarchDecember 31, 2017, four of the twelveeleven 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.

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 U.S. federal statutory tax rate is being used as a comparison since the Company was a U.S. domiciled company for 11 months of 2016 and due to the Company's current legal entity structure. As a result of recently enacted U.S. Tax Reform, the Company will be subject to a U.S. federal statutory tax rate of 24.5% for its fiscal year ended September 30, 2018, which reflects a blended federal statutory rate of 35% for its first fiscal quarter and 21% for the remaining three fiscal quarters. For the three months ended MarchDecember 31, 2017, the Company's effective tax rate for continuing operations was 129%. The effective tax rate50% and was higher than the blended U.S. federal statutory rate of 35%24.5% primarily due to the establishmentdiscrete net impacts of a deferred tax liability on the outside basis difference of the Company's investment in certain subsidiaries related to the pending divestiture of the Scott Safety business,U.S. Tax Reform, Tyco Merger transaction and integration costs, and the jurisdictional mix of significant restructuring and impairment costs, and Tyco Merger transaction and integration costs, partially offset by the benefits of continuing global tax planning initiatives, and non-U.S. tax rate differentials.

tax rate was higher-7% and was lower than the U.S. federal statutory rate of 35% primarily due to the establishment of a deferred tax liability on the outside basis difference of the Company's investment in certain subsidiaries related to the pending divestiture of the Scott Safety business, the jurisdictional mix of significant restructuring and impairment costs, and Tyco Merger transaction /integration costs and purchase accounting impacts, partially offset by the benefits of continuing global tax planning initiatives, non-U.S. tax rate differentials and a tax benefit due to changes in entity tax status. For the three and six months ended March 31,

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.

Uncertain Tax Positions

At September 30, 2016, exclusive of items included in noncurrent liabilities held for sale,2017, the Company had gross tax effected unrecognized tax benefits of $1,706$2,173 million, of which $1,604$2,047 million, if recognized, would impact the effective tax rate. Total net accrued interest at September 30, 20162017 was approximately $55$99 million (net of tax benefit). The interest and penalties accrued during the sixthree months ended MarchDecember 31, 2017 and 2016 waswere not material. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.

In the U.S.,first quarter of fiscal years 2010 through 2014 are currently under exam by the Internal Revenue Service ("IRS"). Additionally, the2018, tax audit resolutions resulted in a net $25 million benefit to income tax expense.

The Company is currently under exam in the following major non-U.S. jurisdictions:

On October 13, 2016, the U.S. Treasury and the IRSInternal Revenue Service (“IRS”) released final and temporary Section 385 regulations. These regulations address whether certain instruments between related parties are treated as debt or equity. The Company does not expect that the regulations will have a material impact on its consolidated financial statements.

During the sixthree months ended MarchDecember 31, 2017 and 2016, 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 secondfirst quarter of fiscal 2017,2018, the Company recorded a discrete non-cash tax charge of $457 million related to establishment of a deferred tax liability on the outside basis difference of the Company's investment in certain subsidiaries of the Scott Safety business. This business is now reported as net assets held for sale given the announced sale to 3M Company in calendar 2017. Refer to Note 4, "Acquisitions and Divestitures" and Note 5, "Discontinued Operations," of the notes to consolidated financial statements for additional information.

In the secondfirst quarter of fiscal 2017,2018, the Company recorded $99$158 million of significant restructuring and impairment costs. Refer to Note 9,8, "Significant Restructuring and Impairment Costs," of the notes to consolidated financial statements for additional information. The restructuring costs generated a $20$24 million tax benefit, which was impacted by the Company’s current tax position in these jurisdictions.jurisdictions and the lower enacted U.S. tax rate.

In the first quarter of fiscal 2017, the Company recorded a discrete tax benefit of $101 million due to changes in entity tax status.

In the first quarter of fiscal 2017, the Company recorded $130 million of transaction and integration costs which generated an $11 million tax benefit.

In the first quarter of fiscal 2017, the Company recorded $78 million of significant restructuring and impairment costs. Refer to Note 9,8, "Significant Restructuring and Impairment Costs," of the notes to consolidated financial statements for additional information. The restructuring costs generated a $14 million tax benefit, which was impacted by the Company’s current tax position in these jurisdictions.

The components of the Company’s net periodic benefit costs from continuing operations associated with its defined benefit pension and postretirement plans are shown in the tables below in accordance with ASC 715, "Compensation – Retirement Benefits" (in millions):