JOHNSON CONTROLS INTERNATIONAL PLC Cautionary Statements for Forward-Looking Information
Unless otherwise indicated, references to "
The Company has made statements in this document that are forward-looking and therefore are subject to risks and uncertainties. All statements in this document other than statements of historical fact are, or could be, "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In this document, statements regardingJohnson Controls' future financial position, sales, costs, earnings, cash flows, other measures of results of operations, synergies and integration opportunities, capital expenditures and debt levels are forward-looking statements. Words such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "should," "forecast," "project" or "plan" and terms of similar meaning are also generally intended to identify forward-looking statements. However, the absence of these words does not mean that a statement is not forward-looking.Johnson Controls cautions that these statements are subject to numerous important risks, uncertainties, assumptions and other factors, some of which are beyondJohnson Controls' control, that could causeJohnson Controls' actual results to differ materially from those expressed or implied by such forward-looking statements, including, among others, risks related to:Johnson Controls' ability to manage general economic, business and geopolitical conditions, including the impacts of natural disasters, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as the COVID-19 pandemic; any delay or inability ofJohnson Controls to realize the expected benefits and synergies of recent portfolio transactions such as the merger with Tyco and the disposition of the Power Solutions business, changes in tax laws (including but not limited to the Tax Cuts and Jobs Act enacted inDecember 2017 ), regulations, rates, policies or interpretations, the loss of key senior management, the tax treatment of recent portfolio transactions, significant transaction costs and/or unknown liabilities associated with such transactions, the outcome of actual or potential litigation relating to such transactions, the risk that disruptions from recent transactions will harmJohnson Controls' business, the strength of theU.S. or other economies, changes to laws or policies governing foreign trade, including increased tariffs or trade restrictions, energy and commodity prices, the availability of raw materials and component products, currency exchange rates, maintaining the capacity, reliability and security of our information technology infrastructure, the risk of infringement or expiration of intellectual property rights, work stoppages, union negotiations, labor disputes and other matters associated with the labor force, the outcome of litigation and governmental proceedings and cancellation of or changes to commercial arrangements. A detailed discussion of risks related toJohnson Controls' business is included in the section entitled "Risk Factors" inJohnson Controls' Annual Report on Form 10-K for the year endedSeptember 30, 2019 filed with theUnited States Securities and Exchange Commission ("SEC") onNovember 21, 2019 , and its Quarterly Report on Form 10-Q for the quarterly period endedMarch 31, 2020 filed with theSEC onMay 1, 2020 , which is available at www.sec.gov and www.johnsoncontrols.com under the "Investors" tab. The description of certain of these risks is supplemented in Item 1A of Part II of this Quarterly Report on Form 10-Q. The forward-looking statements included in this document are made only as of the date of this document, unless otherwise specified, and, except as required by law,Johnson Controls assumes no obligation, and disclaims any obligation, to update such statements to reflect events or circumstances occurring after the date of this document.
Overview
Johnson Controls International plc , headquartered inCork, 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 and integrated infrastructure that work seamlessly together to deliver on the promise of smart cities and communities. The Company is committed to helping its customers win and creating greater value for all of its stakeholders through its strategic focus on buildings.Johnson Controls was originally incorporated in the state ofWisconsin in 1885 asJohnson Electric Service Company to manufacture, install and service automatic temperature regulation systems for buildings. The Company was renamed toJohnson Controls, Inc. in 1974. In 2005, the Company acquiredYork International , a global supplier of heating, ventilating, air-conditioning ("HVAC") and refrigeration equipment and services. In 2014, the Company acquiredAir Distribution Technologies, Inc. , one of the largest independent providers of air distribution and ventilation products inNorth America . In 2015, the Company formed a joint venture with Hitachi to expand its building related product offerings. In 2016,Johnson Controls, Inc. and Tyco completed their combination (the "Merger"). Following the Merger, Tyco changed its name to "Johnson Controls International plc ." 46 -------------------------------------------------------------------------------- OnNovember 13, 2018 , the Company entered into a Stock and Asset Purchase Agreement ("Purchase Agreement") withBCP Acquisitions LLC ("Purchaser"). The Purchaser was a newly-formed entity controlled by investment funds managed byBrookfield Capital Partners LLC . Pursuant to the Purchase Agreement, on the terms and subject to the conditions therein, the Company agreed to sell, and Purchaser agreed to acquire, the Company's Power Solutions business for a purchase price of$13.2 billion . The transaction closed onApril 30, 2019 with net cash proceeds of$11.6 billion after tax and transaction-related expenses. 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 its assets and liabilities were retrospectively reclassified as assets and liabilities held for sale. The Company is a global market leader in engineering, developing, manufacturing and installing 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 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 following information should be read in conjunction with theSeptember 30, 2019 consolidated financial statements and notes thereto, along with management's discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year endedSeptember 30, 2019 filed with theSEC onNovember 21, 2019 . References in the following discussion and analysis to "Three Months" (or similar language) refer to the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 , while "Year-to-Date" refers to the nine months endedJune 30, 2020 compared to the nine months endedJune 30, 2019 .
Impact of COVID-19 pandemic
The global outbreak of COVID-19 has severely restricted the level of economic activity around the world. In response to this outbreak, the governments of many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations. The Company's affiliates, employees, suppliers, customers and others have been and may continue to be restricted or prevented from conducting normal business activities, including as a result of shutdowns, travel restrictions and other actions that may be requested or mandated by governmental authorities. Such actions have and may in the future prevent the Company from accessing the facilities of its customers to deliver and install products, provide services and complete maintenance. In addition, some of the Company's customers have chosen to delay or abandon projects on which the Company provides products and/or services as a result of such actions. Although some governments have begun to lift shutdown orders and similar restrictions, a resurgence in the spread of COVID-19 could cause the reinstitution of such preventive or protective measures. While a substantial portion of the Company businesses have been classified as an essential business in jurisdictions in which facility closures have been mandated, some of its facilities have nevertheless been ordered to close in certain jurisdictions. In response to the challenges presented by COVID-19, the Company has focused its efforts on preserving the health and safety of its employees and customers, as well as maintaining the continuity of its operations. The Company has modified its business practices in response to the COVID-19 outbreak, including restricting non-essential employee travel, implementation of remote work protocols, and cancellation of physical participation in meetings, events and conferences. The Company has also instituted preventive measures at its facilities, including enhanced health and safety protocols, temperature screening, requiring face coverings for all employees and encouraging employees to follow similar protocols when away from work. The Company has adopted a multifaceted framework to guide its decision making when evaluating the readiness of its facilities to safely reopen and operate, and will continue to monitor and audit its facilities to ensure that they are in compliance with the Company's COVID-19 safety requirements. In the second quarter of fiscal 2020, the Company experienced a temporary reduction of its manufacturing and operating capacity inChina as a result of government-mandated actions to control the spread of COVID-19. In the third quarter of fiscal 2020, the Company experienced similar reductions as a result of government-mandated actions inIndia andMexico . Further, the Company has experienced, and may continue to experience, disruptions or delays in its supply chain as a result of such actions, which has resulted in higher supply chain costs to the Company in order to maintain the supply of materials and 47 -------------------------------------------------------------------------------- components for its products. In order to mitigate disruptions to its supply chain and manufacturing capacity, the Company has taken actions including redistributing its manufacturing capacity to facilities and regions unaffected by shutdown orders, accelerating the purchase and shipment of components from suppliers in identified hot spots, diversifying the Company's supplier base, conducting government outreach to support the Company's and its suppliers' designations as essential businesses, and expanding its existing supplier financing programs to support supplier viability and business continuity. The Company has also experienced a decline in demand and volumes in its global businesses as a result of the impact of efforts to contain the spread of COVID-19. Specifically, the Company experienced lower demand due to restricted access to customer sites to perform service and installation work as well as reduced discretionary capital spending by the Company's customers. In response, the Company quickly moved to execute cost mitigation actions to offset a portion of the impact of COVID-19 on the demand for its products and services, such as deferring or reducing capital expenditures, implementing cost structure changes, short-term furloughing of salaried employees and limiting discretionary spending including corporate expense. These measures are in addition to the Company's previously disclosed fiscal 2020 restructuring plan. The duration of these cost mitigation actions, as well as the implementation of new cost mitigation actions, will depend on the continued impact of COVID-19, which is highly uncertain. Although COVID-19 has negatively impacted demand for the Company's products and services overall, the global pandemic has also provided the Company with the opportunity to help its customers prepare to re-open by delivering solutions and support that enhance the safety and increase the efficiency of their operations. The Company has seen an increase in demand for its products and solutions that promote building health and optimize customers' infrastructure, including thermal cameras, indoor air quality, location-based services for contact tracing and touchless access control. During the second quarter of fiscal 2020, the Company determined that it had a triggering event requiring assessment of impairment for certain of its indefinite-lived intangible assets due to declines in revenue directly attributable to the COVID-19 pandemic. As a result, the Company recorded an impairment charge of$62 million related primarily to the Company's retail business indefinite-lived intangible assets within restructuring and impairment costs in the consolidated statements of income in the second quarter of fiscal 2020. During the third quarter of fiscal 2020, the Company determined that it had a triggering event requiring assessment of impairment for certain of its indefinite-lived intangible assets, long-lived assets and goodwill due to declines in revenue and further declines in forecasted cash flows in its North America Retail reporting unit directly attributable to the COVID-19 pandemic. As a result, the Company recorded an impairment charge of$424 million related to the Company's North America Retail reporting unit's goodwill within restructuring and impairment costs in the consolidated statements of income in the third quarter of fiscal 2020. It is possible that future changes in such circumstances, including a more prolonged and/or severe COVID-19 pandemic, would require the Company to record additional non-cash impairment charges. The Company continues to actively monitor its liquidity position and working capital needs. Given the increasingly uncertain economic environment, the Company took proactive measures in the third quarter of fiscal 2020 to increase near-term financial flexibility, electing to opportunistically raise$675 million via European financing arrangements and$575 million in bank term loans. In addition, the Company took precautionary actions to preserve its liquidity resources in an uncertain environment by suspending its share repurchase program inMarch 2020 . The Company believes that, following its implementation of its liquidity and cost mitigation actions, it remains in a solid overall capital resources and liquidity position that is adequate to meet its projected needs. As a result, inJune 2020 , following a review of its liquidity position, the Company announced that it would resume its share repurchase program beginning in the fourth quarter of fiscal 2020. In addition, inJuly 2020 , the Company repaid a$300 million bank term loan. The Company's expected cash flow in the fourth quarter and current leverage also provide the Company with the ability to access the debt markets. In order to maintain its solid liquidity position, the Company intends to be opportunistic in exploring opportunities to refinance a portion of its upcoming short term debt maturities. The extent to which the COVID-19 outbreak continues to impact the Company's results of operations and financial condition will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity and longevity of COVID-19, the resurgence of COVID-19 in regions that have begun to recover from the initial impact of the pandemic, the impact of COVID-19 on economic activity, and the actions to contain its impact on public health and the global economy. See Part II, Item 1A, Risk Factors, for an additional discussion of risks related to COVD-19. 48 --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2020 2019 Change 2020 2019 Change
Net sales $ 5,343 $ 6,451 -17 % $ 16,363 $ 17,694 -8 %
The decrease in consolidated net sales for the three months ended June 30, 2020
was due to lower organic sales ($1,037 million ) and the unfavorable impact of
foreign currency translation ($87 million ), partially offset by acquisitions
($16 million ). Excluding the impact of foreign currency translation and business
acquisitions and divestitures, consolidated net sales decreased 16% as compared
to the prior year primarily due to the unfavorable impact of the COVID-19
pandemic on demand and volumes. Refer to the "Segment Analysis" below within
this Item 2 for a discussion of net sales by segment.
The decrease in consolidated net sales for the nine months ended June 30, 2020
was due to lower organic sales ($1,180 million ), the unfavorable impact of
foreign currency translation ($177 million ) and lower sales due to business
divestitures ($12 million ), partially offset by acquisitions ($38 million ).
Excluding the impact of foreign currency translation and business acquisitions
and divestitures, consolidated net sales decreased 7% as compared to the prior
year due to the unfavorable impact of the COVID-19 pandemic. Refer to the
"Segment Analysis" below within this Item 2 for a discussion of net sales by
segment.
Cost of Sales / Gross Profit
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2020 2019 Change 2020 2019 Change
Cost of sales $ 3,511 $ 4,307 -18 % $ 10,927 $ 11,981 -9 %
Gross profit 1,832 2,144 -15 % 5,436 5,713 -5 %
% of sales 34.3 % 33.2 % 33.2 % 32.3 %
Cost of sales and gross profit decreased for the three month period ended
June 30, 2020 , and gross profit as a percentage of sales increased by 110 basis
points. Gross profit decreased due to organic sales declines from the
unfavorable impact of the COVID-19 pandemic. Foreign currency translation had a
favorable impact on cost of sales of approximately $60 million . Refer to the
"Segment Analysis" below within this Item 2 for a discussion of segment earnings
before interest, taxes and amortization ("EBITA") by segment.
Cost of sales decreased and gross profit decreased for the nine month period
ended June 30, 2020 , and gross profit as a percentage of sales increased by 90
basis points. Foreign currency translation had a favorable impact on cost of
sales of approximately $120 million . Refer to the "Segment Analysis" below
within this Item 2 for a discussion of segment EBITA by segment.
Selling, General and Administrative Expenses
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2020 2019 Change 2020 2019 Change
Selling, general and
administrative
expenses $ 1,334 $ 1,388 -4 % $ 4,212 $ 4,284 -2 %
% of sales 25.0 % 21.5 % 25.7 % 24.2 %
Selling, general and administrative expenses ("SG&A") for the three month period
ended June 30, 2020 decreased $54 million , and SG&A as a percentage of sales
increased by 350 basis points. The decrease in SG&A was primarily due to a
favorable impact of cost mitigation actions and reduction in discretionary spend
in the current quarter, a prior year environmental charge and a favorable impact
of foreign currency translation, partially offset by a current year
mark-to-market loss on pension plans
49
--------------------------------------------------------------------------------
and a prior year tax indemnification reserve release. Foreign currency
translation had a favorable impact on SG&A of
SG&A for the nine month period endedJune 30, 2020 decreased$72 million , and SG&A as a percentage of sales increased by 150 basis points. The decrease in SG&A was primarily due to a favorable impact of cost mitigation actions and reduction in discretionary spend in the current year, a prior year environmental charge and a favorable impact of foreign currency translation, partially offset by a current year mark-to-market loss on pension plans and a prior year tax indemnification reserve release. Foreign currency translation had a favorable impact on SG&A of$35 million . Refer to the "Segment Analysis" below within this Item 2 for a discussion of segment EBITA by segment.
Restructuring and Impairment Costs
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2020 2019 Change 2020 2019 Change
Restructuring and impairment
costs $ 610 $ 235 * $ 783 $ 235 *
* Measure not meaningful
Refer to Note 9, "Significant Restructuring and Impairment Costs," Note 8,
"
Net Financing Charges
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2020 2019 Change 2020 2019 Change
Net financing charges $ 58 $ 119 -51 % $ 169 $ 302 -44 %
Refer to Note 12, "Debt and Financing Arrangements," of the notes to consolidated financial statements for further disclosure related to the Company's net financing charges.
Equity Income
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2020 2019 Change 2020 2019 Change
Equity income $ 47 $ 62 -24 % $ 110 $ 137 -20 %
The decrease in equity income for the three months ended June 30, 2020 was
primarily due to lower income at certain partially-owned affiliates of the
Johnson Controls - Hitachi joint venture primarily due to the unfavorable impact
of the COVID-19 pandemic. Foreign currency translation had an unfavorable impact
on equity income of $2 million for the three months ended June 30, 2020 . Refer
to the "Segment Analysis" below within this Item 2 for a discussion of segment
EBITA by segment.
The decrease in equity income for the nine months ended June 30, 2020 was
primarily due to lower income at certain partially-owned affiliates of the
Johnson Controls - Hitachi joint venture primarily due to the unfavorable impact
of the COVID-19 pandemic. Foreign currency translation had an unfavorable impact
on equity income of $4 million for the nine months ended June 30, 2020 . Refer to
the "Segment Analysis" below within this Item 2 for a discussion of segment
EBITA by segment.
50
--------------------------------------------------------------------------------Income Tax Provision (Benefit)
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2020 2019 Change 2020 2019 Change
Income tax provision
(benefit) $ (1) $ 239 * $ 77 $ 394 -80 %
Effective tax rate 1 % 52 % 20 % 38 %
* Measure not meaningful
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 June 30, 2020 , the
Company's effective tax rate for continuing operations was 1% and was lower than
the statutory tax rate of 12.5% primarily due to tax audit reserve adjustments,
the income tax effects of mark-to-market adjustments and the benefits of
continuing global tax planning initiatives, partially offset by the tax impact
of an impairment charge and tax rate differentials. For the nine months ended
June 30, 2020 , the Company's effective tax rate for continuing operations was
20% and was higher than the statutory tax rate of 12.5% primarily due to a
discrete tax charge related to the remeasurement of deferred tax assets and
liabilities as a result of Swiss tax reform, the tax impact of an impairment
charge and tax rate differentials, partially offset by tax audit reserve
adjustments, the income tax effects of mark-to-market adjustments and the
benefits of continuing global tax planning initiatives. For the three months
ended June 30, 2019 , the Company's effective tax rate for continuing operations
was 52% and was higher than the statutory tax rate of 12.5% primarily due to a
discrete tax charge related to newly enacted regulations related to U.S. Tax
Reform, non-U.S. tax audit reserve adjustments and tax rate differentials,
partially offset by a tax indemnification reserve release, the tax benefits of
an asset held for sale impairment charge and continuing global tax planning
initiatives. For the nine months ended June 30, 2019 , the Company's effective
tax rate for continuing operations was 38% and was higher than the statutory tax
rate of 12.5% primarily due to valuation allowance adjustments as a result of
tax law changes, a discrete tax charge related to newly enacted regulations
related to U.S. Tax Reform, non-U.S. tax audit reserve adjustments, and tax rate
differentials, partially offset by a tax indemnification reserve release, the
tax benefits of an asset held for sale impairment charge and continuing global
tax planning initiatives. The effective tax rate for the nine months ended June
30, 2020 decreased as compared to the nine months ended June 30, 2019 primarily
due to the discrete tax items. Refer to Note 10, "Income Taxes," of the notes to
consolidated financial statements for further detail.
Income From Discontinued Operations, Net of Tax
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2020 2019 Change 2020 2019 Change
Income from discontinued
operations, net of tax $ - $ 4,051 * $ - $ 4,598 *
* Measure not meaningful
Refer to Note 4, "Discontinued Operations," of the notes to consolidated financial statements for further information regarding the Company's discontinued operations.
51
--------------------------------------------------------------------------------Income Attributable to Noncontrolling Interests
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2020 2019 Change 2020 2019 Change
Income from continuing
operations attributable to
noncontrolling interests $ 60 $ 84 -29 % $ 115 $ 147 -22 %
Income from discontinued
operations attributable to
noncontrolling interests - - * - 24 *
* Measure not meaningful
The decrease in income from continuing operations attributable to noncontrolling
interests for the three and nine months ended June 30, 2020 was primarily due to
lower net income as a result of the COVID-19 pandemic at certain partially-owned
affiliates within the Global Products segment.
Refer to Note 4, "Discontinued Operations," of the notes to consolidated financial statements for further information regarding the Company's discontinued operations.
Net Income (Loss) Attributable to
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2020 2019 Change 2020 2019 Change
Net income (loss)
attributable to Johnson
Controls $ (182) $ 4,192 * $ 190 $ 5,062 -96 %
* Measure not meaningful
The increase in net loss attributable to Johnson Controls for the three months
ended June 30, 2020 was primarily due to the prior year income from discontinued
operations, current year restructuring and impairment charges and the
unfavorable impact of the COVID-19 pandemic, partially offset by lower income
tax provision and net financing charges. The decrease in net income attributable
to Johnson Controls for the nine months ended June 30, 2020 was primarily due to
the prior year income from discontinued operations, current year restructuring
and impairment charges and the unfavorable impact of the COVID-19 pandemic,
partially offset by lower income tax provision and net financing charges.
Diluted earnings (loss) per share attributable to Johnson Controls for the three
months ended June 30, 2020 was $(0.24) compared to $4.79 for the three months
ended June 30, 2019 . Diluted earnings per share attributable to Johnson Controls
for the nine months ended June 30, 2020 was $0.25 compared to $5.61 for the nine
months ended June 30, 2019 .
Comprehensive Income (Loss) Attributable to
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2020 2019 Change 2020 2019 Change
Comprehensive income (loss)
attributable to Johnson
Controls $ (104) $ 4,097 * $ 42 $ 4,969 -99 %
* Measure not meaningful
The increase in comprehensive loss attributable toJohnson Controls for the three months endedJune 30, 2020 was due to lower net income attributable toJohnson Controls ($4,374 million ), partially offset by an increase in other comprehensive income attributable toJohnson Controls ($173 million ) resulting primarily from favorable currency translation adjustments. The year- 52 --------------------------------------------------------------------------------
over-year favorable foreign currency translation adjustments were primarily
driven by the strengthening of the euro, Canadian dollar and Mexican peso
against the
The decrease in comprehensive income attributable toJohnson Controls for the nine months endedJune 30, 2020 was due to lower net income attributable toJohnson Controls ($4,872 million ) and an increase in other comprehensive loss attributable toJohnson Controls ($55 million ) resulting primarily from unfavorable currency translation adjustments. The year-over-year unfavorable foreign currency translation adjustments were primarily driven by the weakening of the Canadian dollar, Mexican peso and Brazilian real currencies, partially offset by the strengthening of the euro against theU.S. dollar in the current year. Segment Analysis Management evaluates the performance of its business units based primarily on segment EBITA, which represents income from continuing operations before income taxes and noncontrolling interests, excluding general corporate expenses, intangible asset amortization, net financing charges, restructuring and impairment costs, and net mark-to-market adjustments related to pension and postretirement plans and restricted asbestos investments.Net Sales Three Months Ended Nine Months Ended June 30, June 30, (in millions) 2020 2019 Change 2020 2019 ChangeBuilding Solutions North America$ 2,020 $ 2,327 -13 %$ 6,362 $ 6,630 -4 % Building Solutions EMEA/LA 756 922 -18 % 2,534 2,707 -6 %Building Solutions Asia Pacific 588 691 -15 % 1,742 1,932 -10 % Global Products 1,979 2,511 -21 % 5,725 6,425 -11 %$ 5,343 $ 6,451 -17 %$ 16,363 $ 17,694 -8 % Three Months: •The decrease inBuilding Solutions North America was due to lower volumes ($299 million ) and the unfavorable impact of foreign currency translation ($8 million ). The decrease in volumes was primarily attributable to the unfavorable impact of the COVID-19 pandemic.
•The decrease in
•The decrease inBuilding Solutions Asia Pacific was due to lower volumes ($86 million ) and the unfavorable impact of foreign currency translation ($19 million ), partially offset by incremental sales related to business acquisitions ($2 million ). The decrease in volumes was primarily attributable to the unfavorable impact of the COVID-19 pandemic. •The decrease in Global Products was due to lower volumes ($518 million ) and the unfavorable impact of foreign currency translation ($16 million ), partially offset by incremental sales related to business acquisitions ($2 million ). The decrease in volumes was primarily attributable to the unfavorable impact of the COVID-19 pandemic. Year-to-Date: •The decrease inBuilding Solutions North America was due to lower volumes ($258 million ) and the unfavorable impact of foreign currency translation ($10 million ). The decrease in volumes was primarily attributable to an increase in installation / services being more than offset by the unfavorable impact of the COVID-19 pandemic. •The decrease inBuilding Solutions EMEA/LA was primarily attributable to the unfavorable impact of foreign currency translation ($102 million ), lower volumes ($91 million ) and lower volumes due to business divestitures ($7 million ), partially offset by incremental sales related to business acquisitions ($27 million ). The decrease in volumes 53 --------------------------------------------------------------------------------
was primarily attributable to an increase in installation / services sales being more than offset by the unfavorable impact of the COVID-19 pandemic.
•The decrease inBuilding Solutions Asia Pacific was due to lower volumes ($157 million ) and the unfavorable impact of foreign currency translation ($39 million ), partially offset by incremental sales related to business acquisitions ($6 million ). The decrease in volumes was primarily attributable to an increase in installation / services sales being more than offset by the unfavorable impact of the COVID-19 pandemic. •The decrease in Global Products was due to lower volumes ($674 million ), the unfavorable impact of foreign currency translation ($26 million ) and lower volumes due to business divestitures ($5 million ), partially offset by incremental sales related to business acquisitions ($5 million ). The decrease in volumes was primarily attributable to an increase in building management and specialty product sales being more than offset by the unfavorable impact of the COVID-19 pandemic. Segment EBITA Three Months Ended Nine Months Ended June 30, June 30, (in millions) 2020 2019 Change 2020 2019 ChangeBuilding Solutions North America$ 307 $ 300 2 %$ 816 $ 807 1 % Building Solutions EMEA/LA 62 101 -39 % 237 258 -8 %Building Solutions Asia Pacific 92 98 -6 % 229 240 -5 % Global Products 378 333 14 % 797 774 3 %$ 839 $ 832 1 %$ 2,079 $ 2,079 - % Three Months: •The increase inBuilding Solutions North America was due to prior year integration costs ($10 million ), and productivity savings and cost mitigation actions, net of unfavorable volumes ($2 million ), partially offset by current year integration costs ($4 million ) and the unfavorable impact of foreign currency translation ($1 million ). •The decrease inBuilding Solutions EMEA/LA was due to unfavorable volumes, net of productivity savings and cost mitigation actions ($34 million ), the unfavorable impact of foreign currency translation ($7 million ) and lower equity income ($2 million ), partially offset by higher income due to business acquisitions ($2 million ) and prior year integration costs ($2 million ). •The decrease inBuilding Solutions Asia Pacific was due to unfavorable volumes, net of productivity savings and cost mitigation actions ($5 million ) and the unfavorable impact of foreign currency translation ($1 million ). •The increase in Global Products was due to prior year environmental charge ($140 million ) and prior year integration costs ($8 million ), partially offset by unfavorable volumes, net of favorable price / cost, productivity savings and cost mitigation actions ($79 million ), lower equity income driven primarily by the unfavorable impact of COVID-19 ($12 million ), current year integration costs ($7 million ), the unfavorable impact of foreign currency translation ($4 million ) and lower income due to business acquisitions ($1 million ).
Year-to-Date:
•The increase inBuilding Solutions North America was due to prior year integration costs ($15 million ), and productivity savings and cost mitigation actions, net of unfavorable volumes ($2 million ), partially offset by current year integration costs ($7 million ) and the unfavorable impact of foreign currency translation ($1 million ). •The decrease inBuilding Solutions EMEA/LA was due to the unfavorable impact of foreign currency translation ($16 million ), unfavorable volumes, net of productivity savings and cost mitigation actions ($12 million ), and lower income due to business divestitures ($1 million ), partially offset by higher income due to business acquisitions ($5 million ) and prior year integration costs ($3 million ). 54 -------------------------------------------------------------------------------- •The decrease inBuilding Solutions Asia Pacific was due to unfavorable volumes, net of productivity savings and cost mitigation actions ($10 million ) and the unfavorable impact of foreign currency translation ($2 million ), partially offset by higher income due to business acquisitions ($1 million ). •The increase in Global Products was due to prior year environmental charge ($140 million ) and prior year integration costs ($16 million ), partially offset by unfavorable volumes, net of favorable price / cost, productivity savings and cost mitigation actions ($91 million ), lower equity income driven primarily by the unfavorable impact of COVID-19 ($24 million ), current year integration costs ($8 million ), the unfavorable impact of foreign currency translation ($7 million ), lower income due to business acquisitions ($2 million ) and lower income due to business divestitures ($1 million ).
Backlog
The Company's backlog relating to theBuilding Technologies & Solutions business is applicable to its sales of systems and services. AtJune 30, 2020 , the backlog was$9.4 billion , of which$9.1 billion was attributable to the field business. The backlog amount outstanding at any given time is not necessarily indicative of the amount of revenue to be earned in the upcoming fiscal year. In the first quarter of fiscal 2019, the Company adopted ASC 606, "Revenue from Contracts with Customers," and as a result is required to disclose remaining performance obligations. AtJune 30, 2020 , remaining performance obligations were$14.4 billion , which is$5.0 billion higher than the Company's backlog of$9.4 billion . Differences between the Company's remaining performance obligations and backlog are primarily due to: •Remaining performance obligations include large, multi-purpose contracts to construct hospitals, schools and other governmental buildings, which are services to be performed over the building's lifetime with initial contract terms of 25 to 35 years for the entire term of the contract versus backlog which includes only the lifecycle period of these contracts which approximates five years; •The Company has elected to exclude from remaining performance obligations certain contracts with customers with a term of one year or less or contracts that are cancelable without substantial penalty while these contracts are included within backlog; and •Remaining performance obligations include the full remaining term of service contracts with substantial termination penalties versus backlog which includes one year for all outstanding service contracts.
The Company will continue to report backlog as it believes it is a useful measure of evaluating the Company's operational performance and relationship to total orders.
55
--------------------------------------------------------------------------------Liquidity and Capital Resources
Working Capital
June 30, September 30,
(in millions) 2020 2019 Change
Current assets $ 11,140 $ 12,393
Current liabilities (10,304) (9,070)
836 3,323 -75 %
Less: Cash (2,342) (2,805)
Add: Short-term debt 1,321 10
Add: Current portion of long-term debt 1,102 501
Less: Assets held for sale (89) (98)
Add: Liabilities held for sale 38 44
Working capital (as defined) $ 866 $ 975 -11 %
Accounts receivable - net $ 5,344 $ 5,770 -7 %
Inventories 1,996 1,814 10 %
Accounts payable 3,057 3,582 -15 %
•The Company defines working capital as current assets less current liabilities,
excluding cash, short-term debt, the current portion of long-term debt, and the
current portions of assets and liabilities held for sale. Management believes
that this measure of working capital, which excludes financing-related items and
businesses to be divested, provides a more useful measurement of the Company's
operating performance.
•The decrease in working capital at June 30, 2020 as compared to September 30,
2019 , was primarily due to lower income tax assets, a decrease in accounts
receivable, and the establishment of an operating lease liability on the balance
sheet in the first quarter of fiscal 2020 as a result of the adoption of ASC
842, partially offset by a decrease in accounts payable due to lower spending, a
decrease in accrued compensation and benefits liabilities and an increase in
inventory.
•The Company's days sales in accounts receivable at June 30, 2020 and
September 30, 2019 were 70 days and 67 days, respectively. There has been no
significant adverse changes in the level of overdue receivables or significant
changes in revenue recognition methods.
•The Company's inventory turns for the three months ended
•Days in accounts payable at
56--------------------------------------------------------------------------------
© Edgar Online, source
