Johnson Controls 2013 Annual Report Download - page 100

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determined that it was more likely than not that the deferred tax assets within two French Power Solutions entities would be
realized. Therefore, the Company recorded $145 million of net valuation allowances as income tax expense in the three month
period ended September 30, 2013.
In the second quarter of fiscal 2013, the Company determined that it was more likely than not that a portion of the deferred tax
assets within Brazil and Germany would not be realized. Therefore, the Company recorded $94 million of valuation allowances
as income tax expense.
In fiscal 2012, the Company recorded an overall increase to its valuation allowances of $47 million primarily due to a discrete
period income tax adjustment in the fourth quarter. In the fourth quarter of fiscal 2012, the Company performed an analysis related
to the realizability of its worldwide deferred tax assets. As a result, and after considering tax planning initiatives and other positive
and negative evidence, the Company determined that it was more likely than not that deferred tax assets within Power Solutions
in China would not be realized. Therefore, the Company recorded a $35 million valuation allowance as income tax expense in the
three month period ended September 30, 2012.
In fiscal 2011, the Company recorded a decrease to its valuation allowances primarily due to a $30 million discrete period income
tax adjustment in the fourth quarter. In the fourth quarter of fiscal 2011, the Company performed an analysis related to the realizability
of its worldwide deferred tax assets. As a result, and after considering tax planning initiatives and other positive and negative
evidence, the Company determined that it was more likely than not that the deferred tax assets primarily within Denmark, Italy,
Automotive Experience in Korea and Automotive Experience in the United Kingdom would be realized. Therefore, the Company
released a net $30 million of valuation allowances as a benefit to income tax expense in the three month period ended September 30,
2011.
Uncertain Tax Positions
The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. Judgment is required in determining its
worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of the Company’s
business, there are many transactions and calculations where the ultimate tax determination is uncertain. The Company is regularly
under audit by tax authorities.
At September 30, 2013, the Company had gross tax effected unrecognized tax benefits of $1,345 million of which $1,198 million,
if recognized, would impact the effective tax rate. Total net accrued interest at September 30, 2013 was approximately $84 million
(net of tax benefit).
At September 30, 2012, the Company had gross tax effected unrecognized tax benefits of $1,465 million of which $1,274 million,
if recognized, would impact the effective tax rate. Total net accrued interest at September 30, 2012 was approximately $72 million
(net of tax benefit).
At September 30, 2011, the Company had gross tax effected unrecognized tax benefits of $1,357 million of which $1,164 million,
if recognized, would impact the effective tax rate. Total net accrued interest at September 30, 2011 was approximately $77 million
(net of tax benefit).
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
Year Ended September 30,
2013 2012 2011
Beginning balance, September 30 $ 1,465 $ 1,357 $ 1,262
Additions for tax positions related to the current year 123 143 150
Additions for tax positions of prior years 84 36 20
Reductions for tax positions of prior years (43)(58)(62)
Settlements with taxing authorities (160) — (5)
Statute closings (45)(13)(8)
Audit resolutions (79) — —
Ending balance, September 30 $ 1,345 $ 1,465 $ 1,357