Johnson Controls 2013 Annual Report Download - page 28

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28
Equity Income
Year Ended
September 30,
(in millions) 2013 2012 Change
Equity income $ 402 $ 340 18%
The increase in equity income was primarily due to gains on acquisitions of partially-owned affiliates in the Automotive Experience
business ($106 million), partially offset by a prior year redemption of a warrant for an existing partially-owned affiliate in the
Power Solutions business ($25 million), a prior year equity interest gain in the Automotive Experience business ($15 million) and
a prior year equity interest gain on acquisition of a partially-owned affiliate in the Power Solutions business ($9 million). Refer
to the segment analysis below within Item 7 for a discussion of segment income by segment.
Provision for Income Taxes
Year Ended
September 30,
(in millions) 2013 2012 Change
Provision for income taxes $ 1,168 $ 209 *
* Measure not meaningful
The effective rate is above the U.S. statutory rate for fiscal 2013 primarily due to the tax consequences of the sale of the HomeLink®
product line, significant restructuring and impairment costs, the change in our assertion over reinvestment of foreign undistributed
earnings primarily related to the Electronics business, and valuation allowance and uncertain tax position adjustments, partially
offset by favorable tax audit resolutions, the benefits of continuing global tax planning initiatives and income in certain non-U.S.
jurisdictions with a tax rate lower than the U.S. statutory tax rate. The effective rate is below the U.S. statutory rate for fiscal 2012
primarily due to continuing global tax planning initiatives and income in certain non-U.S. jurisdictions with a rate of tax lower
than the U.S. statutory tax rate. Refer to Note 18, “Income Taxes,” of the notes to consolidated financial statements for further
details.
Valuation Allowances
The Company reviews the realizability of its deferred tax asset valuation allowances 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 fourth quarter of fiscal 2013, 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 Germany and Poland would not be realized. The Company also
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.