Johnson Controls 2013 Annual Report Download - page 35

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Provision for Income Taxes
Year Ended
September 30,
(in millions) 2012 2011 Change
Provision for income taxes $ 209 $ 258 -19%
* Measure not meaningful
The effective rate is below the U.S. statutory rate 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 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.
As a result of certain events related to prior tax planning initiatives, during the third quarter of fiscal 2012, the Company reduced
the reserve for uncertain tax positions by $22 million, including $13 million of interest and penalties, resulting in a benefit to
income tax expense.
The Company's federal income tax returns and certain non-U.S. income tax returns for various fiscal years remain under various
stages of audit by the Internal Revenue Service and respective non-U.S. tax authorities. Although the outcome of tax audits is
always uncertain, management believes that it has appropriate support for the positions taken on its tax returns and that its annual
tax provisions included amounts sufficient to pay assessments, if any, which may be proposed by the taxing authorities. At September
30, 2012, the Company had recorded a liability for its best estimate of the probable loss on certain of its tax positions, the majority
of which is included in other noncurrent liabilities in the consolidated statements of financial position. Nonetheless, the amounts
ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued
for each year.