Johnson Controls 2013 Annual Report Download - page 65

65
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the respective assets
using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. The estimated
useful lives range from 3 to 40 years for buildings and improvements and from 3 to 15 years for machinery and equipment.
The Company capitalizes interest on borrowings during the active construction period of major capital projects. Capitalized interest
is added to the cost of the underlying assets and is amortized over the useful lives of the assets.
Goodwill and Other Intangible Assets
Goodwill reflects the cost of an acquisition in excess of the fair values assigned to identifiable net assets acquired. The Company
reviews goodwill for impairment during the fourth fiscal quarter or more frequently if events or changes in circumstances indicate
the asset might be impaired. The Company performs impairment reviews for its reporting units, which have been determined to
be the Company’s reportable segments or one level below the reportable segments in certain instances, using a fair value method
based on management’s judgments and assumptions or third party valuations. The fair value of a reporting unit refers to the price
that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date.
In estimating the fair value, the Company uses multiples of earnings based on the average of historical, published multiples of
earnings of comparable entities with similar operations and economic characteristics. In certain instances, the Company uses
discounted cash flow analyses or estimated sales price to further support the fair value estimates. The inputs utilized in the analyses
are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, “Fair Value Measurement.” The estimated
fair value is then compared with the carrying amount of the reporting unit, including recorded goodwill. The Company is subject
to financial statement risk to the extent that the carrying amount exceeds the estimated fair value. The impairment testing performed
by the Company in the fourth quarter of fiscal year 2013 indicated that the estimated fair value of the Automotive Experience
Interiors reporting unit did not exceed its corresponding carrying amount including recorded goodwill, and an impairment existed.
No other reporting unit was determined to be at risk of failing step one of the goodwill impairment test as the impairment testing
performed indicated that the estimated fair value of each reporting unit substantially exceeded its corresponding carrying amount
including recorded goodwill at September 30, 2013. No impairments existed at September 30, 2012 and 2011.
Refer to Note 6, "Goodwill and Other Intangible Assets," of the notes to consolidated financial statements for further information
regarding the goodwill impairment charge recorded in the fourth quarter of fiscal 2013.
Indefinite lived other intangible assets are also subject to at least annual impairment testing. Other intangible assets with definite
lives continue to be amortized over their estimated useful lives and are subject to impairment testing if events or changes in
circumstances indicate that the asset might be impaired. A considerable amount of management judgment and assumptions are
required in performing the impairment tests. While the Company believes the judgments and assumptions used in the impairment
tests are reasonable and no impairment existed at September 30, 2013, 2012 and 2011, different assumptions could change the
estimated fair values and, therefore, impairment charges could be required, which could be material to the consolidated financial
statements.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property, plant and equipment and other intangible assets with definite lives,
for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable.
The Company conducts its long-lived asset impairment analyses in accordance with ASC 360-10-15, “Impairment or Disposal of
Long-Lived Assets.” ASC 360-10-15 requires the Company to group assets and liabilities at the lowest level for which identifiable
cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of
the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable,
an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on
discounted cash flow analysis or appraisals. See Note 17, “Impairment of Long-Lived Assets,” of the notes to consolidated financial
statements for disclosure of the impairment analyses performed by the Company during fiscal 2013, 2012 and 2011.
Percentage-of-Completion Contracts
The Building Efficiency 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 and billings in excess of costs and earnings on uncompleted contracts primarily
within other current liabilities in the consolidated statements of financial position. Costs and earnings in excess of billings related