Johnson Controls 2013 Annual Report Download - page 99

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99
consistent with the methods the Company employed in prior periods to value other long-lived assets. 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."
In the second quarter of fiscal 2012, the Company recorded an impairment charge related to an equity investment. Refer to Note
11, “Fair Value Measurements,” of the notes to consolidated financial statements for additional information.
At September 30, 2013 and 2012, the Company concluded it did not have any other triggering events requiring assessment of
impairment of its long-lived assets. Refer to Note 1, “Summary of Significant Accounting Policies,” of the notes to consolidated
financial statements for discussion of the Company’s goodwill impairment testing. 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.
18. INCOME TAXES
In the fourth quarter of fiscal 2013, the Company changed its method of inventory costing for certain inventory in its Power
Solutions business to the first-in first-out (FIFO) method from the last-in first-out (LIFO) method. Certain amounts have been
revised to reflect the retrospective application of this accounting policy change. The $112 million adjustment to the opening balance
of retained earnings as of September 30, 2010 was net of a $73 million tax provision. Refer to Note 1, “Summary of Significant
Accounting Policies,” of the notes to consolidated financial statements for further details surrounding this accounting policy change.
The more significant components of the Company’s income tax provision from continuing operations are as follows (in millions):
Year Ended September 30,
2013 2012 2011
Tax expense at federal statutory rate $ 863 $ 532 $ 627
State income taxes, net of federal benefit 46 17 (10)
Foreign income tax expense at different rates and foreign losses
without tax benefits (317)(381)(351)
U.S. tax on foreign income (69)(20) 28
Reserve and valuation allowance adjustments 197 13 (30)
U.S. credits and incentives (28)(13)(7)
Gain on business divestiture 59 — —
Restructuring and impairment costs 235 81 —
Change in assertion over permanently reinvested earnings 210 — —
Other (28)(20) 1
Provision for income taxes $ 1,168 $ 209 $ 258
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
and 2011 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.
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