Johnson Controls 2014 Annual Report Download - page 49

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Income Taxes
The Company accounts for income taxes in accordance with ASC 740, "Income Taxes." Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and other loss carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The Company records a valuation allowance that primarily represents non-U.S. operating and
other loss carryforwards for which realization is uncertain. Management judgment is required in determining the Company’s
provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against the Company’s net
deferred tax assets. In calculating the provision for income taxes on an interim basis, the Company uses an estimate of the annual
effective tax rate based upon the facts and circumstances known at each interim period. On a quarterly basis, the actual effective
tax rate is adjusted as appropriate based upon the actual results as compared to those forecasted at the beginning of the fiscal year.
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. At September 30, 2014, the Company had a valuation allowance of
$1,285 million, of which $974 million relates to federal net operating loss carryforwards primarily in Brazil, France, Germany
and Spain, for which sustainable taxable income has not been demonstrated, and $311 million for other deferred tax assets.
The Company is subject to income taxes in the U.S. and numerous non-U.S. 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, 2014, the Company had unrecognized tax benefits of $1,655 million.
The Company does not generally provide additional U.S. income taxes on undistributed earnings of non-U.S. consolidated
subsidiaries included in shareholders’ equity attributable to Johnson Controls, Inc. Such earnings could become taxable upon the
sale or liquidation of these non-U.S. subsidiaries or upon dividend repatriation. The Company’s intent is for such earnings to be
reinvested by the subsidiaries or to be repatriated only when it would be tax effective through the utilization of foreign tax credits.
However, the Company did provide incremental income tax expense on the undistributed earnings of certain non-U.S. subsidiaries
that have assets held for sale or are themselves held for sale at September 30, 2014. Refer to "Capitalization" within the "Liquidity
and Capital Resources" section for discussion of domestic and foreign cash projections.
Refer to Note 18, "Income Taxes," of the notes to consolidated financial statements for the Company's income tax disclosures.
NEW ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, "Revenue from Contracts with Customers
(Topic 606)." ASU No. 2014-09 clarifies the principles for recognizing revenue when an entity either enters into a contract with
customers to transfer goods or services or enters into a contract for the transfer of non-financial assets. ASU No. 2014-09 will be
effective retrospectively for the Company for the quarter ending December 31, 2017, with early adoption not permitted. The
Company is currently assessing the impact adoption of this guidance may have on its consolidated financial statements.
In April 2014, the FASB issued ASU No. 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant and
Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." ASU No.
2014-08 limits discontinued operations reporting to situations where the disposal represents a strategic shift that has (or will have)
a major effect on an entity's operations and financial results, and requires expanded disclosures for discontinued operations. ASU
No. 2014-08 will be effective prospectively for the Company for disposals that occur during or after the quarter ending December
31, 2015, with early adoption permitted in certain instances. The significance of this guidance for the Company is dependent on
any future dispositions or disposals.
In July 2013, the FASB issued ASU No. 2013-11, "Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When
a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." ASU No. 2013-11 clarifies that
companies should present an unrecognized tax benefit as a reduction to a deferred tax asset for a net operating loss carryforward,
a similar tax loss or a tax credit carryforward. ASU No. 2013-11 will be effective prospectively for the Company for the quarter
ending December 31, 2014, with early adoption permitted. The Company is currently assessing the impact adoption of this guidance
may have on its consolidated statement of financial position. The adoption of this guidance will have no impact on the Company's
consolidated results of operations.