Johnson Controls 2010 Annual Report Download - page 30

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30
In fiscal 2009, the Company recorded an overall increase to its valuation allowances by $245 million. This was
comprised of a $252 million increase in income tax expense with the remaining amount impacting the consolidated
statement of financial position.
In the third quarter of fiscal 2009, the Company determined that it was more likely than not that a portion of the
deferred tax assets within the Brazil power solutions entity would be utilized. Therefore, the Company released $10
million of valuation allowances in the three month period ended June 30, 2009. This was comprised of a $3 million
decrease in income tax expense with the remaining amount impacting the consolidated statement of financial
position because it related to acquired net operating losses.
In the second quarter of fiscal 2009, the Company determined that it was more likely than not that the deferred tax
asset associated with a capital loss would be utilized. Therefore, the Company released $45 million of valuation
allowances in the three month period ended March 31, 2009.
In the first quarter of fiscal 2009, as a result of the rapid deterioration in the economic environment, several
jurisdictions incurred unexpected losses in the first quarter that resulted in cumulative losses over the prior three
years. 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 would not be utilized in several
jurisdictions including France, Mexico, Spain and the United Kingdom. Therefore, the Company recorded $300
million of valuation allowances in the three month period ended December 31, 2008. To the extent the Company
improves its underlying operating results in these jurisdictions, these valuation allowances, or a portion thereof,
could be reversed in future periods.
It is reasonably possible that over the next 12 months, valuation allowances recorded against deferred tax assets in
certain jurisdictions of up to $100 million may be adjusted.
Uncertain Tax Positions
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. In June 2006, the Financial
Accounting Standards Board (FASB) issued guidance prescribing a comprehensive model for how a company
should recognize, measure, present, and disclose in its financial statements uncertain tax positions that a company
has taken or expects to take on a tax return. The Company adopted this guidance, which is included in ASC 740,
―Income Taxes,‖ as of October 1, 2007. As such, accruals for tax contingencies are provided for in accordance with
the requirements of ASC 740.
Based on recently published case law in a non-U.S. jurisdiction and the settlement of a tax audit during the third
quarter of fiscal 2010, the Company released net $38 million of reserves for uncertain tax positions, including
interest and penalties.
As a result of certain events related to prior year tax planning initiatives during the first quarter of fiscal 2010, the
Company increased the reserve for uncertain tax positions by $31 million, including $26 million of interest and
penalties.
In the fourth quarter of fiscal 2010, the Company decreased its reserves for uncertain tax positions by $20 million,
which was substantially offset by an increase in its valuation allowances in a similar amount. These adjustments
were based on a review of tax filing positions taken in jurisdictions with valuation allowances as indicated above.
As a result of certain events in various jurisdictions during the fourth quarter of fiscal year 2009, including the
settlement of the fiscal 2002 through fiscal 2003 U.S. federal tax examinations, the Company decreased its total
reserve for uncertain tax positions by $32 million. This was comprised of a $55 million decrease to tax expense and
a $23 million increase to goodwill.
As a result of various entities exiting business in certain jurisdictions and certain events related to prior tax planning
initiatives during the third quarter of fiscal 2009, the Company reduced the reserve for uncertain tax positions by
$33 million. This was comprised of a $17 million decrease to tax expense and a $16 million decrease to goodwill.