Johnson Controls 2010 Annual Report Download - page 36

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36
Net Financing Charges
Year Ended
September 30,
(in millions)
2009
2008
Change
Net financing charges
$
239
$
258
-7%
Net financing charges decreased primarily due to lower interest rates during fiscal 2009 partially offset by
higher debt levels.
Provision for Income Taxes
The Company’s base effective income tax rate for continuing operations for fiscal years 2009 and 2008 was 22.7%
and 21.0%, respectively (prior to certain discrete period items as outlined below).
The Company’s effective tax rate for fiscal 2009 was greater than the base effective tax rate due in part to various
items during the year as discussed in detail below.
The Company’s effective tax rate for fiscal 2008 increased over the base effective tax rate due to the fourth quarter
restructuring charge, which was recorded using a blended statutory rate of 12.4% resulting in a $43 million discrete
period tax adjustment.
Restructuring Charge
In the second quarter of fiscal 2009, the Company recorded a $27 million discrete period tax adjustment related to
the second quarter 2009 restructuring costs using a blended effective tax rate of 19.2%. Due to the change in the
base effective tax rate in fiscal 2009, the discrete period tax adjustment decreased by $19 million for a total tax
adjustment of $8 million.
In the fourth quarter of fiscal 2008, the Company recorded a $43 million discrete period tax adjustment related to the
fourth quarter 2008 restructuring charge using a blended effective tax rate of 12.4%.
Impairment Charges
In the first quarter of fiscal 2009, the Company recorded a $30 million discrete period tax adjustment related to first
quarter 2009 impairment costs using a blended statutory tax rate of 12.6%. Due to the change in the base effective
tax rate in fiscal 2009, the discrete period tax adjustment decreased by $4 million for a total tax adjustment of $26
million.
Debt Conversion Costs
In the fourth quarter of fiscal 2009, the Company recorded a $15 million discrete period tax benefit related to debt
conversion costs using an effective tax rate of 36.5%.
Valuation Allowances
The Company reviews 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 is 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 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 in Brazil would be utilized. Therefore, the Company released $10 million of valuation