Johnson Controls 2010 Annual Report Download - page 37

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allowances. This is 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.
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 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.
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 year 2009 the Company reduced the reserve for uncertain tax positions
by $33 million. This is comprised of a $17 million decrease to tax expense and a $16 million decrease to goodwill.
The Company’s federal income tax returns and certain non-U.S. income tax returns for various fiscal years remain
under various stages of audit by the Internal Revenue Service and respective non-U.S. tax authorities. Although the
outcome of tax audits is always uncertain, management believes that it has appropriate support for the positions
taken on its tax returns and that its annual tax provisions included amounts sufficient to pay assessments, if any,
which may be proposed by the taxing authorities. At September 30, 2009, the Company had recorded a liability for
its best estimate of the probable loss on certain of its tax positions, the majority of which is included in other
noncurrent liabilities in the consolidated statements of financial position. Nonetheless, the amounts ultimately paid,
if any, upon resolution of the issues raised by the taxing authorities, may differ materially from the amounts accrued
for each year.
Change in Tax Status
In the fourth quarter of fiscal 2009, the Company recorded $84 million in discrete period tax benefits related to a
change in tax status of a U.S. and a U.K. subsidiary. This is comprised of a $59 million tax expense benefit and a
$25 million decrease to goodwill. In the second quarter of fiscal 2009, the Company recorded a $30 million discrete
period tax benefit related to a change in tax status of a French subsidiary.
The changes in tax status resulted from voluntary tax elections that produced deemed liquidations for U.S. federal
income tax purposes. The Company received tax benefits in the U.S. for the losses from the decrease in value as
compared to the original tax basis of its investments. These elections changed, for U.S. federal income tax purposes,
the tax status of these entities and are reported as a discrete period tax benefit in accordance with the provision of
ASC 740.