Johnson Controls 2010 Annual Report Download - page 95

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Mexico would be utilized. Therefore, the Company released $39 million of valuation allowances in the three month
period ended September 30, 2010. Further, the Company determined that it was more likely than not that the
deferred tax assets would not be utilized in selected entities in Europe. Therefore, the Company recorded $14
million of valuation allowances in the three month period ended September 30, 2010. To the extent the Company
improves its underlying operating results in these entities, these valuation allowances, or a portion thereof, could be
reversed in future periods.
In the third quarter of fiscal 2010, the Company determined that it was more likely than not that a portion of the
deferred tax assets within the Slovakia automotive entity would be utilized. Therefore, the Company released $13
million of valuation allowances in the three month period ended June 30, 2010.
In the first quarter of fiscal 2010, the Company determined that it was more likely than not that a portion of the
deferred tax assets within the Brazil automotive entity would be utilized. Therefore, the Company released $69
million of valuation allowances. This was comprised of a $93 million decrease in income tax expense offset by a
$24 million reduction in cumulative translation adjustments.
In the fourth quarter of fiscal 2010, the Company increased the valuation allowances by $20 million, which was
substantially offset by a decrease in its reserves for uncertain tax positions in a similar amount. These adjustments
were based on a review of tax return filing positions taken in these jurisdictions and the established reserves.
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.
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.
Upon adoption, the Company increased its existing reserves for uncertain tax positions by $93 million. The increase
was recorded as a cumulative effect adjustment to shareholders' equity of $68 million and an increase to goodwill of
$25 million related to business combinations in prior years. As of the adoption date, the Company had gross tax
effected unrecognized tax benefits of $616 million of which $475 million, if recognized, would affect the effective
tax rate. Also as of the adoption date, the Company had accrued interest expense and penalties related to the