Johnson Controls 2011 Annual Report Download - page 58

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58
Johnson Controls, Inc.
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Johnson Controls, Inc. and its domestic and non-U.S.
subsidiaries that are consolidated in conformity with accounting principles generally accepted in the United States of
America (U.S. GAAP). All significant intercompany transactions have been eliminated. Investments in partially-
owned affiliates are accounted for by the equity method when the Company’s interest exceeds 20% and the
Company does not have a controlling interest. The financial results for the year ended September 30, 2009 include
an out of period adjustment of $62 million made in the first and second quarters of fiscal 2009 to correct an error
related to the power solutions segment. The correction of the error, which reduces segment income, primarily
originated in fiscal 2007 and 2008 and resulted in the overstatement of inventory and understatement of cost of sales
in prior periods. The Company determined that the impact of the error on the originating periods was immaterial,
and accordingly a restatement of prior period amounts was not considered necessary. The Company also determined
the impact of correcting the error in fiscal 2009 was not material.
On October 1, 2010, the Company adopted Accounting Standards Update (ASU) No. 2009-17, ―Consolidations
(Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.‖ ASU
No. 2009-17 amends the consolidation guidance applicable to variable interest entities (―VIEs‖) and requires
additional disclosures concerning an enterprise’s continuing involvement with VIEs. Under certain criteria as
provided for in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810,
―Consolidation,‖ the Company may consolidate a partially-owned affiliate. To determine whether to consolidate a
partially-owned affiliate, the Company first determines if the entity is a VIE. An entity is considered to be a VIE if it
has one of the following characteristics: 1) the entity is thinly capitalized; 2) residual equity holders do not control
the entity; 3) equity holders are shielded from economic losses or do not participate fully in the entity’s residual
economics; or 4) the entity was established with non-substantive voting. If the entity meets one of these
characteristics, the Company then determines if it is the primary beneficiary of the VIE. The party with the power to
direct activities of the VIE that most significantly impact the VIE’s economic performance and the potential to
absorb benefits or losses that could be significant to the VIE is considered the primary beneficiary and consolidates
the VIE. The Company evaluated the impact of this guidance and determined that the adoption did not result in
consolidation of additional entities or deconsolidation of existing VIEs. As such, the adoption of this guidance had
no impact on the Company’s consolidated financial condition and results of operations, and appropriate disclosures
have been included herein.
Consolidated VIEs
Based upon the criteria set forth in ASC 810, the Company has determined that for the reporting periods ended
September 30, 2011 and 2010 it was the primary beneficiary in two VIEs in which it holds less than 50% ownership
as the Company absorbs significant economics of the entities and has the power to direct the activities that are
considered most significant to the entities. The Company funds the entities’ short term liquidity needs through
revolving credit facilities and has the power to direct the activities that are considered most significant to the entities
through its key customer supply relationships. These two VIEs manufacture products in North America for the
automotive industry. The carrying amounts and classification of assets (none of which are restricted) and liabilities
included in the Company’s consolidated statements of financial position for the consolidated VIEs are as follows (in
millions):
September 30,
2011
2010
Current assets
$
207
$
215
Noncurrent assets
55
69
Total assets
$
262
$
284
Current liabilities
$
144
$
174
Noncurrent liabilities
-
-
Total liabilities
$
144
$
174