Johnson Controls 2012 Annual Report Download - page 96

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96
In the second quarter of fiscal 2010, the Company concluded it had a triggering event requiring assessment of
impairment of its long-lived assets due to planned plant closures for the Automotive Experience North America
segment. These closures are a result of the Company’s revised restructuring actions to the 2008 restructuring plan.
As a result, the Company reviewed its long-lived assets for impairment and recorded a $19 million impairment
charge in the second quarter of fiscal 2010 related to the Automotive Experience North America segment. This
impairment charge was offset by a decrease in the Company’s restructuring reserve related to the 2008 restructuring
plan due to lower employee severance and termination benefit cash payments than previously expected. The
impairment was measured under an income approach utilizing forecasted discounted cash flows to determine the fair
value of the impaired assets. This method is consistent with the method the Company has employed in prior periods
to value other long-lived assets. The inputs utilized in the discounted cash flow analysis are classified as Level 3
inputs within the fair value hierarchy as defined in ASC 820, ―Fair Value Measurements and Disclosures.‖
17. INCOME TAXES
In the fourth quarter of fiscal 2012, the Company changed its accounting policy for recognizing pension and
postretirement benefit expenses. Certain amounts have been revised to reflect the retrospective application of this
accounting policy change. The $691 million adjustment to the opening balance of retained earnings as of September
30, 2009 was net of a tax benefit of $411 million. Refer to Note 1, ―Summary of Significant Accounting Policies,‖
of the notes to consolidated financial statements for further details surrounding this accounting policy change.
The more significant components of the Company’s income tax provision from continuing operations are as follows
(in millions):
Year Ended September 30,
2012
2011
2010
Tax expense at federal statutory rate
$
557
$
626
$
528
State income taxes, net of federal benefit
20
(10)
28
Foreign income tax expense at different rates and
foreign losses without tax benefits
(300)
(351)
(311)
U.S. tax on foreign income
(20)
28
(3)
Reserve and valuation allowance adjustments
13
(30)
(138)
Medicare Part D
-
-
16
U.S. credits and incentives
(13)
(7)
(3)
Other
(20)
1
10
Provision for income taxes
$
237
$
257
$
127
The effective rate is below the U.S. statutory rate primarily due to continuing global tax planning initiatives and
income in certain non-U.S. jurisdictions with a rate of tax lower than the U.S. statutory tax rate.
Valuation Allowances
The Company reviews the realizability of 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 are 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 2012, the Company recorded an overall increase to its valuation allowances of $47 million primarily due to
a discrete period income tax adjustment in the fourth quarter. In the fourth quarter of fiscal 2012, the Company
performed an analysis related to the realizability of its worldwide deferred tax assets. 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 deferred tax assets within Power Solutions in China would not be utilized. Therefore, the
Company recorded a $35 million valuation allowance in the three month period ended September 30, 2012.
In fiscal 2011, the Company recorded a decrease to its valuation allowances primarily due to a $30 million discrete
period income tax adjustment in the fourth quarter. In the fourth quarter of fiscal 2011, the Company performed an
analysis related to the realizability of its worldwide deferred tax assets. As a result, and after considering tax