Johnson Controls 2013 Annual Report Download - page 67

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Derivative Financial Instruments
The Company has written policies and procedures that place all financial instruments under the direction of corporate treasury
and restrict all derivative transactions to those intended for hedging purposes. The use of financial instruments for speculative
purposes is strictly prohibited. The Company uses financial instruments to manage the market risk from changes in foreign exchange
rates, commodity prices, stock-based compensation liabilities and interest rates.
The fair values of all derivatives are recorded in the consolidated statements of financial position. The change in a derivative’s
fair value is recorded each period in current earnings or accumulated other comprehensive income, depending on whether the
derivative is designated as part of a hedge transaction and if so, the type of hedge transaction. See Note 10, “Derivative Instruments
and Hedging Activities,” and Note 11, “Fair Value Measurements,” of the notes to consolidated financial statements for disclosure
of the Company’s derivative instruments and hedging activities.
Pension and Postretirement Benefits
The Company utilizes a mark-to-market approach for recognizing pension and postretirement benefit expenses, including
measuring the market related value of plan assets at fair value and recognizing actuarial gains and losses in the fourth quarter of
each fiscal year or at the date of a remeasurement event. Refer to Note 15, "Retirement Plans," of the notes to consolidated financial
statements for disclosure of the Company's pension and postretirement benefit plans.
Retrospective Changes
In addition to the change in inventory costing method discussed in the "Inventories" section above, certain amounts in the prior
years have been revised to conform to the current year’s presentation.
Effective October 1, 2012, the Company reorganized the reportable segments within its Automotive Experience business to align
with its new management reporting structure and business activities. As a result of this change, Automotive Experience is comprised
of three new reportable segments for financial reporting purposes: Seating, Interiors and Electronics. Historical information has
been revised to reflect the new Automotive Experience reportable segment structure. Refer to Note 6, “Goodwill and Other
Intangible Assets,” and Note 19, “Segment Information,” of the notes to consolidated financial statements for further information.
In January 2013, the Company’s shareholders approved a restatement of the Company’s articles of incorporation that included the
simplification of the par value of the Company’s common stock by changing the par value from $0.01 7/18 per share to $1.00 per
share. This change resulted in an increase to common stock and corresponding reduction in capital in excess of par value in the
consolidated statements of financial position and is reported through retrospective application of the new par value for all periods
presented.
The net gains related to business divestitures are now included in the gain on business divestitures - net line within the consolidated
statements of income. In the prior year, net gains related to business divestitures were included in the selling, general and
administrative expenses line.
New Accounting Pronouncements
In July 2013, the FASB issued Accounting Standards Update (ASU) No. 2013-11, "Income Taxes (Topic 740): Presentation of an
Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a similar Tax Loss, or a Tax Credit Carryforward Exists."
ASU No. 2013-11 clarifies that companies should present an unrecognized tax benefit as a reduction to a deferred tax asset for a
net operating loss carryforward, a similar tax loss or a tax credit carryforward. ASU No. 2013-11 will be effective prospectively
for the Company for the quarter ending December 31, 2014, with early adoption permitted. The Company is currently assessing
the impact on its consolidated statement of financial position; however, the adoption of this guidance will have no impact on the
Company's consolidated results of operations.
In March 2013, the FASB issued ASU No. 2013-05, "Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative
Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment
in a Foreign Entity." ASU No. 2013-05 clarifies when companies should release the cumulative translation adjustment (CTA) into
net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial
interest in a subsidiary or group of assets within a foreign entity. Additionally, ASU No. 2013-05 states that CTA should be released
into net income upon an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the
acquisition date (step acquisition). ASU No. 2013-05 will be effective prospectively for the Company for the quarter ending