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Income Taxes
9 Months Ended
Jun. 30, 2015
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
For each interim reporting period, the company makes an estimate of the effective tax rate expected to be applicable for the full fiscal year pursuant to FASB ASC Topic 740-270, “Accounting for Income Taxes in Interim Periods.” The rate so determined is used in providing for income taxes on a year-to-date basis. Jurisdictions with a projected loss for the year or an actual year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of including these jurisdictions on the quarterly effective rate calculation could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings versus annual projections.
Income tax expense (benefit) is allocated between continuing operations, discontinued operations and other comprehensive income (OCI). Such allocation is applied by tax jurisdiction, and in periods in which there is a pre-tax loss from continuing operations and pre-tax income in another category, such as discontinued operations or OCI, income tax expense is allocated to the other sources of income, with a related benefit recorded in continuing operations.
For the three months ended June 30, 2015, the company had approximately $6 million of net pre-tax income compared to $149 million of net pre-tax income in the same period in fiscal year 2014 in tax jurisdictions in which tax expense (benefit) is not recorded. For the first nine months of fiscal year 2015, the company had approximately $42 million of net pre-tax income compared to $184 million in the same period in fiscal year 2014 in tax jurisdictions in which tax expense (benefit) is not recorded. Income or losses arising from these jurisdictions resulted in an adjustment to the valuation allowance, rather than an adjustment to income tax expense.
Included in the net pre-tax income for the three months ended June 30, 2014 and the first nine months of fiscal year 2014 is $210 million of earnings from the antitrust lawsuit settlement with Eaton Corporation, including the recovery of $20 million of legal expenses, which was recorded in a jurisdiction with a valuation allowance. This income resulted in a $79 million decrease to the valuation allowance, rather than an increase to income tax expense.
During the first nine months of fiscal year 2015, the company experienced profitability in the U.S. and certain European jurisdictions in which a valuation allowance is recorded. The company continues to evaluate the material positive and negative factors to determine whether there is sufficient evidence to reverse some or all of the valuation allowance.