ADT 2002 Annual Report Download - page 94

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Income Taxes (continued)
The deferred income tax balance sheet accounts result from temporary differences between the
amount of assets and liabilities recognized for financial reporting and tax purposes. The components of
the net deferred income tax asset are as follows ($ in millions), as restated for the adjustments
discussed in Note 1:
September 30,
2002 2001
(restated) (restated)
Deferred tax assets:
Accrued liabilities and reserves ....................... $1,758.0 $ 1,527.0
Tax loss and credit carryforwards ...................... 1,679.7 762.0
Capitalized research and development and interest ......... 148.5 139.6
Other ......................................... 553.8 211.5
4,140.0 2,640.1
Deferred tax liabilities:
Property, plant and equipment ....................... (256.6) (250.7)
Intangibles ...................................... (770.6) (564.0)
Undistributed earnings of subsidiaries .................. (80.1) (126.1)
Other ......................................... (276.2) (564.3)
(1,383.5) (1,505.1)
Net deferred income tax asset before valuation allowance .... 2,756.5 1,135.0
Valuation allowance ............................... (603.9) (199.1)
Net deferred income tax asset ........................ $2,152.6 $ 935.9
At September 30, 2002, the Company had approximately $1,275.0 million of net operating loss
carryforwards in certain non-U.S. jurisdictions. Of these, $647.0 million have no expiration, and the
remaining $628.0 million will expire in future years through 2012. U.S. operating loss carryforwards at
September 30, 2002 were approximately $2,501.0 million and will expire in future years through 2022.
Of these U.S. losses, approximately $455.0 million are limited in their use by ‘‘change of ownership’’
rules as defined in the Internal Revenue Code of 1986. There are other limitations imposed on the
utilization of net operating losses that could further restrict the recognition of such tax benefits. A
valuation allowance has been provided primarily for operating loss carryforwards that are not expected
to be utilized. The valuation allowance has increased substantially over the prior year. The increase in
valuation allowance is primarily due to the uncertainty of the utilization of certain non-U.S. net
operating losses. At September 30, 2002, approximately $119.0 million of the valuation allowance will
ultimately reduce goodwill if the net operating losses are utilized.
The Company and its subsidiaries’ income tax returns are routinely examined by various regulatory
tax authorities. In connection with such examinations, tax authorities, including the Internal Revenue
Service, have raised issues and proposed tax deficiencies. The Company is reviewing the issues raised
by the tax authorities and is contesting such proposed deficiencies. Amounts related to these tax
deficiencies and other tax contingencies that management has assessed as probable and estimable have
been accrued through the income tax provision. Further, management has reviewed with tax counsel
the issues raised by these taxing authorities and the adequacy of these tax accrued amounts.
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