ADT 2003 Annual Report Download - page 96

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The deferred income tax balance sheet accounts result from
temporary differences between the amount of assets and liabil-
ities recognized for financial reporting and tax purposes. The
components of the net deferred income tax asset are as follows
($ in millions):
SEPTEMBER 30, 2003 2002
Deferred tax assets:
Accrued liabilities and reserves $«2,318.4 $«2,009.2
Tax loss and credit carryforwards 1,297.8 1,679.7
Capitalized research and
development 280.0 63.0
Other 822.5 639.3
4,718.7 4,391.2
Deferred tax liabilities:
Property, plant and equipment (487.3) (256.6)
Intangibles (1,000.3) (770.6)
Undistributed earnings of subsidiaries (80.1) (80.1)
Other (868.5) (527.4)
(2,436.2) (1,634.7)
Net deferred income tax asset
before valuation allowance 2,282.5 2,756.5
Valuation allowance (852.9) (603.9)
Net deferred income tax asset $«1,429.6 $«2,152.6
At September 30, 2003, the Company had $1,826.5 million of
net operating loss carryforwards in certain non-U.S. jurisdic-
tions. Of these, $804.1 million have no expiration, and the
remaining $1,022.4 million will expire in future years through
2013. In the U.S., there were approximately $1,256.7 million of
federal and $4,376.4 million of state net operating loss carry-
forwards at September 30, 2003, which will expire in future
years through 2023.
The deferred tax asset valuation allowance increased by
approximately $249 million due to the uncertainty of the uti-
lization of certain non-U.S. deferred tax assets. The Company
believes that it will generate sufficient future taxable income to
realize the tax benefits related to the remaining net deferred tax
assets on the balance sheet. The valuation allowance was calcu-
lated in accordance with the provisions of SFAS No. 109 which
requires a valuation allowance be established or maintained
when it is “more likely than not” that all or a portion of deferred
tax assets will not be realized. At September 30, 2003, approxi-
mately $119 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
periodically 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 certain proposed tax defi-
ciencies. 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
accrued amounts. Management believes that the ultimate reso-
lution of these tax deficiencies and contingencies will not have
a material adverse effect on the Company’s financial condition,
annual results of operations or cash flows.
Except for earnings that are currently distributed, no addi-
tional provision has been made for U.S. or non-U.S. income
taxes on the undistributed earnings of subsidiaries or for
unrecognized deferred tax liabilities for temporary differences
related to investments in subsidiaries, as such earnings are
expected to be permanently reinvested, or the investments are
essentially permanent in duration. A liability could arise if
amounts were distributed by their subsidiaries or if their sub-
sidiaries were disposed. It is not practicable to estimate the
additional taxes related to the permanently reinvested earnings
or the basis differences related to investments in subsidiaries.
TYCO INTERNATIONAL LTD.
Notes to Consolidated Financial Statements