ADT 2006 Annual Report Download - page 180

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Income Taxes (Continued)
favorable tax ruling in the fourth quarter of 2006 permitting the deduction of debt retirement costs.
This benefit is partially offset by an increased valuation allowance of $173 million relating to the
deferred tax asset associated with net operating losses created by the debt retirement deductions. This
$173 million is reflected on the valuation allowance line in the table above.
Deferred income taxes result from temporary differences between the amount of assets and
liabilities recognized for financial reporting and tax purposes. The components of the net deferred
income tax asset at September 29, 2006 and September 30, 2005, as restated, are as follows ($ in
millions):
2005
2006 (Restated)
Deferred tax assets:
Accrued liabilities and reserves .................................... $ 993 $1,432
Tax loss and credit carryforwards ................................... 3,293 3,170
Inventories ................................................... 150 154
Postretirement benefits .......................................... 486 587
Deferred revenue .............................................. 266 225
Other ....................................................... 465 584
Deferred tax liabilities: 5,653 6,152
Property, plant and equipment ..................................... (555) (513)
Intangibles assets .............................................. (867) (784)
Other ....................................................... (60) (230)
(1,482) (1,527)
Net deferred tax asset before valuation allowance ........................ 4,171 4,625
Valuation allowance .............................................. (1,731) (1,871)
Net deferred tax asset ........................................... $2,440 $ 2,754
At September 29, 2006, the Company had $5,673 million of net operating loss carryforwards in
certain non-U.S. jurisdictions. Of these, $3,747 million have no expiration, and the remaining
$1,926 million will expire in future years through 2016. Due to a favorable tax ruling in the fourth
quarter of 2006, the Company was able to recognize $1,157 million of net operating loss carryforwards
associated with deduction of debt retirement costs. In the U.S., there were approximately $5,133 million
of federal and $4,675 million of state net operating loss carryforwards at September 29, 2006, which will
expire in future years through 2026.
The valuation allowance for deferred tax assets of $1,731 million and $1,871 million at
September 29, 2006 and September 30, 2005, respectively, relates principally to the uncertainty of the
utilization of certain deferred tax assets, primarily tax loss and credit carryforwards in various
jurisdictions. The Company believes that it will generate sufficient future taxable income to realize the
tax benefits related to the remaining net deferred tax assets. The valuation allowance was calculated in
accordance with the provisions of SFAS No. 109, ‘‘Accounting for Income Taxes,’’ which requires that 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 29, 2006, approximately $153 million of the
valuation allowance will ultimately reduce goodwill if the net operating losses are utilized.
118 2006 Financials