ADT 2006 Annual Report Download - page 181

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Income Taxes (Continued)
The Company and its subsidiaries’ income tax returns are periodically examined by various tax
authorities. See ‘‘Income Taxes’’ in Note 18.
The calculation of our tax liabilities involves dealing with uncertainties in the application of
complex tax regulations in a multitude of jurisdictions across our global operations. We recognize
potential liabilities and record tax liabilities for anticipated tax audit issues in the U.S. and other tax
jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due.
These tax liabilities are reflected net of related tax loss carryforwards. We adjust these reserves in light
of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the
ultimate resolution may result in a payment that is materially different from our current estimate of the
tax liabilities. Further, management has reviewed with tax counsel the issues raised by these taxing
authorities and the adequacy of these recorded amounts. If the Company’s estimate of tax liabilities
proves to be less than the ultimate assessment, an additional charge to expense would result. If
payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the
liabilities may result in income tax benefits being recognized in the period when we determine the
liabilities are no longer necessary. Substantially all of these potential tax liabilities are recorded in other
liabilities on the Consolidated Balance Sheets as payment is not expected within one year.
Except for earnings that are currently distributed, no additional 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, the investments are essentially permanent in duration, or the Company
has concluded that no additional tax liability will arise as a result of the distribution of such earnings. A
liability could arise if amounts are distributed by such subsidiaries or if such subsidiaries are ultimately
disposed. It is not practicable to estimate the additional income taxes related to permanently reinvested
earnings or the basis differences related to investments in subsidiaries.
9. Cumulative Effect of Accounting Change
During 2006, the Company adopted FIN No. 47. Accordingly, the Company has recognized asset
retirement obligations of $32 million and property, plant and equipment, net of $10 million in its
Consolidated Balance Sheet at September 29, 2006. In addition, the Company recorded a cumulative
effect of accounting change which resulted in a $14 million after-tax loss ($22 million pre-tax). Refer to
Note 1 for additional information on FIN No. 47.
During 2005, the Company changed the measurement date for its pension and postretirement
benefit plans, from September 30th to August 31st, effective October 1, 2004. The Company believes
that the one-month change of measurement date is a preferable change as it allows management
adequate time to evaluate and report the actuarial information in the Company’s Consolidated
Financial Statements under the accelerated reporting deadlines. As a result of this change, the
Company recorded a $21 million after-tax gain ($28 million pre-tax) cumulative effect of accounting
change. Refer to Note 19 for additional information on retirement plans.
2006 Financials 119