ADT 2007 Annual Report Download - page 210

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Income Taxes (Continued)
Non-U.S. (loss) income from continuing operations before income taxes was $(2,572) million,
$1,052 million and $402 million for 2007, 2006 and 2005, respectively.
The reconciliation between U.S. federal income taxes at the statutory rate and the Company’s
provision for income taxes on continuing operations for the years ended September 28, 2007,
September 29, 2006, and September 30, 2005 is as follows ($ in millions):
2007 2006 2005
Notional U.S. federal income tax (benefit) expense at the
statutory rate ................................... $ (763) $ 397 $ 214
Adjustments to reconcile to the income tax provision:
U.S. state income tax provision, net ................... 23 35 26
Non-U.S. net earnings(1) ........................... (55) (207) (221)
Nondeductible charges ............................ 1,176 83 45
Valuation allowance .............................. (129) 39 (134)
Loss on retirement of debt ......................... 91 (98) 155
Other ........................................ (9) 61 (56)
Provision for income taxes ......................... $ 334 $310 $ 29
(1) Excludes asset impairments, nondeductible charges, and other items which are broken out separately in the table.
Included in the nondeductible charges for 2007 is the class action settlement, net of $2.862 billion.
Additionally, the nondeductible charges include $105 million associated with Separation costs which
were not fully deductible as well as a write-off of deferred tax assets in entities that were liquidated as
part of the Separation. The loss on retirement of debt includes charges related to the early
extinguishment of debt of $259 million for which no tax benefit is available. The valuation allowance
benefit includes a tax impact of $72 million associated with identification of tax planning to ensure
realization of certain deferred tax assets as well as a net benefit of $51 million associated with changes
in valuation allowances driven primarily by increased profitability in certain jurisdictions.
Included in the loss on retirement of debt in 2006 is a cumulative one-time benefit associated with
the receipt of a favorable tax ruling in the fourth quarter of 2006 permitting the deduction of prior
year debt retirement costs not previously benefited. This benefit is partially offset by a valuation
allowance on the net operating losses created by the debt retirement deductions.
118 2007 Financials