ADT 2008 Annual Report Download - page 223

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Income Taxes (Continued)
Non-U.S. income (loss) from continuing operations before income taxes was $1,010 million,
$(2,587) million and $1,040 million for 2008, 2007 and 2006, respectively.
The reconciliation between U.S. federal income taxes at the statutory rate and the Company’s
provision for income taxes on continuing operations for the years ended September 26, 2008,
September 28, 2007, and September 29, 2006 is as follows ($ in millions):
2008 2007 2006
Notional U.S. federal income tax (benefit) expense at the
statutory rate ................................. $501 $(769) $ 393
Adjustments to reconcile to the income tax provision:
U.S. state income tax provision, net ................ 34 23 35
Non-U.S. net earnings(1) ......................... (240) (58) (208)
Nondeductible charges .......................... 46 1,176 83
Valuation allowance ............................ (70) (129) 39
Non-deductible loss on retirement of debt ............ — 91 (98)
Other ...................................... 64 (10) 60
Provision for income taxes ....................... $335 $ 324 $304
(1) Excludes nondeductible charges and other items which are broken out separately in the table.
Included in income taxes for 2008 is a benefit from increased profitability in operations in lower
tax rate jurisdictions partially offset by enacted tax law changes that negatively impacted non-U.S.
deferred tax assets. The valuation allowance benefit includes a tax impact of $70 million associated with
business restructurings, which increased the Company’s profitability in certain jurisdictions.
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.
120 2008 Financials