ADT 2008 Annual Report Download - page 224

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Income Taxes (Continued)
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 26, 2008 and September 28, 2007 are as follows ($ in millions):
2008 2007
Deferred tax assets:
Accrued liabilities and reserves .............................. $ 360 $ 375
Tax loss and credit carryforwards ............................. 1,556 1,418
Postretirement benefits .................................... 256 255
Deferred revenue ........................................ 248 272
Other ................................................. 389 336
2,809 2,656
Deferred tax liabilities:
Property, plant and equipment ............................... (538) (653)
Intangibles assets ........................................ (349) (269)
Other ................................................. (148) (218)
(1,035) (1,140)
Net deferred tax asset before valuation allowance ................... 1,774 1,516
Valuation allowance ........................................ (745) (644)
Net deferred tax asset ..................................... $1,029 $ 872
At September 26, 2008, the Company had $3,822 million of net operating loss carryforwards in
certain non-U.S. jurisdictions. Of these, $3,192 million have no expiration, and the remaining
$630 million will expire in future years through 2028. In the U.S., there were approximately
$1,478 million of federal and $1,669 million of state net operating loss carryforwards at September 26,
2008, which will expire in future years through 2028.
The valuation allowance for deferred tax assets of $745 million and $644 million at September 26,
2008 and September 28, 2007, 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 on our Consolidated Balance Sheets. 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 26, 2008,
approximately $110 million of the valuation allowance will ultimately reduce goodwill if the net
operating losses are utilized.
The Company and its subsidiaries’ income tax returns periodically are examined by various tax
authorities.
Tyco adopted the recognition, measurement and disclosure provisions of FIN No. 48 on
September 29, 2007. As a result of this adoption, Tyco increased its reserve for uncertain tax positions
by $55 million and reduced its deferred tax assets by $24 million with a corresponding $79 million
cumulative effect of adoption adjustment to shareholders’ equity. As of the adoption date, Tyco had
unrecognized tax benefits of $370 million, of which $241 million, if recognized would affect the
effective tax rate. As of September 26, 2008, Tyco had unrecognized tax benefits of $369 million, of
2008 Financials 121