ADT 2009 Annual Report Download - page 139

$647 million, with $259 million included in continuing operations and $388 million allocated to
Covidien and Tyco Electronics and included in discontinued operations.
Income Taxes
Effective Income Tax Rate
The effective income tax rate for 2009 is not meaningful primarily as a result of the loss driven by
the goodwill impairment charges of $2.6 billion, for which almost no tax benefit is available. Our
effective income tax rate was 23.4% for 2008. Income taxes during 2008 were positively impacted by
increased profitability in lower tax rate jurisdictions and release of deferred tax valuation allowances
partially offset by enacted tax law changes that negatively impacted the non-U.S. deferred tax assets.
The effective tax rate for 2007 is not meaningful primarily as a result of the class action settlement
charge, net of $2.862 billion and the loss on early extinguishment of debt of $259 million for which no
tax benefit is available. Additionally, taxes for 2007 were negatively impacted by tax costs related to the
Separation and were favorably impacted by the release of a deferred tax valuation allowance related to
non-U.S. tax rulings received during the period and reduced reserve requirements on certain legacy tax
matters.
The valuation allowance for deferred tax assets of $791 million and $742 million as of
September 25, 2009 and September 26, 2008, respectively, relates principally to the uncertainty of the
utilization of certain deferred tax assets, primarily tax loss and credit carryforwards in various
jurisdictions. The valuation allowance was calculated and recorded when we determined that it was
more-likely-than-not that all or a portion of our deferred tax assets would not be realized. We believe
that we 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 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 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 liabilities 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. Substantially all of
these potential tax liabilities are recorded in other liabilities in the Consolidated Balance Sheets as
payment is not expected within one year.
Other Income Tax Matters
In connection with the spin-offs of Covidien and Tyco Electronics from Tyco, Tyco entered into a
Tax Sharing Agreement that governs the rights and obligations of each party with respect to certain
pre-Separation income tax liabilities. More specifically, Tyco, Covidien and Tyco Electronics share 27%,
42% and 31%, respectively, of shared income tax liabilities that arise from adjustments made by tax
authorities to Tyco’s, Covidien’s and Tyco Electronics’ U.S. and certain non-U.S. income tax returns. All
costs and expenses associated with the management of these shared tax liabilities are shared equally
among the parties. Consistent with the sharing provisions of the Tax Sharing Agreement, Tyco had a
net receivable from Covidien and Tyco Electronics of $98 million and $126 million as of September 25,
2009 and September 26, 2008, respectively. In addition, as of both September 25, 2009 and
September 26, 2008, Tyco had a recorded liability of $554 million representing the fair value of Tyco’s
obligations under the Tax Sharing Agreement.
Tyco and its subsidiaries’ income tax returns periodically are examined by various tax authorities.
In connection with these examinations, tax authorities, including the IRS, have raised issues and
2009 Financials 47