ADT 2012 Annual Report Download - page 142

We record impairments to long-lived assets to be disposed of based upon the fair value less cost to sell of
the applicable assets. The calculation of the fair value of long-lived assets is based on assumptions concerning
the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of
perceived risk.
Income Taxes
For purposes of our Consolidated and Combined Financial Statements for periods prior to the Separation on
September 28, 2012, income tax expense, deferred tax balances and tax carryforwards have been recorded as if
we filed tax returns on a standalone basis separate from Tyco (“Separate Return Method”). The Separate Return
Method applies the accounting guidance for income taxes to the standalone financial statements as if we were a
separate taxpayer and a standalone enterprise for the periods prior to the Separation. The deferred tax balances
reflected in our Consolidated and Combined Balance Sheet as of September 28, 2012 have been recorded on a
consolidated return basis and include tax attributes allocated to the Company at the time of the Separation. The
calculation of income taxes for the Company requires a considerable amount of judgment and use of both
estimates and allocations. Historically, we have primarily operated within a Tyco U.S. consolidated group and
within a standalone Canadian entity. In certain instances, tax losses or credits generated by Tyco’s other
businesses will continue to be available to us after the Separation.
In determining taxable income for our Consolidated and Combined Financial Statements, we must make
certain estimates and judgments. These estimates and judgments affect the calculation of certain tax liabilities
and the determination of the recoverability of certain of the deferred tax assets, which arise from temporary
differences between the tax and financial statement recognition of revenue and expense.
In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative
evidence including our past operating results, the existence of cumulative losses in the most recent years and our
forecast of future taxable income. In estimating future taxable income, we develop assumptions including the
amount of future pre-tax operating income, the reversal of temporary differences and the implementation of
feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts
of future taxable income and are consistent with our plans and estimates we are using to manage the underlying
businesses.
We do not have any significant valuation allowances against our net deferred tax assets.
Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future.
Management records the effect of a tax rate or law change on our deferred tax assets and liabilities in the period
of enactment. Future tax rate or law changes could have a material effect on our results of operations, financial
condition or cash flows.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of
complex tax regulations in the United States and Canada. 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. If our 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 would result in tax benefits being recognized in
the period when we determine the liabilities are no longer necessary.
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