ADT 2012 Annual Report Download - page 173

As of September 28, 2012, the Company had approximately $1.3 billion of U.S. Federal net operating loss
carryforwards, $637 million of state net operating loss carryforwards and no foreign net operating loss
carryforwards. The U.S. Federal carryforward will expire between 2016 and 2032, and the state carryforwards
will expire between 2013 and 2032. Of the $1.3 billion U.S. Federal net operating loss carryforwards, $1.1 billion
was generated by a prior consolidated group and is subject to Separate Return Limitation Year (“SRLY”) rules
which place limits on the amount of SRLY loss that can offset consolidated taxable income in the future.
Although future utilization will depend on the Company’s actual profitability and the result of income tax audits,
the Company anticipates that its U.S Federal net operating loss carryforwards will be fully utilized prior to
expiration.
Unrecognized Tax Benefits
As of September 28, 2012 and September 30, 2011, the Company had unrecognized tax benefits of
$88 million and $3 million, respectively, of which $70 million and $2 million, if recognized, would affect the
effective tax rate. The Company recognizes interest and penalties related to unrecognized tax benefits in income
tax expense. The Company had accrued interest and penalties related to the unrecognized tax benefits of
$10 million and $1 million as of September 28, 2012 and September 30, 2011, respectively, of which
approximately $9 million was contributed with the Separation. The amount of income tax expense for interest
and penalties related to unrecognized tax benefits recognized for the years ended September 28, 2012,
September 30, 2011 and September 24, 2010 was immaterial.
A rollforward of unrecognized tax benefits as of September 28, 2012, September 30, 2011 and
September 24, 2010 is as follows ($ in millions):
2012 2011 2010
Balance as of beginning of year ............................ $ 3 $ 5 $ 5
Additions based on tax positions contributed in conjunction with
the Separation ........................................ 85 — —
Reductions based on tax positions related to prior years ......... — (1) —
Reductions related to settlements ........................... — (1) —
Balance as of end of year ................................. $ 88 $ 3 $ 5
For periods prior to September 28, 2012, the unrecognized tax benefits reflected in the Company’s
Consolidated and Combined Financial Statements have been determined using the Separate Return Method. The
increase in the balance of the Company’s unrecognized tax benefits reflect the impact of tax carryforwards and
credits that resulted from the Separation. The Company does not anticipate that the total amount of the
unrecognized tax benefits will change significantly within the next twelve months.
Many of the Company’s uncertain tax positions relate to tax years that remain subject to audit by the taxing
authorities in the U.S. federal, state and local or foreign jurisdictions. Open tax years in significant jurisdictions
are as follows:
Jurisdiction
Years
Open To Audit
Canada ....................................... 2004 – 2012
United States ................................... 1997 – 2012
Undistributed Earnings of Subsidiaries
The Company’s primary non-U.S. operations are located in Canada. No additional provision has been
accrued for U.S. or non-U.S. income taxes on the undistributed earnings or for unrecognized deferred tax
liabilities for temporary differences related to investments in the Company’s Canadian entity since the earnings
are expected to be permanently reinvested and the investments are permanent in duration. Determination of the
amount of any unrecognized deferred tax liability is not practicable.
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