ADT 2013 Annual Report Download - page 148

FORM 10-K
Unrecognized Tax Benefits
As of September 27, 2013 and September 28, 2012, the Company had unrecognized tax benefits of $87
million and $88 million, respectively, of which $69 million and $70 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 $16
million and $10 million as of September 27, 2013 and September 28, 2012, respectively. As of September 27,
2013, the current portion of the unrecognized tax benefits and the related accrued interest, which totaled $28
million and $8 million, respectively, are reflected in income taxes payable on the Company’s Consolidated
Balance Sheet. The amount of income tax expense for interest and penalties related to unrecognized tax benefits
recognized for fiscal years 2013, 2012 and 2011 was immaterial.
A rollforward of unrecognized tax benefits for the years ended September 27, 2013, September 28, 2012 and
September 30, 2011 is as follows ($ in millions):
2013 2012 2011
Balance as of beginning of year ............................ $ 88 $ 3 $ 5
Additions based on tax positions contributed in conjunction with
the Separation ........................................ — 85 —
Reductions related to lapse of statute of limitations ............. (1) — —
Reductions based on tax positions related to prior years ......... — — (1)
Reductions related to settlements ........................... — — (1)
Balance as of end of year ................................. $ 87 $ 88 $ 3
For periods prior to the Separation on 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 for the year ended
September 28, 2012 reflects the impact of tax carryforwards and credits that resulted from the Separation. Based
on the current status of its income tax audits, the Company believes that it is reasonably possible that up to $40
million in unrecognized tax benefits may be resolved in the next twelve months. The resolution of certain
components of the Company’s uncertain tax positions will be offset by an adjustment to the receivable from
Tyco, which was recorded pursuant to the tax sharing agreement entered into in conjunction with the Separation.
See discussion under “Tax Sharing Agreement and Other Income Tax Matters” for additional information on this
tax sharing agreement.
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 ....................................... 2005 – 2013
United States ................................... 1997 – 2013
Undistributed Earnings of Subsidiaries
The Company’s primary non-U.S. operations are located in Canada. The Company has not provided for
income taxes on the undistributed earnings or for unrecognized deferred tax liabilities for temporary differences
related to its investment in the Company’s Canadian entity since the earnings are expected to be permanently
reinvested and the investment is permanent in duration. The determination of the amount of unrecognized
deferred tax liabilities is not practicable because of the complexities associated with the calculation including the
manner in which the Canadian entity was treated for purposes of the Separation as well as the complexities of the
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