ADT 2013 Annual Report Download - page 149

FORM 10-K
applicable foreign and domestic tax laws. If in the future earnings are repatriated to the United States, or if the
Company determines earnings will be remitted in the foreseeable future, an additional tax provision may be
required.
Tax Sharing Agreement and Other Income Tax Matters
In connection with the Separation from Tyco, the Company entered into a tax sharing agreement (the “2012
Tax Sharing Agreement”) with Tyco and Pentair Ltd., formerly Tyco Flow Control International, Ltd. (“Pentair”)
that governs the rights and obligations of ADT, Tyco and Pentair for certain pre-Separation tax liabilities,
including Tyco’s obligations under the tax sharing agreement among Tyco, Covidien Ltd. (“Covidien”), and TE
Connectivity Ltd. (“TE Connectivity”) entered into in 2007 (the “2007 Tax Sharing Agreement”). The 2012 Tax
Sharing Agreement provides that ADT, Tyco and Pentair will share (i) certain pre-Separation income tax
liabilities that arise from adjustments made by tax authorities to ADT’s, Tyco’s, and Pentair’s U.S. and certain
non-U.S. income tax returns, and (ii) payments required to be made by Tyco in respect to the 2007 Tax Sharing
Agreement (collectively, “Shared Tax Liabilities”). Tyco will be responsible for the first $500 million of Shared
Tax Liabilities. ADT and Pentair will share 58% and 42%, respectively, of the next $225 million of Shared Tax
Liabilities. ADT, Tyco and Pentair will share 27.5%, 52.5% and 20.0%, respectively, of Shared Tax Liabilities
above $725 million.
In addition, under the terms of the 2012 Tax Sharing Agreement, in the event the distribution of ADT’s
common shares to the Tyco shareholders (the “Distribution”), the distribution of Pentair common shares to the
Tyco shareholders (the “Pentair Distribution” and, together with the Distribution, the “Distributions”), or certain
internal transactions undertaken in connection therewith were determined to be taxable as a result of actions
taken by ADT, Pentair or Tyco after the Distributions, the party responsible for such failure would be responsible
for all taxes imposed on ADT, Pentair or Tyco as a result thereof. Taxes resulting from the determination that the
Distribution, the Pentair Distribution, or any internal transaction that were intended to be tax-free is taxable are
referred to herein as “Distribution Taxes.” If such failure is not the result of actions taken after the Distributions
by ADT, Pentair or Tyco, then ADT, Pentair and Tyco would be responsible for any Distribution Taxes imposed
on ADT, Pentair or Tyco as a result of such determination in the same manner and in the same proportions as the
Shared Tax Liabilities. ADT has sole responsibility of any income tax liability arising as a result of Tyco’s
acquisition of Broadview Security in May 2010, including any liability of Broadview Security under the tax
sharing agreement between Broadview Security and The Brink’s Company dated October 31, 2008 (collectively,
“Broadview Tax Liabilities”). Costs and expenses associated with the management of Shared Tax Liabilities,
Distribution Taxes, and Broadview Tax Liabilities will generally be shared 20.0% by Pentair, 27.5% by ADT,
and 52.5% by Tyco. ADT is responsible for all of its own taxes that are not shared pursuant to the 2012 Tax
Sharing Agreement’s sharing formulae. In addition, Tyco and Pentair are responsible for their tax liabilities that
are not subject to the 2012 Tax Sharing Agreement’s sharing formulae.
The 2012 Tax Sharing Agreement also provides that, if any party defaults in its obligation to another party
to pay its share of the distribution taxes that arise as a result of no party’s fault, each non-defaulting party is
required to pay, equally with any other non-defaulting party, the amounts in default. In addition, if another party
to the 2012 Tax Sharing Agreement that is responsible for all or a portion of an income tax liability defaults in its
payment of such liability to a taxing authority, ADT could be legally liable under applicable tax law for such
liabilities and required to make additional tax payments. Accordingly, under certain circumstances, ADT may be
obligated to pay amounts in excess of its agreed-upon share of its, Tyco’s and Pentair’s tax liabilities.
The Company recorded a receivable from Tyco for certain tax liabilities incurred by ADT but indemnified
by Tyco under the 2012 Tax Sharing Agreement. This receivable, which is reflected in other assets on the
Consolidated Balance Sheet, totaled $41 million and $44 million as of September 27, 2013 and September 28,
2012, respectively. The actual amount that the Company may be entitled to receive could vary depending upon
the outcome of certain unresolved tax matters, which may not be resolved for several years.
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