ADT 2014 Annual Report Download - page 156

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FORM 10-K
determined pursuant to the 2012 Tax Sharing Agreement. In accordance with the 2012 Tax Sharing Agreement,
Tyco is responsible for the first $500 million of tax, interest and penalty assessed against pre-2013 tax years
including its 27% share of the tax, interest and penalty assessed for periods prior to Tyco’s 2007 spin transaction
(“Pre-2007 Spin Periods”). In accordance with the 2012 Tax Sharing Agreement, the amount ultimately assessed
against Pre-2007 Spin Periods with respect to the Tyco IRS Notices and the Partnership Notices would have to be
in excess of $1.85 billion, including other assessments for unrelated historical tax matters Tyco has, or may settle
in the future, before the Company would be required to pay any of the amounts assessed. In addition to the
Company’s share of cash taxes pursuant to the 2012 Tax Sharing Agreement, the Company’s NOL carryforward
may be reduced by audit adjustments to pre-2013 tax periods. The Company believes that its income tax reserves
and the liabilities recorded in the Consolidated Balance Sheet for the 2012 Tax Sharing Agreement continue to be
appropriate. No payments with respect to the Tyco IRS Notices would be required until the dispute is resolved in
the U.S. Tax Court. A trial date has been set for February 2016. However, the ultimate resolution of these matters
is uncertain, and if the IRS were to prevail, it could have a material adverse impact on the Company’s financial
condition, results of operations and cash flows, potentially including a reduction in the Company’s available
NOL carryforwards. Further, to the extent ADT is responsible for any liability under the 2012 Tax Sharing
Agreement, there could be a material impact on its financial position, results of operations, cash flows or its
effective tax rate in future reporting periods.
During the year ended September 26, 2014, Tyco advised the Company of pending IRS settlements related
to certain intercompany corporate expenses deducted on the U.S. income tax returns for the 2005 through 2009
tax years. The settlements reduced the Company’s NOL carryforwards, resulting in a decrease to the Company’s
net deferred tax asset of approximately $17 million.
Other liabilities in the Company’s Consolidated Balance Sheets as of both September 26, 2014 and
September 27, 2013 include $19 million for the fair value of ADT’s obligations under certain tax related
agreements entered into in conjunction with the Separation. The maximum amount of potential future payments
is not determinable as they relate to unknown conditions and future events that cannot be predicted.
8. Retirement Plans
The Company measures its retirement plans as of its fiscal year end.
Defined Benefit Plans—The Company provides a defined benefit pension plan and certain other
postretirement benefits to certain employees. These plans were frozen prior to Separation and are not material to
the Company’s financial statements. As of September 26, 2014 and September 27, 2013, the fair value of pension
plan assets was $62 million and $56 million, respectively, and the fair value of projected benefit obligations in
aggregate was $84 million and $78 million, respectively. As a result, the plans were underfunded by
approximately $22 million at September 26, 2014 and September 27, 2013, respectively, and were recorded as a
net liability in the Consolidated Balance Sheets. Net periodic benefit cost was not material for fiscal years 2014,
2013 and 2012.
Defined Contribution Retirement Plans—Prior to the Separation, the Company maintained through Tyco
several defined contribution retirement plans, including 401(k) matching programs, as well as qualified and
nonqualified profit sharing and share bonus retirement plans. Following the Separation, the Company maintains
its own standalone 401(k) matching programs. Expense for the defined contribution plans is computed as a
percentage of participants’ compensation and was $20 million, $20 million and $22 million for fiscal years 2014,
2013 and 2012, respectively.
Deferred Compensation Plan—Prior to the Separation, the Company maintained through Tyco, a
nonqualified Supplemental Savings and Retirement Plan (“SSRP”), which permits eligible employees to defer a
portion of their compensation. A record keeping account is set up for each participant and the participant chooses
from a variety of measurement funds for the deemed investment of their accounts. The measurement funds
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