ADT 2015 Annual Report Download - page 163

FORM 10-K
Federal and state NOL carryforwards will expire between 2016 and 2033. 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 NOL carryforwards will be fully utilized prior to expiration. Of the $2.5 billion U.S. Federal NOL
carryforwards, $0.7 billion was generated prior to the separation from Tyco and is subject to limitation as an
“ownership change” is deemed to have occurred upon Separation from Tyco on September 28, 2012 pursuant to
Internal Revenue Code (the “Code”) Section 382. The Company does not, however, expect that this limitation
will impact its ability to utilize the tax attributes carried forward from pre-Separation periods. The Company
recognizes tax benefits associated with stock based compensation directly to stockholders’ equity when realized.
Accordingly, deferred tax assets are not recognized for net operating loss carryforwards resulting from windfall
tax benefits. A windfall tax benefit occurs when tax deductions related to equity compensation are greater than
compensation recognized for financial reporting. Stockholders’ equity will be increased by $17 million if and
when such deferred tax assets are ultimately realized. The Company uses a tax law ordering approach to
determine if the excess tax deductions associated with compensation costs have reduced income taxes payable.
Unrecognized Tax Benefits
As of September 25, 2015 and September 26, 2014, the Company had unrecognized tax benefits of $48
million and $49 million, respectively, of which $48 million and $49 million, if recognized, would affect the
effective tax rate. The Company recognizes interest and penalties related to unrecognized tax benefits in income
tax expense. Accrued interest and penalties related to the unrecognized tax benefits as of September 25, 2015 and
September 26, 2014 were not material. All unrecognized tax benefits and related interest were presented as non-
current in the Company’s Consolidated Balance Sheet as of September 25, 2015.
The impact to the income tax expense for interest and penalties related to unrecognized tax benefits was not
material for fiscal years 2015, 2014 and 2013.
The following is a rollforward of unrecognized tax benefits for the years ended September 25, 2015,
September 26, 2014 and September 27, 2013 ($ in millions):
2015 2014 2013
Balance as of beginning of year ............................ $ 49 $ 87 $ 88
Reductions related to lapse of statute of limitations ............. — — (1)
Additions/(Reductions) based on tax positions related to prior
years ............................................... 1 (38) —
Increase related to acquisitions ............................. — 15 —
Decrease due to reductions in the AMT payable ............... — (18) —
Other changes not impacting the income statement ............. (2) 3 —
Balance as of end of year ................................. $ 48 $ 49 $ 87
Based on the current status of its income tax audits, the Company believes that it is reasonably possible that
an immaterial amount of unrecognized tax benefits may be resolved in 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 ....................................... 2008 – 2014
United States ................................... 1997 – 2014
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