DIRECTV 2004 Annual Report Download - page 93

THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued)
The valuation allowance balances at December 31, 2004 and 2003 of $214.6 million and $164.1 million, respectively, are
primarily attributable to the unused foreign operating losses which are available to be carried forward and unused capital losses
which are also available to be carried forward. For the year ended December 31, 2004, the change in the valuation allowance
was primarily attributable to a $78.3 million increase for the tax effect of current year capital losses for which we have not
recognized a tax benefit and a $17.3 million increase attributable to the tax benefit of current year foreign losses for which we
have not recognized a tax benefit. These increases to the valuation allowance were offset by decreases of $45.1 million which
were primarily attributable to the current utilization of foreign tax losses and attributes that have been carried forward and for
which no tax benefit has previously been recognized. A portion of the changes in the valuation allowance is included in
“Income (loss) from discontinued operations, net of taxes” in the Consolidated Statements of Operations.
Although realization is not assured, we have concluded that it is more likely than not that the deferred tax assets for which a
valuation allowance was determined to be unnecessary will be realized in the ordinary course of operations based on the
available positive and negative evidence, including scheduling of deferred tax liabilities and projected income from operating
activities. The underlying assumptions we use in forecasting future taxable income require significant judgment and take into
account our recent performance.
As of December 31, 2004, we have approximately $1.0 billion of federal net operating losses which expire in 2023, foreign net
operating losses of $361.4 million with varying expiration dates, federal research tax credits of $61.0 million which expire
between 2018 and 2023, and alternative minimum tax credits of $57.2 million which can be carried forward indefinitely.
No income tax provision has been made for the portion of undistributed earnings of foreign subsidiaries deemed permanently
reinvested that amounted to approximately $21.4 million and $24.5 million at December 31, 2004 and 2003, respectively. It is
not practicable to determine the amount of the unrecognized deferred tax liability related to the investments in foreign
subsidiaries.
As part of our split-off from GM in 2003, we and GM amended the income tax allocation agreement that governs the allocation
of certain U.S. income tax liabilities and certain other tax matters. Under the amended terms, for tax periods prior to our split-
off from GM, we will be treated as the common parent of a separate affiliated group of corporations filing a consolidated return.
GM will compensate us for any tax benefits, such as net operating loss and tax credit carryforwards that have not been used to
offset our separate income tax liability through the date of our split-off from GM, but have been used by the GM consolidated
group. Such compensation will not exceed $75.4 million, and in the case of net operating losses and similar tax attributes, the
amount of compensation payable to GM is based on a 24% rate.
At the time of our split-off from GM, the amount of our tax receivable from GM, as determined on a separate return basis,
exceeded the receivable determined pursuant to the amended income tax allocation agreement by $25.1 million. We reported
such amount as a distribution to GM.
We have an agreement with Boeing, which governs our rights and obligations with respect to U.S. federal and state income
taxes for all periods prior to the sale of our satellite systems manufacturing businesses in 2000. We are responsible for any
income taxes pertaining to those periods prior to the sale, including any additional income taxes resulting from U.S. federal and
state tax audits, and we are entitled to any U.S. federal and state income tax refunds relating to those years.
We also have an agreement with Raytheon Company, or Raytheon, which governs our rights and obligations with respect to
U.S. federal and state income taxes for all periods prior to the spin-off and merger of our defense electronics business with
Raytheon in 1997. We are responsible for any income taxes pertaining to those periods
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