DIRECTV 2008 Annual Report Download - page 97

THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(continued)
We assessed the deferred tax assets for the respective periods for recoverability and, where
applicable, we recorded a valuation allowance to reduce the total deferred tax assets to an amount that
will, more likely than not, be realized in the future.
The valuation allowance balances of $511 million at December 31, 2008 and $605 million at
December 31, 2007, are primarily attributable to the unused foreign operating losses and unused capital
losses, both of which are available for carry forward. For the year ended December 31, 2008, the
decrease in the valuation allowance was primarily attributable to the realization of an $87 million
deferred tax asset for Brazilian net operating loss carryforwards. The reversal of the valuation
allowance was based on management’s evaluation that it is more likely than not that Brazilian net
operating loss carryforwards which have not been previously realized will be utilized as a result of the
recent profitability of the Brazilian operations and its financial projections. $22 million of the valuation
allowance reversal was attributable to the minority interest in the Brazilian operations and was reported
as a reduction in the foreign income tax expense. Additionally, $65 million of the valuation allowance
reversal was reported as a reduction to both future U.S. tax credits and goodwill that was recognized
upon our acquisition of Sky Brazil.
Although realization is not assured, we have concluded that it is more likely than not that our
unreserved deferred tax assets will be realized in the ordinary course of operations based on 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, 2008, we have approximately $1.7 billion of foreign net operating losses that
are primarily attributable to operations in Brazil with varying expiration dates, foreign tax credits of
$45 million that expire between 2009 and 2017, and state research tax credits of approximately
$40 million that 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 $269 million in 2008. It is
not practicable to determine the amount of the unrecognized deferred tax liability related to the
investments in foreign subsidiaries.
A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized
tax benefits is as follows:
(Dollars in Millions)
Gross unrecognized tax benefits at January 1, 2007 ........... $159
Increases in tax positions for prior years ................. 102
Increases in tax positions for the current year ............. 34
Settlements ...................................... (4)
Gross unrecognized tax benefits at December 31, 2007 ........ 291
Increases in tax positions for prior years ................. 75
Increases in tax positions for the current year ............. 26
Statute expiration .................................. (38)
Settlements ...................................... 9
Gross unrecognized tax benefits at December 31, 2008 ........ $363
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