Memorex 2010 Annual Report Download - page 74

The components of net deferred tax assets and liabilities were as follows:
2010 2009
As of December 31,
(In millions)
Accounts receivable allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8.1 $ 9.3
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.0 11.1
Compensation and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.9 13.6
Tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.4 6.9
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54.2 22.7
Accrued liabilities and other reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.1 22.2
Pension. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.0 12.1
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2.3
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 —
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 —
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.0 7.7
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145.3 107.9
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (127.4) (22.9)
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.9 85.0
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (7.5)
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (2.6)
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (10.1)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17.9 $ 74.9
We regularly assess the likelihood that our deferred tax assets will be recovered in the future. A valuation allowance
is recorded to the extent we conclude a deferred tax asset is not considered to be more-likely-than-not to be realized. We
consider all positive and negative evidence related to the realization of the deferred tax assets in assessing the need for a
valuation allowance. If we determine we will not realize all or part of our deferred tax assets, an adjustment to the deferred
tax asset will be charged to earnings in the period such determination is made.
During the fourth quarter of 2010, we recognized significant restructuring charges related to our U.S. operations. Due
to these charges and cumulative losses incurred in recent years, we were no longer able to conclude that it was more-
likely-than-not that our U.S. deferred tax assets would be fully realized. Therefore, during 2010, we recorded a charge to
establish a valuation allowance of $105.6 million related to our U.S. deferred tax assets, of which $53.3 million related to
beginning of the year U.S. deferred tax assets. The valuation allowance charge is included in income tax provision on our
Consolidated Statement of Operations.
Our accounting for deferred tax consequences represents our best estimate of future events. A valuation allowance
established or revised as a result of our assessment is recorded through income tax provision (benefit) in our Consolidated
Statements of Operations. Changes in our current estimates due to unanticipated events, or other factors, could have a
material effect on our financial condition and results of operations.
The valuation allowance was $127.4 million, $22.9 million, and $18.6 million as of December 31, 2010, 2009 and
2008, respectively. The increase in 2010, as compared to 2009, was due to the establishment of a valuation allowance
against our U.S. deferred tax assets in the amount of $105.6 million, offset by expirations and releases of foreign valuation
allowances in the amount of $1.1 million. The increase in 2009, as compared to 2008, is due to the establishment of
valuation allowances related to the anticipated expiration of certain foreign net operating losses of $4.4 million, offset by a
release of valuation allowances of $0.1 million. Of the aggregate net international operating loss carryforwards totaling
$80.2 million, $27.6 million will expire at various dates up to 2030 and $52.6 million may be carried forward indefinitely.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)