Morgan Stanley 2009 Annual Report Download - page 218

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table reconciles the provision for (benefit from) income taxes to the U.S. federal statutory income
tax rate:
2009
Fiscal
2008
Fiscal
2007
One Month
Ended
December 31,
2008
U.S. federal statutory income tax rate ............................. 35.0% 35.0% 35.0% 35.0%
U.S. state and local income taxes, net of U.S. federal income tax
benefits ................................................... (24.2) (1.7) 0.9 (1.2)
Lower tax rates applicable to non-U.S. earnings ..................... (25.3) (21.7) (2.4) 1.0
Goodwill ................................................... — 20.2 — —
Domestic tax credits ........................................... (22.5) (19.9) (7.4) 1.4
Tax exempt income ........................................... (6.9) (15.7) (4.0) 0.2
Other ...................................................... 4.7 2.0 (1.4) (0.3)
Effective income tax rate(1) .................................... (39.2)% (1.8)% 20.7% 36.1%
(1) The effective tax rate for 2009 includes a tax benefit of $331 million, or $0.28 per diluted share, resulting from the cost of anticipated
repatriation of non-U.S. earnings at lower than previously estimated tax rates. Excluding this benefit, the annual effective tax rate for
2009 would have been a benefit of 1%.
As of December 31, 2009, the Company had approximately $4.0 billion of earnings attributable to foreign
subsidiaries for which no provisions have been recorded for income tax that could occur upon repatriation.
Except to the extent such earnings can be repatriated tax efficiently, they are permanently invested abroad. It is
not practicable to determine the amount of income taxes payable in the event all such foreign earnings are
repatriated.
Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when
such differences are expected to reverse. Significant components of the Company’s deferred tax assets and
liabilities as of December 31, 2009 and December 31, 2008 were as follows:
December 31,
2009
December 31,
2008
(dollars in millions)
Deferred tax assets:
Employee compensation and benefit plans .............................. $3,312 $2,390
Valuation and liability allowances ..................................... 378 536
Deferred expenses ................................................. 52 60
Tax credit and loss carryforward ...................................... 4,820 6,121
Other ........................................................... 81 395
Total deferred tax assets ......................................... 8,643 9,502
Valuation allowance(1) ......................................... 105 202
Deferred tax assets after valuation allowance ........................ $8,538 $9,300
Deferred tax liabilities:
Valuation of inventory, investments and receivables ...................... $ 587 $1,886
Prepaid commissions ............................................... 14 15
Fixed assets ...................................................... 322 262
Total deferred tax liabilities ...................................... 923 2,163
Net deferred tax assets .......................................... $7,615 $7,137
(1) The valuation allowance reduces the benefit of certain separate Company federal, state and foreign net operating loss carryforwards and
book writedowns to the amount that will more likely than not be realized.
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