Morgan Stanley 2010 Annual Report Download - page 242

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, 2010, the Company had approximately $5.1 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, 2010 and December 31, 2009 were as follows:
December 31, 2010 December 31, 2009
(dollars in millions)
Deferred tax assets:
Tax credits and loss carryforward .............................. $ 6,219 $5,124
Employee compensation and benefit plans ....................... 2,887 3,312
Valuation and liability allowances ............................. 331 378
Valuation of inventory, investments and receivables ............... 205 —
Deferred expenses .......................................... 54 52
Other .................................................... 316 412
Total deferred tax assets ................................. 10,012 9,278
Valuation allowance(1) .................................. 655 105
Deferred tax assets after valuation allowance ................. $ 9,357 $9,173
Deferred tax liabilities:
Non-U.S. operations ........................................ $ 1,349 $ 635
Fixed assets ............................................... 180 322
Prepaid commissions ........................................ 16 14
Valuation of inventory, investments and receivables ............... — 587
Total deferred tax liabilities ............................... $ 1,545 $1,558
Net deferred tax assets ................................... $ 7,812 $7,615
(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.
During 2010, the valuation allowance was increased by $550 million related to the ability to utilize certain
federal and state unrealized capital losses as well as state and foreign net operating losses.
The Company had federal and state net operating loss carryforwards for which a deferred tax asset of $1,978
million was recorded as of December 31, 2009. The amount of federal and state net operating loss carryforwards
as of December 31, 2010 was immaterial.
The Company had net operating loss carryforwards in Japan for which a related deferred tax asset of $742
million and $546 million was recorded as of December 31, 2010 and December 31, 2009, respectively. These
carryforwards are subject to annual limitations and will begin to expire in 2016.
The Company had a federal capital loss carryforward for which a related deferred tax asset of $234 million was
recorded at December 31, 2009. The Company had no realized capital loss carryforward at December 31, 2010.
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