Motorola 2007 Annual Report Download - page 104

Differences between income tax expense (benefit) computed at the U.S. federal statutory tax rate of 35% and
income tax expense (benefit) are as follows:
Years Ended December 31 2007 2006 2005
Income tax expense (benefit) at statutory rate $(137) $1,613 $2,244
Taxes on non-U.S. earnings (206) (449) (460)
State income taxes (28) 77 121
Tax benefit on qualifying repatriations —(68) (265)
Tax on undistributed non-U.S. earnings 72 194 202
Research credits (46) (34) (23)
Foreign export sales and section 199 deduction —(22) (13)
Non-deductible acquisition charges 34 42
Taxes on sale of businesses 15 — (81)
Other provisions 119 247 233
Charitable contributions —(28) —
Valuation allowance (97) (187) (88)
Other (11) 221
$(285) $1,349 $1,893
On October 22, 2004, the American Jobs Creation Act of 2004 (“the Act”) was signed into law. The Act
provides for a special one-time tax incentive for U.S. multinationals to repatriate accumulated earnings from their
foreign subsidiaries by providing an 85 percent dividends received deduction for certain qualifying dividends. The
Company repatriated approximately $4.6 billion of accumulated earnings under the Act and recorded an
associated tax benefit of $265 million in 2005. The Company finalized certain actions maximizing the tax benefit
attributable to the repatriation of foreign earnings under the provisions of the Act and recognized an additional
$68 million of net tax benefits relating to these actions during 2006.
Gross deferred tax assets were $8.9 billion and $8.7 billion at December 31, 2007 and 2006, respectively.
Deferred tax assets, net of valuation allowances, were $8.4 billion and $8.0 billion at December 31, 2007 and
2006, respectively. Gross deferred tax liabilities were $4.1 billion and $5.0 billion at December 31, 2007 and
2006, respectively.
Significant components of deferred tax assets (liabilities) are as follows:
December 31 2007 2006
Inventory $ 162 $ 163
Accrued liabilities and allowances 551 380
Employee benefits 408 915
Capitalized items 621 915
Tax basis differences on investments 105 110
Depreciation tax basis differences on fixed assets 33 89
Undistributed non-U.S. earnings (397) (329)
Tax carryforwards 2,553 1,515
Available-for-sale securities 35 (23)
Business reorganization 78 38
Warranty and customer reserves 334 398
Deferred revenue and costs 205 224
Valuation allowances (515) (740)
Deferred charges 44 46
Other 95 (728)
$4,312 $2,973
At December 31, 2007 and 2006, the Company had valuation allowances of $515 million and $740 million,
respectively, against its deferred tax assets, including $310 million and $523 million, respectively, relating to
deferred tax assets for non-U.S. subsidiaries. The net change in the total valuation allowance was a decrease of
$225 million and $156 million in 2007 and 2006, respectively, primarily attributable to: (i) the reversal of
valuation reserves in Germany, UK and Israel based on additional positive evidence supporting a conclusion that
the Company would more likely than not be able to utilize the tax carryforwards and deferred tax assets in the
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