Motorola 2008 Annual Report Download - page 112

2007, respectively. Gross deferred tax liabilities were $3.7 billion and $4.1 billion at December 31, 2008 and
2007, respectively.
Significant components of deferred tax assets (liabilities) are as follows:
December 31 2008 2007
Inventory $ 308 $ 162
Accrued liabilities and allowances 483 551
Employee benefits 1,053 408
Capitalized items 650 621
Tax basis differences on investments 171 105
Depreciation tax basis differences on fixed assets 37 33
Undistributed non-U.S. earnings (278) (397)
Tax carryforwards 3,001 2,553
Available-for-sale securities (1) 35
Business reorganization 70 78
Warranty and customer reserves 215 334
Deferred revenue and costs 184 205
Valuation allowances (2,692) (515)
Deferred charges 45 44
Other 225 95
$ 3,471 $4,312
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards
(SFAS) No. 109, “Accounting for Income Taxes,” which requires that deferred tax assets and liabilities be
recognized using enacted tax rates for the effect of the temporary differences between the book and tax basis of
recorded assets and liabilities. The Company makes estimates and judgments with regard to the calculation of
certain income tax assets and liabilities. SFAS No. 109 requires that deferred tax assets be reduced by valuation
allowances if, based on the consideration of all available evidence, it is more likely than not that some portion of
the deferred tax asset will not be realized. Significant weight is given to evidence that can be objectively verified.
The Company evaluates deferred income taxes on a quarterly basis to determine if valuation allowances are
required by considering available evidence, including historical and projected taxable income and tax planning
strategies that are both prudent and feasible. As of December 31, 2008, the Company’s U.S operations had
generated two consecutive years of pre-tax losses, which are attributable to the Mobile Devices segment. During
2007 and 2008, the Home and Networks Mobility and Enterprise Mobility Solution businesses (collectively
referred to as the “Broadband Mobility Solutions business”) were profitable in the U.S. and worldwide. Because of
the 2007 and 2008 losses at Mobile Devices and the near-term forecasts for the Mobile Devices business, the
Company believes that the weight of negative historic evidence precludes it from considering any forecasted
income from the Mobile Devices business in its analysis of the recoverability of deferred tax assets. However, based
on the sustained profits of the Broadband Mobility Solutions business, the Company believes that the weight of
positive historic evidence allows it to include forecasted income from the Broadband Mobility business in its
analysis of the recoverability of its deferred tax assets. The Company also considered in its analysis tax planning
strategies that are prudent and can be reasonably implemented. Based on all available positive and negative
evidence, we concluded that a partial valuation allowance should be recorded against the net deferred tax assets of
our U.S operations. During fiscal 2008, we recorded a valuation allowance of $2.1 billion for foreign tax credits,
general business credits, capital losses and state tax carry forwards that are more likely than not to expire. The
Company also recorded valuation allowances of $126 million relating to tax carryforwards and deferred tax assets
of non-U.S. subsidiaries, including Brazil, China and Spain, that the Company believes are more likely than not to
expire or go unused.
At December 31, 2008 and 2007, the Company had valuation allowances of $2.7 billion and $515 million,
respectively, against its deferred tax assets, including $297 million and $310 million, respectively, relating to
deferred tax assets for non-U.S. subsidiaries. The Company’s valuation allowances for its non-U.S. subsidiaries had
a net decrease of $13 million during 2008, which is comprised of $139 million decrease primarily related to the
utilization of United Kingdom tax carry forwards and changes in the valuation allowance balance due to exchange
rate variances, partially offset by a $126 million increase for new valuation allowances. The U.S. valuation
allowance relates primarily to tax carryforwards, including foreign tax credits, general business credits, tax
carryforwards of acquired businesses which have limitations upon their use, state tax carryforwards and future
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