Motorola 2010 Annual Report Download - page 101

93
Significant components of deferred tax assets (liabilities) are as follows:
December 31 2010 2009
Inventory $ 283 $ 312
Accrued liabilities and allowances 380 358
Employee benefits 1,271 1,388
Capitalized items 1,563 551
Tax basis differences on investments 76 90
Depreciation tax basis differences on fixed assets 67 29
Undistributed non-U.S. earnings (499) (235)
Tax carryforwards 2,014 3,240
Available-for-sale securities —(41)
Business reorganization 36 53
Warranty and customer reserves 211 210
Deferred revenue and costs 298 199
Valuation allowances (2,777) (2,907)
Deferred charges 37 51
Other (83) 35
$ 2,877 $ 3,333
The Company accounts for income taxes by recognizing deferred tax assets and liabilities 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. Deferred tax assets are 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 a valuation allowance is
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, 2010, the Company’s U.S. operations had
generated cumulative pre-tax losses over the most recent three year period, which are attributable to the financial
performance of the Mobile Devices segment. Because of the losses at Mobile Devices, the Company believes that the
weight of negative historical 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
other businesses, the Company believes that the weight of positive historical evidence allows it to include forecasted
income from the other businesses 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. During 2008,
the Company recorded a partial valuation allowance of $2.1 billion against a portion of its U.S. tax carryforwards
that were more likely than not to expire. During 2009, the Company increased its U.S. valuation allowance by
$90 million, primarily relating to capital losses realized from the disposition of a subsidiary, which is accounted for
as part of discontinued operations, offset by a decrease in the valuation allowance for refundable general business
credits. During 2010, the U.S. valuation allowance was reduced by $39 million, primarily related to certain of the
Company’s state tax carryforwards that the Company expects to utilize.
At December 31, 2010 and 2009, the Company had valuation allowances of $2.8 billion and $2.9 billion,
respectively, against its deferred tax assets, including $331 million and $422 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 $91 million during 2010. The decrease is primarily caused by exchange rate variances and
adjustments to the valuation allowance balance based on current year activity. The U.S. valuation allowance relates
primarily to tax carryforwards, including foreign tax credits, general business credits and tax carryforwards of
acquired businesses which have limitations upon their use, state tax carryforwards and future capital losses related
to certain investments. The Company believes that the remaining deferred tax assets are more-likely-than-not to be
realizable based on estimates of future taxable income and the implementation of tax planning strategies.