Xerox 2009 Annual Report Download - page 81

79Xerox 2009 Annual Report
Notes to the Consolidated
Financial Statements
Dollars in millions, except per-share data and unless otherwise indicated.
The deferred tax assets for the respective periods were assessed
for recoverability and, where applicable, a valuation allowance was
recorded to reduce the total deferred tax asset to an amount that will,
more-likely-than-not, be realized in the future. The net change in the
total valuation allowance for the years ended December 31, 2009 and
2008 was an increase of $44 and a decrease of $119, respectively.
The valuation allowance relates primarily to certain net operating
loss carryforwards, tax credit carryforwards and deductible temporary
differences for which we have concluded it is more-likely-than-not that
these items will not be realized in the ordinary course of operations.
Although realization is not assured, we have concluded that it is
more-likely-than-not that the deferred tax assets, for which a valuation
allowance was determined to be unnecessary, will be realized in the
ordinary course of operations based on the available positive and
negative evidence, including scheduling of deferred tax liabilities and
projected income from operating activities. The amount of the net
deferred tax assets considered realizable, however, could be reduced
in the near term if actual future income or income tax rates are lower
than estimated, or if there are differences in the timing or amount of
future reversals of existing taxable or deductible temporary differences.
At December 31, 2009, we had tax credit carryforwards of $525
available to offset future income taxes, of which $146 are available
to carryforward indefinitely while the remaining $379 will expire
2010 through 2027 if not utilized. We also had net operating loss
carryforwards for income tax purposes of $556 that will expire 2010
through 2029, if not utilized, and $2.5 billion available to offset
future taxable income indefinitely.
Deferred Income Taxes
In substantially all instances, deferred income taxes have not been
provided on the undistributed earnings of foreign subsidiaries and
other foreign investments carried at equity. The amount of such
earnings included in consolidated retained earnings at December
31, 2009 was approximately $8.0 billion. These earnings have been
indefinitely reinvested and we currently do not plan to initiate any
action that would precipitate the payment of income taxes thereon.
It is not practicable to estimate the amount of additional tax that
might be payable on the foreign earnings. Our 2001 sale of half of our
ownership interest in Fuji Xerox resulted in our investment no longer
qualifying as a foreign corporate joint venture. Accordingly, deferred
taxes are required to be provided on the undistributed earnings of
Fuji Xerox, arising subsequent to such date, as we no longer have the
ability to ensure indefinite reinvestment.
The tax effects of temporary differences that give rise to significant
portions of the deferred taxes at December 31, 2009 and 2008 were
as follows:
2009 2008
Tax Effect of Future Tax Deductions:
Research and development $ 752 $ 930
Post-retirement medical benefits 421 392
Depreciation 246 249
Net operating losses 576 486
Other operating reserves 261 249
Tax credit carryforwards 525 552
Deferred compensation 233 248
Allowance for doubtful accounts 93 84
Restructuring reserves 16 88
Pension 403 373
Other 132 182
Subtotal 3,658 3,833
Valuation allowance (672) (628)
Total $ 2,986 $ 3,205
Tax Effect of Future Taxable Income:
Unearned income and installment sales $ (996) $ (1,119)
Intangibles and goodwill (154) (160)
Other (38) (53)
Total $ (1,188) $ (1,332)
Total Deferred Taxes, Net $ 1,798 $ 1,873
The above amounts are classified as current or long-term in the
Consolidated Balance Sheets in accordance with the asset or liability
to which they relate or, when applicable, based on the expected timing
of the reversal. Current deferred tax assets at December 31, 2009 and
2008 amounted to $290 and $305, respectively.