Memorex 2009 Annual Report Download - page 70

Deferred taxes arise because of the different treatment of transactions for financial statement accounting and income
tax accounting, known as temporary differences. We record the tax effect of these temporary differences as deferred tax
assets and deferred tax liabilities in our Consolidated Balance Sheets. Deferred tax assets generally represent items that
can be used as a tax deduction or credit in a tax return in future years for which we have already recorded the tax benefit
in the Consolidated Statements of Operations. The components of net deferred tax assets and liabilities were as follows:
2009 2008
As of December 31,
(In millions)
Accounts receivable allowances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.3 $ 12.6
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 14.7
Payroll, pension and severance (short-term) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5 10.9
State tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9 5.6
Operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.7 23.4
Accrued liabilities and other reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.7 21.7
Pension (long-term) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.9 15.9
Research and development credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 6.0
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5 —
Gross deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107.9 110.8
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22.9) (18.6)
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85.0 92.2
Property, plant and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7.5) (8.4)
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.6) (5.1)
Deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10.1) (13.5)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 74.9 $ 78.7
The valuation allowance was provided to account for uncertainties regarding the recoverability of certain foreign
operating loss carryforwards and state tax credit carryforwards. The current and noncurrent components of our deferred
tax balances are generally based on the balance sheet classification of the asset or liability creating the temporary
difference. The valuation allowance was $22.9 million, $18.6 million and $16.5 million as of December 31, 2009, 2008 and
2007, respectively. The increase in 2009 as compared to 2008 is due to the establishment of valuation allowances related
to anticipated expiration of certain foreign net operating losses of $4.4 million, offset by a release of valuation allowances
of $0.1 million. The increase in 2008 compared with 2007 was due to the establishment of additional valuation allowances
related to anticipated expirations of certain foreign net operating loss carryforwards of $4.6 million, offset by $2.5 million
for lapsing of statutes and other items. There was an increase in 2007 of $7.1 million due primarily to the acquisition of a
foreign subsidiary. Of the aggregate net international operating loss carryforwards totaling $86.7 million, $37.3 million will
expire at various dates up to 2023 and $49.4 million may be carried forward indefinitely. State tax credit carryforwards of
$4.2 million will expire between 2010 and 2023. Additionally, we have available for state income tax purposes net operating
losses of $28.2 million, which expire, if unused, in 2013 through 2028.
Significant judgment is required in determining the realizability of our deferred tax assets. The assessment of whether
valuation allowances are required considers, among other matters, the nature, frequency and severity of current and
cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, our experience with loss
carryforwards expiring unused and tax planning alternatives.
Our analysis of the need for valuation allowances considered that, after excluding the impact of those goodwill
impairments and certain litigation settlement charges and related expenses, which are one time charges, we have a
consolidated cumulative profit over the most recent three year period and cumulative three year profit in all tax jurisdictions
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)