Texas Instruments 2006 Annual Report Download - page 37

TEXAS INSTRUMENTS 2006 ANNUAL REPORT 3535
The primary components of deferred income tax assets and liabilities at December 31 were as follows:
DECEMBER 31,
2006 2005
Deferred income tax assets:
Accrued retirement costs (defined benefit and retiree health care) .............................. $194 $45
Inventories and related reserves ............................................................. 392 315
Stock-based compensation ................................................................. 156 61
Accrued expenses ......................................................................... 295 260
Deferred loss and tax credits ................................................................ 387 372
Investments ............................................................................... 48 56
Other ..................................................................................... 121 108
1,593 1,217
Less valuation allowance ................................................................... (14) (36)
1,579 1,181
Deferred income tax liabilities:
Property, plant and equipment ............................................................... (145) (172)
Intangibles ................................................................................ (29) (11)
Non-U.S. earnings .......................................................................... (26) (6)
Other ..................................................................................... (60) (3)
(260) (192)
Net deferred income tax asset ................................................................. $1,319 $989
As of December 31, 2006 and 2005, the net deferred income tax assets of $1.32 billion and $989 million were presented in the
balance sheets, based on tax jurisdiction, as deferred income tax assets of $1.34 billion and $1.01 billion and deferred income
tax liabilities of $23 million and $23 million. We make an ongoing assessment regarding the realization of U.S. and non-U.S.
deferred tax assets. While these assets are not assured of realization, our assessment is that a valuation allowance is not
required for the remaining balance of the deferred tax assets. This assessment is based on our evaluation of relevant criteria
including the existence of: (a) deferred tax liabilities that can be used to absorb deferred tax assets, (b) taxable income in prior
carryback years, and (c) future taxable income.
We have aggregate U.S. and non-U.S. tax loss carryforwards of approximately $85 million of which $11 million expire through
the year 2024.
During 2005, we repatriated approximately $1.29 billion of non-U.S. subsidiary earnings that qualified under the AJCA and
recognized a related tax expense of $55 million.
Provision has previously been made for deferred taxes on undistributed earnings of non-U.S. subsidiaries to the extent that
dividend payments from such companies are expected to result in additional tax liability. The remaining undistributed earnings
(approximately $1.29 billion at December 31, 2006) have been indefinitely reinvested; therefore, no provision has been made
for taxes due upon remittance of these earnings. Determination of the amount of unrecognized deferred tax liability on these
unremitted earnings is not feasible.
We operate in a number of tax jurisdictions and are subject to examination of our income tax returns by tax authorities in
those jurisdictions. Those tax authorities may challenge any item on these tax returns. The tax matters challenged can be
complex in nature and uncertain as to their ultimate outcome. We assess the ultimate resolution of these tax matters as they
arise and establish reserves for tax contingencies when we believe an unfavorable outcome is likely and the liability can be
reasonably estimated. These reserves involve considerable judgment and estimation and are based on the best information
available including tax regulations, the outcome of court cases, and other information relevant to the issues raised. Although
we believe our reserves for tax contingencies are reasonable, adjustments could be required in the future based on changes
in facts and circumstances surrounding these contingencies.
14. Commitments and Contingencies
Italian Grants: Italian government auditors have completed a review, conducted in the ordinary course, of approximately
$250 million of grants from the Italian government to TI’s former memory operations in Italy. The Ministry of Industry, which
is responsible for reviewing the auditors’ findings, has published final decrees on all projects relating to the grants, resulting
in a $28 million favorable settlement in the fourth quarter of 2006. As of December 31, 2006, we have no material obligations
remaining on the grants.