Motorola 2006 Annual Report Download - page 102

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December 31, 2006, 2005 and 2004, respectively. Gross deferred tax liabilities were $5.0 billion, $5.5 billion and
$5.0 billion at December 31, 2006, 2005 and 2004, respectively.
The Company had deferred tax assets for tax carryforwards totaling $1.5 billion and $2.1 billion at
December 31, 2006 and 2005, respectively, of which $1.0 billion and $1.6 billion related to U.S. tax carryforwards.
Details on the U.S. tax carryforwards at December 31, 2006 are shown in the table below.
Gross Tax Expiration
U.S. Tax Carryforwards Tax Loss Effected Period
U.S. tax losses $ 637 $ 223 2019-2024
Foreign tax credits Ì 211 2013-2015
General business credits Ì 385 2018-2026
Minimum tax credits Ì 93 unlimited
Capital losses 13 5 2007
State tax losses 1,675 72 2008-2023
State tax credits Ì 33 2009-2024
Total U.S. tax carryforwards $2,325 $1,022
At December 31, 2006 the Company had valuation allowances totaling $218 million against its U.S. deferred
tax assets. The valuation allowances relate primarily to tax carryforwards of acquired businesses which have
limitations upon their use and state tax carryforwards with short expiration periods. During 2006, the Company
recorded a $34 million valuation allowance against deferred tax assets for certain investments that will generate
future capital losses. The Company feels that the capital losses on these investments will likely expire unused. The
Company believes that the remaining U.S. 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.
The Company's non-U.S. subsidiaries, primarily in Germany and the UK, had deferred tax assets from tax
carryforwards of $493 million and $530 million at December 31, 2006 and 2005, respectively. At December 31,
2006, the Company had $433 million of deferred tax assets for tax carryforwards that can be carried forward
indefinitely, $22 million which will expire by 2009 and $38 million that will expire by 2020. The tax carryforwards
at December 31, 2006 are comprised of $1.3 billion of tax loss carryforwards, representing a $430 million deferred
tax balance, and $63 million of tax credit carryforwards for a total deferred tax balance of $493 million. During
2006, the Company realized tax benefits of $194 million relating to the reversal of valuation allowances for its non-
U.S. subsidiaries, primarily in Germany and the UK, based on the likelihood that the Company would be able to
utilize the tax carryforwards and deferred tax assets in the future. At December 31, 2006, the Company has
recorded valuation allowances of $522 million against its non-U.S. subsidiaries deferred tax assets, of which
$31 million of valuation allowance relates to a 2006 acquisition that if reversed would be offset by a reduction to
goodwill. The Company believes that the remaining deferred tax assets of its non-U.S. subsidiaries are more likely
than not to be realizable based on estimates of future taxable income and the implementation of tax planning
strategies.
The Internal Revenue Service (""IRS'') is currently conducting its field examination of the Company's 2001
through 2003 tax returns. In June 2006, in connection with this examination, the Company received notices of
proposed adjustments for the 2001 and 2002 taxable years relating to transfer pricing. These proposed adjustments
are similar to those previously made by the IRS for the Company's 1996-2000 taxable years. The Company is
currently protesting the 1996 through 2000 adjustments at the appellate level of the IRS. The Company disagrees
with all of these proposed transfer pricing-related adjustments and intends to vigorously dispute them through
applicable IRS and judicial procedures, as appropriate. However, if the IRS were to ultimately prevail on these
matters, it could result in: (i) additional taxable income for the years 1996 through 2000 of approximately
$1.4 billion, which could result in additional income tax liability for the Company of approximately $500 million,
and (ii) additional taxable income for the years 2001 and 2002 of approximately $800 million, which could result
in additional income tax liability for the Company of approximately $300 million. Although the final resolution of
these matters is uncertain, based on current information, in the opinion of the Company's management, the
ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated
financial position, liquidity or results of operations. However, an unfavorable resolution could have a material
adverse effect on the Company's consolidated financial position, liquidity or results of operations in the periods in
which the matter is ultimately resolved.