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As of December 31, 2003, our inventory provisions as a percentage of gross inventory was 51%. In the future, we may be required to make
significant adjustments to these provisions for the sale and/or disposition of inventory that was previously provided for.
Customers continued to be cautious with their capital expenditures in 2004. As a result, we will continue to closely monitor our inventory
provisions to ensure that they appropriately reflect the current market conditions. However, the inventory provisions we have recorded in the
past may not be reflective of those in future quarters.
I
ncome taxes
Our net deferred tax asset balance was $3,575 at December 31, 2003 and $3,035 at December 31, 2002. The $540 increase was primarily due
to the impact of foreign exchange effects related primarily to the Canadian dollar and the British pound. We currently have deferred tax assets
resulting from net operating loss carryforwards, tax credit carryforwards and deductible temporary differences, all of which are available to
reduce future taxes payable in our significant tax jurisdictions. Generally, our loss carryforward periods range from seven years to an indefinite
period. As a result, we do not expect that a significant portion of these carryforwards will expire in the near future.
We assess the realization of these deferred tax assets quarterly to determine whether an income tax valuation allowance is required. Based on
available evidence, both positive and negative, we determine whether it is more likely than not that all or a portion of the remaining net
deferred tax assets will be realized. The main factors that we consider include:
In evaluating the positive and negative evidence, the weight given to each type of evidence must be proportionate to the extent to which it can
be objectively verified. If it is our belief that it is more likely than not that some portion of these assets will not be realized, an income tax
valuation allowance is recorded.
In 2003, our gross income tax valuation allowances increased to $3,344 as of December 31, 2003 from $3,024 as of December 31, 2002. The
increase was primarily due to the impact of foreign exchange effects and additional valuation allowances recorded against the deferred tax
assets recognized in connection with our minimum pension liability, partially offset by drawdowns related to our 2003 net earnings. We
assessed positive evidence including forecasts of future taxable income to support realization of the net deferred tax assets, and negative
evidence including our cumulative loss position, and concluded that the valuation allowances as of December 31, 2003 were appropriate.
If market conditions deteriorate further or future results of operations are less than expected, future assessments may result in a determination
that some or all of the net deferred tax assets are not realizable. As a result, we may need to establish an
85
December 31,
2003 2002
Gross inventory $ 2,416 $ 2,686
Inventory provisions (1,226) (1,180)
Inventories — net $ 1,190 $ 1,506
Inventory provisions as a percentage of gross inventory 51% 44%
Other reserves for claims related to our contract manufacturers and suppliers
(a)
(120) (171)
(a) This amount was included in other accrued liabilities and related to cancellation charges, contracted for inventory in excess of future demand and the settlement of certain
other claims.
Tax asset valuation
• cumulative losses in recent years;
• history of loss carryforwards and other tax assets expiring;
• the carryforward period associated with the deferred tax assets;
• the nature of the income that can be used to realize the deferred tax assets;
• our net earnings/loss; and
• future earnings potential determined through the use of internal forecasts.