HP 2005 Annual Report Download - page 108

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 12: Taxes on Earnings (Continued)
The significant components of deferred tax assets and deferred tax liabilities were as follows for
the following fiscal years ended October 31:
2005 2004
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
In millions
Loss carryforwards ................................ $ 565 $ — $ 403 $ —
Credit carryforwards ............................... 2,922 — 678 —
Unremitted earnings of foreign subsidiaries .............. — 4,015 — 2,347
Inventory valuation ................................ 179 58 151 81
Intercompany transactions—profit in inventory ............ 749 — 587 —
Intercompany transactions—excluding inventory ........... 777 — 1,814 —
Fixed assets ..................................... 386 13 196 13
Warranty ....................................... 602 — 595 —
Employee and retiree benefits ........................ 1,055 472 1,067 205
Accounts receivable allowance ........................ 166 — 186 —
Capitalized research and development .................. 2,235 — 2,582 —
Purchased intangible assets .......................... 120 619 219 832
Restructuring .................................... 333 — 90 —
Equity investments ................................ 177 — 289 —
Deferred revenue ................................. 443 — 346 —
Other ......................................... 909 41 319 47
Gross deferred tax assets and liabilities ................. 11,618 5,218 9,522 3,525
Valuation allowance ............................... (894) — (447) —
Total deferred tax assets and liabilities .................. $10,724 $5,218 $9,075 $3,525
At October 31, 2005, HP had a deferred tax asset of $565 million related to loss carryforwards, of
which $337 million relates to foreign net operating losses. HP has provided a valuation allowance of
$310 million on those foreign net operating loss carryforwards, which HP does not expect to utilize. HP
has recorded a deferred tax asset of $118 million as a result of the current year U.S. net operating loss,
which will expire in fiscal 2026. The remaining $110 million deferred tax asset relates to various state
net operating losses and losses from acquired companies. HP has provided $97 million in valuation
allowance for such losses.
Of the total tax credit carryforwards of $2.9 billion, HP had foreign tax credit carryforwards of
$1.93 billion, which will expire in fiscal 2016. HP had alternative minimum tax credit carryforwards of
$107 million, which do not expire, and research and development credit carryforwards of $334 million,
of which $19 million will expire in fiscal 2013 and the remainder will expire after fiscal 2018. HP also
had tax credit carryforwards of $551 million in various states and foreign countries, on which HP has
provided a valuation allowance of $401 million.
Gross deferred tax assets at October 31, 2005 and 2004 were reduced by valuation allowances of
$894 million and $447 million, respectively. The total valuation allowance increased by $447 million, of
which $262 million was attributable to the net operating losses and tax credits in various states,
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