HP 2007 Annual Report Download - page 131

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 13: Taxes on Earnings (Continued)
The breakdown between current and long-term deferred tax assets and deferred tax liabilities was as follows for the
following fiscal years ended October 31:
2007 2006
In millions
Current deferred tax assets............................................................................................................................ $4,609 $4,144
Current deferred tax liabilities ...................................................................................................................... (123) (138)
Long-term deferred tax assets....................................................................................................................... 961 1,475
Long-term deferred tax liabilities ................................................................................................................. (397) (291)
Total deferred tax assets net of deferred tax liabilities ................................................................................. $5,050 $5,190
At October 31, 2007, HP had a deferred tax asset of $1.6 billion related to loss carryforwards, of which $1.2 billion
relates to foreign net operating losses. HP has provided a valuation allowance of $1.1 billion on those foreign net operating
loss carryforwards that HP does not expect to utilize. The remaining $377 million deferred tax asset relates to $970 million
and $805 million of federal and state net operating losses, respectively, including losses from acquired companies. HP has
provided $178 million in valuation allowance for such losses, which begin to expire in fiscal 2010.
Of the total tax credit carryforwards of $2.0 billion, HP had foreign tax credit carryforwards of $1.1 billion, of which
$29 million will expire in fiscal 2012 and the remainder of which will begin to expire in fiscal 2015. HP had alternative
minimum tax credit carryforwards of $86 million, which do not expire, and research and development credit carryforwards of
$387 million, which will begin to expire in fiscal 2019. HP also had tax credit carryforwards of $436 million in various states
and foreign countries, on which HP has provided a valuation allowance of $263 million. These credits begin to expire in
fiscal 2009.
Gross deferred tax assets at October 31, 2007 and 2006 were reduced by valuation allowances of $1.5 billion and $840
million, respectively. Total valuation allowances increased by $703 million. This valuation allowance increase was composed
of a $787 million net increase attributable to foreign net operating losses not previously recorded as deferred tax assets, a $96
million increase attributable to non-U.S. tax credits, and a $20 million increase attributable to federal net operating loss
carryovers. These increases were partially offset by an $86 million decrease in the valuation allowances on unrealized
domestic capital losses, and a $114 million decrease in the valuation allowances for state tax credits and net operating losses.
Of the $1.5 billion in valuation allowances at October 31, 2007, $140 million was related to deferred tax assets for acquired
companies that existed at the time of acquisition. In the future, if HP determines that the realization of these deferred tax
assets is more likely than not, the reversal of the related valuation allowance will reduce goodwill instead of the provision for
taxes.
Of the total tax benefits resulting from the exercise of employee stock options and other employee stock programs, the
amounts recorded to stockholders’ equity were approximately $530 million in fiscal 2007, $356 million in fiscal 2006 and
$30 million in fiscal 2005.
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