HP 2009 Annual Report Download - page 136

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 14: Taxes on Earnings (Continued)
operating losses and $8.0 billion on deferred tax assets related to foreign net operating loss
carryforwards that HP does not expect to realize.
As of October 31, 2009, HP had recorded deferred tax assets for various tax credit carryforwards
of $1.4 billion. This amount includes $687 million of foreign tax credit carryforwards which begin to
expire in fiscal 2015, and against which HP has recorded a valuation allowance of $47 million. HP had
alternative minimum tax credit carryforwards of $9 million, which do not expire, and research and
development credit carryforwards of $395 million, which will begin to expire in fiscal 2019. HP also had
tax credit carryforwards of $350 million in various states and foreign countries, for which HP has
provided a valuation allowance of $179 million to reduce the related deferred tax asset. These credits
begin to expire in fiscal 2010.
Gross deferred tax assets at October 31, 2009 and 2008 were reduced by valuation allowances of
$8.7 billion and $1.8 billion, respectively. The valuation allowance increased by $6.9 billion in fiscal
2009. The valuation allowance increase consisted of $7.0 billion associated with foreign net operating
loss carryovers arising in fiscal 2009 pursuant to internal restructuring transactions, reduced by
$100 million of valuation allowance decreases associated with state and foreign net operating losses.
Gross deferred tax assets at October 31, 2008 and 2007 were reduced by valuation allowances of
$1.8 billion and $1.5 billion, respectively. The valuation allowance increased by $258 million in fiscal
2008. The valuation allowance increases consisted of $449 million recorded for deferred tax assets
acquired in current year acquisitions, $126 million recorded for deferred tax assets related to certain
federal and state net operating loss carryovers and tax credits, and $47 million related to deferred tax
assets for foreign tax credit carryovers. These increases were partially offset by a $203 million net
reduction in the valuation allowances due to adjustments to deferred tax assets related to foreign net
operating loss carryovers, and $161 million in the valuation allowances for deferred tax assets related to
foreign tax credits and net operating losses carryovers as a result of the adoption of the accounting
guidance for uncertainty in income taxes.
Net excess tax benefits resulting from the exercise of employee stock options and other employee
stock programs, are recorded as an increase in stockholders’ equity and were approximately
$163 million in fiscal 2009, $316 million in fiscal 2008, and $530 million in fiscal 2007.
The differences between the U.S. federal statutory income tax rate and HP’s effective tax rate
were as follows for the following fiscal years ended October 31:
2009 2008 2007
U.S. federal statutory income tax rate ................................ 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit .......................... 0.9 1.3 0.5
Lower rates in other jurisdictions, net ................................ (12.2) (16.9) (13.2)
Research and development credit ................................... (0.5) (0.4) (0.6)
Foreign net operating loss ........................................ (4.1) — —
Valuation allowance ............................................. (0.6) — (1.7)
Accrued taxes due to post-acquisition integration ....................... 0.6 2.0 —
Other, net .................................................... (0.5) (0.5) 0.8
18.6% 20.5% 20.8%
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