HP 2009 Annual Report Download - page 137

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 14: Taxes on Earnings (Continued)
In fiscal 2009, HP recorded $547 million of net income tax benefits related to items unique to the
year. The recorded amounts included $383 million of income tax benefits attributable to net deferred
tax assets for foreign net operating loss carryovers arising pursuant to internal restructuring
transactions. Also included were a net tax benefit of $154 million for the adjustment to estimated fiscal
2008 tax accruals upon filing the 2008 income tax returns, a $60 million income tax benefit for
valuation allowance reversals for state and foreign net operating losses, and other miscellaneous items
that resulted in a net tax charge of $50 million.
In fiscal 2008, HP recorded $251 million of net income tax expense related to items unique to the
year. The recorded amounts consisted of a tax charge of $205 million associated with post-acquisition
EDS integration, $44 million for the adjustment to estimated fiscal 2007 tax accruals upon filing the
2007 U.S. federal income tax return, and net tax charges of $2 million attributable to other items.
In October 2008, the Emergency Economic Stabilization Act of 2008 was signed into law, which
included a retroactive two year extension of the research and development tax credit from January 1,
2008 through December 31, 2009. The retroactive income tax benefit of $45 million was recorded in
HP’s financial statements in the fourth quarter of fiscal 2008.
In fiscal 2007, HP recorded $80 million of net income tax benefit related to items unique to the
year. The recorded amounts consisted of income tax benefits for valuation allowance reversals of
$154 million attributable to deferred tax assets for state tax credits and $60 million attributable to
deferred tax assets for foreign net operating losses, offset by a $96 million net increase to various tax
reserves, a net tax charge of $18 million for the adjustment to estimated fiscal 2006 tax accruals upon
filing the 2006 U.S. federal and state income tax returns, and a net tax charge of $20 million for other
items.
As a result of certain employment actions and capital investments HP has undertaken, income
from manufacturing and services in certain countries is subject to reduced tax rates, and in some cases
is wholly exempt from taxes, through 2022. The gross income tax benefits attributable to the tax status
of these subsidiaries were estimated to be $853 million ($0.35 per share) in fiscal year 2009,
$900 million ($0.35 per share) in fiscal year 2008, and $1.2 billion ($0.43 per share) in fiscal year 2007.
The gross income tax benefits were offset partially by accruals of U.S. income taxes on undistributed
earnings, among other factors.
The total amount of gross unrecognized tax benefits was $1.9 billion as of October 31, 2009, of
which up to $950 million would affect HP’s effective tax rate if realized. A reconciliation of the
beginning and ending amount of unrecognized tax benefits is as follows:
Balance at November 1, 2008 ................................................ $2,333
Increases:
For current year’s tax positions ........................................... 115
For prior years’ tax positions ............................................. 626
Decreases:
For prior years’ tax positions ............................................. (762)
Statute of limitations expiration ........................................... (293)
Settlements with taxing authorities ......................................... (131)
Balance at October 31, 2009 ................................................. $1,888
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