HP 2010 Annual Report Download - page 131

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 14: Taxes on Earnings (Continued)
As of October 31, 2010, HP had recorded deferred tax assets for various tax credit carryforwards
of $733 million. This amount includes $74 million of U.S. foreign tax credit carryforwards which begin
to expire in fiscal 2011 and against which HP has recorded a valuation allowance of $47 million. HP
had alternative minimum tax credit carryforwards of $11 million, which do not expire, and U.S.
research and development credit carryforwards of $293 million, which will begin to expire in fiscal 2024.
HP also had tax credit carryforwards of $356 million in various states and foreign countries for which
HP has provided a valuation allowance of $176 million to reduce the related deferred tax asset. These
credits will begin to expire in fiscal 2011.
Gross deferred tax assets at October 31, 2010 and 2009 were reduced by valuation allowances of
$8.8 billion and $8.7 billion, respectively. The valuation allowance increased by $77 million in fiscal
2010, consisting of $106 million associated with federal capital loss carryovers, and a net $29 million
decrease associated with various net operating losses and tax credits.
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.
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 $300 million
in fiscal 2010, $163 million in fiscal 2009, and $316 million in fiscal 2008.
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:
2010 2009 2008
U.S. federal statutory income tax rate ............................... 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit ......................... 1.3 0.9 1.3
Lower rates in other jurisdictions, net ............................... (18.3) (12.2) (16.9)
Research and development credit .................................. (0.1) (0.5) (0.4)
Foreign net operating loss ....................................... — (4.1) —
Valuation allowance ............................................ 0.8 (0.6) —
Accrued taxes due to post-acquisition integration ...................... — 0.6 2.0
Other, net ................................................... 1.5 (0.5) (0.5)
20.2% 18.6% 20.5%
In fiscal 2010, HP recorded $26 million of net income tax benefits related to items unique to the
year. These amounts included adjustments to prior year foreign income tax accruals and credits,
settlement of tax audit matters, valuation allowance adjustments, and other miscellaneous discrete
items.
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
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