HP 2012 Annual Report Download - page 140

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 14: Taxes on Earnings (Continued)
As of October 31, 2012, HP had $2.9 billion, $6.2 billion and $25.7 billion of federal, state and
foreign net operating loss carryforwards, respectively. Amounts included in each of these respective
totals will begin to expire in fiscal 2013. HP also has a capital loss carryforward of approximately
$286 million which will begin to expire in fiscal 2015. HP has provided a valuation allowance of
$166 million for deferred tax assets related to federal and state net operating losses, $104 million for
deferred tax assets related to capital loss carryforwards and $7.6 billion for deferred tax assets related
to foreign net operating loss carryforwards that HP does not expect to realize.
As of October 31, 2012, HP had recorded deferred tax assets for various tax credit carryforwards
of $3.9 billion. This amount includes $2.9 billion of U.S. foreign tax credit carryforwards which begin to
expire in fiscal 2018 and against which HP has recorded a valuation allowance of $47 million. HP had
alternative minimum tax credit carryforwards of $23 million, which do not expire, and U.S. research
and development credit carryforwards of $566 million, which will begin to expire in fiscal 2016. HP also
had tax credit carryforwards of $417 million in various states and foreign countries for which HP has
provided a valuation allowance of $209 million to reduce the related deferred tax asset. These credits
will begin to expire in fiscal 2013.
Gross deferred tax assets at October 31, 2012, 2011 and 2010 were reduced by valuation
allowances of $10.2 billion, $9.1 billion and $8.8 billion, respectively. Total valuation allowances
increased by $1.1 billion in fiscal 2012, associated primarily with the net effects of increases of
$1.3 billion, $317 million, and $669 million, respectively, in valuation allowances on certain U.S.
deferred tax assets related to legal entities within the enterprise services business, other U.S. deferred
tax assets, and certain foreign deferred tax assets, respectively, and a $1.1 billion decrease in foreign
valuation allowance attributable to foreign currency translation. Total valuation allowances increased by
$307 million in fiscal 2011, associated with various net operating losses, tax credits and other deferred
tax assets. Valuation allowances 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 loss carryovers and credits.
There was no net excess tax benefit recorded resulting from the exercise of employee stock options
and other employee stock programs in fiscal 2012. A deficit of approximately $175 million was recorded
as a decrease in stockholders’ equity in fiscal 2012, and excess tax benefits of $128 million and
$300 million were recorded in fiscal 2011 and fiscal 2010, respectively.
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:
2012 2011 2010
U.S. federal statutory income tax rate .............................. 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit ........................ 0.5 0.5 1.3
Lower rates in other jurisdictions, net .............................. 13.8 (24.0) (18.3)
Research and development credit ................................. 0.1 (0.6) (0.1)
Valuation allowance ........................................... (14.0) 5.2 0.8
Nondeductible goodwill ........................................ (40.3) 3.4 —
Other, net .................................................. (1.1) 1.7 1.5
(6.0)% 21.2% 20.2%
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