HP 2013 Annual Report Download - page 138

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 13: Taxes on Earnings (Continued)
There was no net excess tax benefit recorded as a result of the exercise of employee stock options
and other employee stock programs in fiscal 2013. Deficits of approximately $149 million and
$175 million were recorded as a decrease in stockholders’ equity in fiscal 2013 and 2012, respectively,
and excess tax benefits of $128 million were recorded in fiscal 2011.
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:
2013 2012(1) 2011
U.S. federal statutory income tax rate ............................ 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit ....................... 0.1 0.5 0.5
Lower rates in other jurisdictions, net ............................ (24.5) 13.9 (23.3)
Research and development credit ............................... (0.7) 0.1 (0.6)
Valuation allowance ......................................... 3.8 (14.0) 5.2
Nondeductible goodwill ...................................... — (40.3) 3.4
Uncertain tax positions ...................................... 4.1 (1.4) (1.1)
Other, net ................................................ 3.7 0.2 2.1
21.5% (6.0)% 21.2%
(1) Positive numbers represent tax benefits and negative numbers represent tax expense as HP
recorded income tax expense on a pretax loss.
The jurisdictions with favorable tax rates that have the most significant effective tax rate impact in
the periods presented include China, Ireland, the Netherlands, Puerto Rico and Singapore. HP plans to
reinvest some of the earnings of these jurisdictions indefinitely outside the United States, and therefore
has not provided U.S. taxes on those indefinitely reinvested earnings.
In fiscal 2013, HP recorded $471 million of net income tax charges related to items unique to the
year. These amounts included $214 million of net increases to valuation allowances, $406 million of tax
charges for adjustments to uncertain tax positions and the settlement of tax audit matters and
$47 million of tax charges for various prior period adjustments. In addition, HP recorded $146 million
of tax benefits from adjustments to prior year foreign income tax accruals and a tax benefit of
$50 million arising from the retroactive research and development credit resulting from the American
Taxpayer Relief Act of 2012, which was signed into law in January 2013.
In fiscal 2012, HP recorded a $1.3 billion income tax charge to record valuation allowances on
certain U.S. deferred tax assets related to the enterprise services business, which was unique to the
year. Other unique items included charges of $297 million for various foreign valuation allowances, as
well as $26 million of income tax benefits related to adjustments to prior year foreign income tax
accruals, settlement of tax audit matters, and miscellaneous other items.
In fiscal 2011, HP recorded $325 million of net income tax charges related to items unique to the
year. These amounts included $468 million of tax charges for increases to foreign and state valuation
allowances, offset by $78 million of income tax benefits for adjustments to prior year foreign income
tax accruals, $63 million of income tax benefits for uncertain tax position reserve adjustments and
settlement of tax audit matters, and $2 million of tax benefits associated with miscellaneous prior
period items.
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