HP 2013 Annual Report Download - page 139

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 13: Taxes on Earnings (Continued)
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 2024. The gross income tax benefits attributable to these actions
and investments were estimated to be $827 million ($0.42 diluted net earnings per share) in fiscal 2013,
$900 million ($0.46 diluted net earnings per share) in fiscal 2012 and $1.3 billion ($0.62 diluted net
earnings per share) in fiscal 2011. The gross income tax benefits were offset partially by accruals of
U.S. income taxes on undistributed earnings, among other factors.
Uncertain Tax Positions
A reconciliation of unrecognized tax benefits is as follows:
2013 2012 2011
In millions
Balance at beginning of year ................................... $2,573 $2,118 $2,085
Increases:
For current year’s tax positions .............................. 290 209 384
For prior years’ tax positions ................................ 997 651 426
Decreases:
For prior years’ tax positions ................................ (146) (321) (159)
Statute of limitations expiration .............................. (11) (1) (20)
Settlements with taxing authorities ............................ (219) (83) (598)
Balance at end of year ........................................ $3,484 $2,573 $2,118
Up to $1.9 billion, $1.4 billion and $1.1 billion of HP’s unrecognized tax benefits at October 31,
2013, 2012 and 2011, respectively, would affect HP’s effective tax rate if realized.
HP recognizes interest income from favorable settlements and income tax receivables and interest
expense and penalties accrued on unrecognized tax benefits within income tax expense. As of
October 31, 2013, HP had accrued $196 million for interest and penalties.
HP engages in continuous discussion and negotiation with taxing authorities regarding tax matters
in various jurisdictions. HP does not expect complete resolution of any U.S. Internal Revenue Service
(‘‘IRS’’) audit cycle within the next 12 months. However, it is reasonably possible that certain federal,
foreign and state tax issues may be concluded in the next 12 months, including issues involving transfer
pricing and other matters. Accordingly, HP believes it is reasonably possible that its existing
unrecognized tax benefits may be reduced by an amount up to $1.1 billion within the next 12 months.
HP is subject to income tax in the United States and approximately 80 other countries and is
subject to routine corporate income tax audits in many of these jurisdictions. In addition, HP is subject
to numerous ongoing audits by state and foreign tax authorities. The IRS is conducting an audit of
HP’s 2009, 2010 and 2011 income tax returns. HP has received from the IRS Notices of Deficiency for
its fiscal 1999, 2000, 2003, 2004 and 2005 tax years, and Revenue Agent’s Reports (‘‘RAR’’) for its fiscal
2001, 2002, 2006, 2007 and 2008 tax years. The proposed IRS adjustments for these tax years would, if
sustained, reduce the benefits of tax refund claims HP has filed for net operating loss carrybacks to
earlier fiscal years and tax credit carryforwards to subsequent years by approximately $446 million.
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