HP 2014 Annual Report Download - page 131

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 6: Taxes on Earnings (Continued)
The jurisdictions with favorable tax rates that have the most significant impact on HP’s effective
tax rate in the periods presented include Puerto Rico, Singapore, Netherlands, China and Ireland. HP
plans to reinvest some of the earnings of these jurisdictions indefinitely outside the U.S. and therefore
has not provided U.S. taxes on those indefinitely reinvested earnings.
In fiscal 2014, HP recorded $53 million of net income tax charges related to items unique to the
year.
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 ES segment, 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.
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 $1.2 billion ($0.61 diluted net EPS) in fiscal 2014, $827 million
($0.42 diluted net EPS) in fiscal 2013 and $900 million ($0.46 diluted net EPS) in fiscal 2012.
Uncertain Tax Positions
A reconciliation of unrecognized tax benefits is as follows:
As of October 31
2014 2013 2012
In millions
Balance at beginning of year ................................... $3,484 $2,573 $2,118
Increases:
For current year’s tax positions .............................. 304 290 209
For prior years’ tax positions ................................ 593 997 651
Decreases:
For prior years’ tax positions ................................ (125) (146) (321)
Statute of limitations expiration .............................. (46) (11) (1)
Settlements with taxing authorities ............................ (82) (219) (83)
Balance at end of year ........................................ $4,128 $3,484 $2,573
Up to $2.2 billion, $1.9 billion and $1.4 billion of HP’s unrecognized tax benefits at October 31,
2014, 2013 and 2012, respectively, would affect HP’s effective tax rate if realized.
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