IBM 2007 Annual Report Download - page 99

97
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Note O. Taxes
($ in millions)
FOR THE YEAR ENDED DECEMBER 31: 2007 2006 2005
Income from continuing operations
before income taxes:
U.S. operations $ 7,667 $ 7,277 $ 7,450
Non-U.S. operations 6,822 6,040 4,776
Total income from continuing
operations before income taxes $14,489 $13,317 $12,226
The continuing operations provision for income taxes by geographic
operations is as follows:
($ in millions)
FOR THE YEAR ENDED DECEMBER 31: 2007 2006 2005
U.S. operations $2,280 $2,413 $2,988
Non-U.S. operations 1,791 1,488 1,244
Total continuing operations
provision for income taxes $4,071 $3,901 $4,232
The components of the continuing operations provision for income
taxes by taxing jurisdiction are as follows:
($ in millions)
FOR THE YEAR ENDED DECEMBER 31: 2007 2006 2005
U.S. federal:
Current $1,085 $ 602 $ 521
Deferred 683 1,326 1,811
1,768 1,928 2,332
U.S. state and local:
Current 141 11 80
Deferred (19) 198 183
122 209 263
Non-U.S:
Current 2,105 1,564 1,446
Deferred 76 200 191
2,181 1,764 1,637
Total continuing operations
provision for income taxes 4,071 3,901 4,232
Provision for social security,
real estate, personal property
and other taxes 3,832 3,461 3,501
Total taxes included in income
from continuing operations $7,903 $7,362 $7,733
A reconciliation of the statutory U.S. federal tax rate to the company’s
continuing operations effective tax rate is as follows:
FOR THE YEAR ENDED DECEMBER 31: 2007 2006 2005
Statutory rate 35% 35% 35%
Foreign tax differential (6) (5) (5)
State and local 1 1 1
“Act” repatriation* — — 4
Other (2) (2) —
Effective rate 28% 29% 35%
* American Jobs Creation Act of 2004, which permitted the repatriation of non-U.S.
earnings at a reduced tax rate.
The effect of tax law changes on deferred tax assets and liabilities did
not have a material impact on the company’s effective tax rate.
The significant components of deferred tax assets and liabilities
that are recorded in the Consolidated Statement of Financial Position
were as follows:
Deferred Tax Assets
($ in millions)
AT DECEMBER 31: 2007 2006
Stock-based and other compensation $ 2,920 $ 3,147
Retirement-related benefits 2,505 3,002
Capitalized research and development 1,050 1,355
Federal/state tax loss/state credit carryforwards 772 299
Bad debt, inventory and warranty reserves 647 724
Deferred income 645 506
Foreign tax loss/credit carryforwards 498 390
Capital loss carryforwards 9 131
Other 1,962 1,802
Gross deferred tax assets 11,008 11,356
Less: valuation allowance 772 510
Net deferred tax assets $10,236 $10,846
Deferred Tax Liabilities
($ in millions)
AT DECEMBER 31: 2007 2006
Retirement-related benefits $4,964 $2,906
Leases 1,635 1,385
Software development costs 462 505
Other 1,334 1,340
Gross deferred tax liabilities $8,395 $6,136