IBM 2012 Annual Report Download - page 114

Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
113
Note N.
Taxes
($ in millions)
For the year ended December 31: 2012 2011 2010
Income before income taxes
U.S. operations $ 9,668 $ 9,716 $ 9,140
Non-U.S. operations 12,234 11,287 10,583
Total income before income taxes $21,902 $21,003 $19,723
The provision for income taxes by geographic operations is as
follows:
($ in millions)
For the year ended December 31: 2012 2011 2010
U.S. operations $2,582 $2,141 $2,000
Non-U.S. operations 2,716 3,007 2,890
Total provision for income taxes $5,298 $5,148 $4,890
The components of the provision for income taxes by taxing jurisdic-
tion are as follows:
($ in millions)
For the year ended December 31: 2012 2011 2010
U.S. federal
Current $1,361 $ 268 $ 190
Deferred 403 909 1,015
1,764 1,177 1,205
U.S. state and local
Current 134 429 279
Deferred 289 81 210
423 510 489
Non-U.S.
Current 3,006 3,239 3,127
Deferred 105 222 69
3,111 3,461 3,196
Total provision for income taxes 5,298 5,148 4,890
Provision for social security,
real estate, personal property
and other taxes 4,331 4,289 4,018
Total taxes included in net income $9,629 $9,437 $8,908
Commitments
The company’s extended lines of credit to third-party entities
include unused amounts of $4,719 million and $4,040 million at
December 31, 2012 and 2011, respectively. A portion of these amounts
was available to the company’s business partners to support their
working capital needs. In addition, the company has committed
to provide future financing to its clients in connection with client
purchase agreements for approximately $1,513 million and $1,866
million at December 31, 2012 and 2011, respectively.
The company has applied the guidance requiring a guarantor
to disclose certain types of guarantees, even if the likelihood of
requiring the guarantor’s performance is remote. The following is a
description of arrangements in which the company is the guarantor.
The company is a party to a variety of agreements pursuant to
which it may be obligated to indemnify the other party with respect
to certain matters. Typically, these obligations arise in the context of
contracts entered into by the company, under which the company
customarily agrees to hold the other party harmless against losses
arising from a breach of representations and covenants related
to such matters as title to assets sold, certain IP rights, specified
environmental matters, third-party performance of nonfinancial
contractual obligations and certain income taxes. In each of these
circumstances, payment by the company is conditioned on the other
party making a claim pursuant to the procedures specified in
the particular contract, the procedures of which typically allow the
company to challenge the other party’s claims. While typically
indemnification provisions do not include a contractual maximum
on the company’s payment, the company’s obligations under these
agreements may be limited in terms of time and/or nature of claim,
and in some instances, the company may have recourse against
third parties for certain payments made by the company.
It is not possible to predict the maximum potential amount of
future payments under these or similar agreements due to the con-
ditional nature of the company’s obligations and the unique facts
and circumstances involved in each particular agreement. Histori-
cally, payments made by the company under these agreements
have not had a material effect on the company’s business, financial
condition or results of operations.
In addition, the company guarantees certain loans and financial
commitments. The maximum potential future payment under these
financial guarantees was $65 million and $56 million at December
31, 2012 and 2011, respectively. The fair value of the guarantees
recognized in the Consolidated Statement of Financial Position is
not material.