IBM 2013 Annual Report Download - page 122

Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
121
NOTE N.
TA XES
($ in millions)
For the year ended December 31: 2013 2012 2011
Income before income taxes
U.S. operations $ 6,857 $ 9,668 $ 9,716
Non-U.S. operations 12,667 12,234 11,287
Total income before income taxes $19,524 $21,902 $21,003
The provision for income taxes by geographic operations is as
follows:
($ in millions)
For the year ended December 31: 2013 2012 2011
U.S. operations $ 993 $2,582 $2,141
Non-U.S. operations 2,048 2,716 3,007
Total provision for income taxes $3,041 $5,298 $5,148
The components of the provision for income taxes by taxing jurisdic-
tion are as follows:
($ in millions)
For the year ended December 31: 2013 2012 2011
U.S. federal
Current $1,406 $1,361 $ 268
Deferred (652) 403 909
754 1,764 1,177
U.S. state and local
Current 178 134 429
Deferred (321) 289 81
(143) 423 510
Non-U.S.
Current 3,067 3,006 3,239
Deferred (637) 105 222
2,430 3,111 3,461
Total provision for income taxes 3,041 5,298 5,148
Provision for social security,
real estate, personal property
and other taxes 4,198 4,331 4,289
Total taxes included in net income $7,239 $9,629 $9,437
A reconciliation of the statutory U.S. federal tax rate to the company’s
effective tax rate is as follows:
For the year ended December 31: 2013*2012*2011*
Statutory rate 35% 35% 35%
Foreign tax differential (14) (11) (10)
State and local (0) 1 2
Domestic incentives (3) (1) (1)
Other (2) (0) (1)
Effective rate 16% 24% 25%
* Percentages rounded for disclosure purposes.
other U.S. companies doing business in Brazil, the company is
involved in various challenges with Brazilian authorities regarding
non-income tax assessments and non-income tax litigation matters.
These matters include claims for taxes on the importation of com-
puter software. In November 2008, the company won a significant
case in the Superior Chamber of the federal administrative tax court
in Brazil, and in late July 2009, the company received written con-
firmation regarding this decision. The total potential amount related
to the remaining matters for all applicable years is approximately
$700 million. The company believes it will prevail on these matters
and that this amount is not a meaningful indicator of liability.
Commitments
The company’s extended lines of credit to third-party entities
include unused amounts of $5,028 million and $4,719 million at
December 31, 2013 and 2012, respectively. A portion of these
amounts was available to the company’s business partners to sup-
port 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 $1,769 million
and $1,513 million at December 31, 2013 and 2012, 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 $44 million and $65 million at December
31, 2013 and 2012, respectively. The fair value of the guarantees
recognized in the Consolidated Statement of Financial Position is
not material.