Baker Hughes 2013 Annual Report Download - page 89

Baker Hughes Incorporated59
Baker Hughes Incorporated
Notes to Consolidated Financial Statements
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as
operating loss and tax credit carryforwards. The tax effects of our temporary differences and carryforwards are as
follows at December 31:
2013 2012
Deferred tax assets:
Receivables $ 68 $ 76
Inventory 347 250
Employee benefits 98 125
Other accrued expenses 185 154
Operating loss carryforwards 403 245
Tax credit carryforwards 462 460
Other 70 70
Subtotal 1,633 1,380
Valuation allowances (949) (389)
Total 684 991
Deferred tax liabilities:
Goodwill and other intangibles 356 385
Property 459 355
Undistributed earnings of foreign subsidiaries 14 374
Other 24 27
Total 853 1,141
Net deferred tax liability $ (169) $ (150)
We record a valuation allowance when it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate
sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. At
December 31, 2013, valuation allowances totaled $949 million consisting of $382 million for operating loss
carryforwards, $459 million for foreign tax credit carryforwards, and $108 million for other deferred tax assets in
various jurisdictions. The increase in the valuation allowances of $560 million in 2013 resulted from net tax charges
of $342 million related to foreign tax credit carryforwards in the U.S., as described above, and $218 million primarily
related to foreign losses. There are $21 million of operating loss carryforwards without a valuation allowance which
expire in varying amounts over the next twenty years.
We have provided relevant U.S. and foreign taxes for the anticipated repatriation of certain earnings of our
foreign subsidiaries. At December 31, 2013 and 2012, the deferred tax liability for undistributed earnings of foreign
subsidiaries totaled $14 million and $374 million, respectively. The decrease was primarily due to our decision to
indefinitely reinvest the earnings of certain foreign subsidiaries. We consider the undistributed earnings of our
foreign subsidiaries above the amount for which taxes have already been provided to be indefinitely reinvested, as
we have no current intention to repatriate these earnings. As such, deferred income taxes are not provided for
temporary differences of approximately $5.9 billion at December 31, 2013, representing earnings of non-U.S.
subsidiaries intended to be indefinitely reinvested. These additional foreign earnings could become subject to
additional tax, if remitted, or deemed remitted, as a dividend. Computation of the potential deferred tax liability
associated with these undistributed earnings and any other basis differences, is not practicable.
At December 31, 2013, we had approximately $117 million of foreign tax credits which may be carried forward
indefinitely under applicable foreign law, and $342 million of foreign tax credits which expire in 2015 through 2024
under U.S. tax law. In addition, at December 31, 2013, we had approximately $3 million of state tax credits which
expire in 2018.
At December 31, 2013, we had $282 million of tax liabilities for total gross unrecognized tax benefits related to
uncertain tax positions, which includes liabilities for interest and penalties of $37 million and $17 million,