United States Securities and Exchange Commission Washington, D. C. 20549 form 10-K



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In general, other reconciling items consist of interest, U.S. state income taxes, domestic production deductions, and research credits. In fiscal years 2009 and 2008, there were no individually significant other reconciling items. Other reconciling items in fiscal year 2007 included the impact of a $195 million reduction resulting from various changes in tax positions taken in prior periods, related primarily to favorable developments in an IRS position and multiple foreign audit assessments.

The components of the deferred income tax assets and liabilities were as follows:

 


(In millions)

  

 

 


 

 

 

 


 

June 30,

  

2009

 

 

2008

 










Deferred income tax assets:

  

 

 

 

 

 

 

 

Stock-based compensation expense

  

$

2,004

  

 

$

2,225

  

Other expense items

  

 

1,595

  

 

 

1,933

  

Unearned revenue

  

 

743

  

 

 

928

  

Impaired investments

  

 

236

  

 

 

331

  

Other revenue items

  

 

120

  

 

 

91

  

 

 


  


 

 

 


 

 


  


Deferred income tax assets

  

$

4,698

  

 

$

5,508

  

 

 


  


 

 

 


 

 


  


Deferred income tax liabilities:

  

 

 

 

 

 

 

 

International earnings

  

$

(1,191



 

$

(1,300



Unrealized gain on investments

  

 

(516



 

 

(513



Other

  

 

(499



 

 

(729



 

 


  


 

 

 


 

 


  


Deferred income tax liabilities

  

 

(2,206



 

 

(2,542



 

 


  


 

 

 


 

 


  


Net deferred income tax assets

  

$

2,492

  

 

$

2,966

  

 

  

 

 


 

 


  


 

 

 


 

 


  


Reported as:

  

 

 

 

 

 

 

 

Current deferred income tax assets

  

$

2,213

  

 

$

2,017

  

Long-term deferred income tax assets

  

 

279

  

 

 

949

  

 

 


  


 

 

 


 

 


  


Net deferred income tax assets

  

$

2,492

  

 

$

2,966

  

 

  

 

 


 

 


  


 

 

 


 

 


  

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when the taxes are actually paid or recovered.

We have not provided deferred U.S. income taxes or foreign withholding taxes on temporary differences of approximately $18.0 billion resulting from earnings for certain non-U.S. subsidiaries which are permanently reinvested outside the United States. The unrecognized deferred tax liability associated with these temporary differences is approximately $5.4 billion.

Income taxes paid were $6.6 billion in fiscal year 2009, $5.4 billion in fiscal year 2008, and $5.2 billion in fiscal year 2007.



Uncertain Tax Positions

As of June 30, 2009, we had $5.4 billion of unrecognized tax benefits of which $4.4 billion, if recognized, would affect our effective tax rate. As of June 30, 2008, we had $3.2 billion of unrecognized tax benefits of which $2.3 billion, if recognized, would affect our effective tax rate.

Interest and penalties related to unrecognized tax benefits are included in income tax expense. Such interest totaled $230 million in fiscal year 2009 and $121 million in fiscal year 2008. As of June 30, 2009 and 2008, we had accrued interest related to uncertain tax positions of $554 million and $324 million, respectively, net of federal income tax benefits, on our balance sheets.

The aggregate changes in the balance of unrecognized tax benefits were as follows:

 

(In millions)

  

 

 


 

 

 

 


 

Year Ended June 30,

  

2009

 

 

2008

 

Balance, beginning of year

  

$

3,195

  

 

$

7,076

  

Decreases related to settlements

  

 

(82



 

 

(4,787



Increases for tax positions related to the current year

  

 

2,203

  

 

 

934

  

Increases for tax positions related to prior years

  

 

239

  

 

 

66

  

Decreases for tax positions related to prior years

  

 

(132



 

 

(80



Reductions due to lapsed statute of limitations

  

 

(20



 

 

(14



 

 


  


 

 

 


 

 


  


Balance, end of year

  

$

5,403

  

 

$

3,195

  

 

  

 

 


 

 


  


 

 

 


 

 


  



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