The domestic and foreign components of earnings were as follows for the following fiscal years ended October 31:

The provision for (benefit from) taxes on earnings was as follows for the following fiscal years ended October 31:

		2011			2010			2009

		In millions
U.S. federal taxes:
	Current	$	390		$	484		$	47
	Deferred		(590	)		231			956
Non-U.S. taxes:
	Current		1,177			1,345			1,156
	Deferred		611			21			(356	)
State taxes:
	Current		141			187			173
	Deferred		179			(55	)		(221	)

		$	1,908		$	2,213		$	1,755

The significant components of deferred tax assets and deferred tax liabilities were as follows for the following fiscal years ended October 31:

	2011					2010

	Deferred Tax Assets			Deferred Tax Liabilities		Deferred Tax Assets			Deferred Tax Liabilities
	In millions
Loss carryforwards	$	9,793		$	—	$	9,832		$	—
Credit carryforwards		2,739			—		733			—
Unremitted earnings of foreign subsidiaries		—			8,209		—			7,529
Inventory valuation		236			12		153			10
Intercompany transactions—profit in inventory		418			—		514			1
Intercompany transactions—excluding inventory		1,529			—		2,339			—
Fixed assets		255			63		163			15
Warranty		747			—		723			48
Employee and retiree benefits		1,819			18		2,800			29
Accounts receivable allowance		262			2		290			9
Capitalized research and development		294			—		597			—
Purchased intangible assets		125			2,738		11			1,885
Restructuring		233			—		404			13
Equity investments		58			6		59			—
Deferred revenue		1,025			38		975			24
Other		2,296			233		1,587			251

Gross deferred tax assets and liabilities		21,829			11,319		21,180			9,814
Valuation allowance		(9,057	)		—		(8,755	)		—

Total deferred tax assets and liabilities	$	12,772		$	11,319	$	12,425		$	9,814

The breakdown between current and long-term deferred tax assets and deferred tax liabilities was as follows for the following fiscal years ended October 31:

	2011			2010

	In millions
Current deferred tax assets	$	5,374		$	5,833
Current deferred tax liabilities		(41	)		(53	)
Long-term deferred tax assets		1,283			2,070
Long-term deferred tax liabilities		(5,163	)		(5,239	)

Total deferred tax assets net of deferred tax liabilities	$	1,453		$	2,611

As of October 31, 2011, HP had $2.1 billion, $4.9 billion and $30.2 billion of federal, state and foreign net operating loss carryforwards, respectively. Amounts included in each of these respective totals will begin to expire in fiscal 2012. HP also has a capital loss carryforward of approximately $287 million which will begin to expire in fiscal 2012. HP has provided a valuation allowance of $132 million for deferred tax assets related to federal and state net operating losses, $106 million for deferred tax assets related to capital loss carryforwards and $8.5 billion for deferred tax assets related to foreign net operating loss carryforwards that HP does not expect to realize.

As of October 31, 2011, HP had recorded deferred tax assets for various tax credit carryforwards of $2.7 billion. This amount includes $1.9 billion of U.S. foreign tax credit carryforwards which begin to expire in fiscal 2013 and against which HP has recorded a valuation allowance of $47 million. HP had alternative minimum tax credit carryforwards of $25 million, which do not expire, and U.S. research and development credit carryforwards of $517 million, which will begin to expire in fiscal 2020. HP also had tax credit carryforwards of $331 million in various states and foreign countries for which HP has provided a valuation allowance of $197 million to reduce the related deferred tax asset. These credits will begin to expire in fiscal 2012.

Gross deferred tax assets at October 31, 2011, 2010 and 2009 were reduced by valuation allowances of $9.1 billion, $8.8 billion and $8.7 billion, respectively. Total valuation allowances increased by $307 million in fiscal 2011, associated with various net operating losses, tax credits and other deferred tax assets. Valuation allowances increased by $77 million in fiscal 2010, consisting of $106 million associated with federal capital loss carryovers, and a net $29 million decrease associated with various net operating loss carryovers and credits. Valuation allowances increased by $6.9 billion in fiscal 2009, consisting of $7.0 billion associated with foreign net operating loss carryovers arising in fiscal 2009 associated with internal restructuring transactions, reduced by $100 million associated with state and foreign net operating losses.

Net excess tax benefits resulting from the exercise of employee stock options and other employee stock programs are recorded as an increase in stockholders' equity and were approximately $128 million in fiscal 2011, $300 million in fiscal 2010, and $163 million in fiscal 2009.

The differences between the U.S. federal statutory income tax rate and HP's effective tax rate were as follows for the following fiscal years ended October 31:



U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	0.5		1.3		0.9
Lower rates in other jurisdictions, net	(24.0	)	(18.3	)	(12.2	)
Research and development credit	(0.6	)	(0.1	)	(0.5	)
Foreign net operating loss	—		—		(4.1	)
Valuation allowance	5.2		0.8		(0.6	)
Accrued taxes due to post-acquisition integration	—		—		0.6
Nondeductible goodwill	3.4		—		—
Other, net	1.7		1.5		(0.5	)

	21.2	%	20.2	%	18.6	%

The jurisdictions with favorable tax rates that have the most significant effective tax rate impact in the periods presented include Singapore, the Netherlands, China, Ireland and Puerto Rico. HP plans to reinvest some of the earnings of these jurisdictions indefinitely outside the United States and therefore has not provided U.S. taxes on those indefinitely reinvested earnings.

In fiscal 2011, HP recorded $325 million of net income tax charges related to items unique to the year. These amounts included $468 million of tax charges for increases to foreign and state valuation allowances, offset by $78 million of income tax benefits for adjustments to prior year foreign income tax accruals, $63 million of income tax benefits for uncertain tax position reserve adjustments and settlement of tax audit matters, and $2 million of tax benefits associated with miscellaneous prior period items.

In fiscal 2010, HP recorded $26 million of net income tax benefits related to items unique to the year. These amounts included adjustments to prior year foreign income tax accruals and credits, settlement of tax audit matters, valuation allowance adjustments and other miscellaneous discrete items.

In fiscal 2009, HP recorded $547 million of net income tax benefits related to items unique to the year. The recorded amounts included $383 million of income tax benefits attributable to net deferred tax assets for foreign net operating loss carryovers arising pursuant to internal restructuring transactions. Also included were a net tax benefit of $154 million for the adjustment to estimated fiscal 2008 tax accruals upon filing the 2008 income tax returns, a $60 million income tax benefit for valuation allowance reversals for state and foreign net operating losses, and other miscellaneous items that resulted in a net tax charge of $50 million.

As a result of certain employment actions and capital investments HP has undertaken, income from manufacturing and services in certain countries is subject to reduced tax rates, and in some cases is wholly exempt from taxes, through 2024. The gross income tax benefits attributable to these actions and investments were estimated to be $1.3 billion (approximately $0.62 basic earnings per share) in fiscal year 2011, $966 million (approximately $0.41 basic earnings per share) in fiscal year 2010 and $853 million (approximately $0.35 basic earnings per share) in fiscal year 2009. The gross income tax benefits were offset partially by accruals of U.S. income taxes on undistributed earnings, among other factors.

The total amount of gross unrecognized tax benefits was $2.1 billion as of October 31, 2011. A reconciliation of unrecognized tax benefits is as follows:


Balance at October 31, 2008			$	2,333
	Increases:
		For current year's tax positions		115
		For prior years' tax positions		626
	Decreases:
		For prior years' tax positions		(762	)
		Statute of limitations expiration		(293	)
		Settlements with taxing authorities		(131	)

Balance at October 31, 2009			$	1,888

	Increases:
		For current year's tax positions		27
		For prior years' tax positions		347
	Decreases:
		For prior years' tax positions		(120	)
		Statute of limitations expiration		(1	)
		Settlements with taxing authorities		(56	)

Balance at October 31, 2010			$	2,085

	Increases:
		For current year's tax positions		384
		For prior years' tax positions		426
	Decreases:
		For prior years' tax positions		(159	)
		Statute of limitations expiration		(20	)
		Settlements with taxing authorities		(598	)

Balance at October 31, 2011			$	2,118

Up to $1.1 billion, $1.0 billion and $950 million of HP's unrecognized tax benefits at October 31, 2011, 2010 and 2009, respectively, would affect HP's effective tax rate if realized.

HP recognizes interest income from favorable settlements and income tax receivables and interest expense and penalties accrued on unrecognized tax benefits within income tax expense. As of October 31, 2011, HP had accrued a net $205 million payable for interest and penalties. During fiscal 2011, HP recognized net interest expense net of tax on net deficiencies of $24 million.

HP engages in continuous discussion and negotiation with taxing authorities regarding tax matters in various jurisdictions. HP does not expect complete resolution of any IRS audit cycle within the next 12 months. However, it is reasonably possible that certain federal, foreign and state tax issues may be concluded in the next 12 months, including issues involving transfer pricing and other matters. Accordingly, HP believes it is reasonably possible that its existing unrecognized tax benefits may be reduced by an amount up to $249 million within the next 12 months.

HP is subject to income tax in the United States and approximately 80 foreign countries and is subject to routine corporate income tax audits in many of these jurisdictions. In addition, HP is subject to numerous ongoing audits by state and foreign tax authorities. The IRS began an audit of HP's 2008 income tax returns in 2010 and began its audit of HP's 2009 income tax returns during 2011. HP has received from the IRS Notices of Deficiency for its fiscal 1999, 2000, 2003, 2004 and 2005 tax years, and Revenue Agent's Reports ("RAR") for its fiscal 2001, 2002, 2006 and 2007 tax years. The proposed IRS adjustments for these tax years would, if sustained, reduce the benefits of tax refund claims HP has filed for net operating loss carrybacks to earlier fiscal years and tax credit carryforwards to subsequent years by approximately $557 million. HP has filed petitions with the United States Tax Court regarding certain proposed IRS adjustments regarding tax years 1999 through 2003 and is continuing to contest additional adjustments proposed by the IRS for other tax years. HP believes that it has provided adequate reserves for any tax deficiencies or reductions in tax benefits that could result from the IRS actions. With respect to major foreign and state tax jurisdictions, HP is no longer subject to tax authority examinations for years prior to 1999. HP believes that adequate accruals have been provided for all open tax years.

Tax years of EDS through 2002 have been audited by the IRS, and all proposed adjustments have been resolved. The IRS is currently auditing EDS's tax years 2007 and the short period ended August 26, 2008. EDS has received RAR's for exam years 2003, 2004, 2005 and 2006, proposing total tax deficiencies of $110 million, including $30 million of reduction in carrybacks to prior years. HP is contesting certain issues and believes it has provided adequate reserves for any tax deficiencies or reductions in tax benefit that could result from the IRS actions.

HP has not provided for U.S. federal income and foreign withholding taxes on $29.1 billion of undistributed earnings from non-U.S. operations as of October 31, 2011 because HP intends to reinvest such earnings indefinitely outside of the United States. If HP were to distribute these earnings, foreign tax credits may become available under current law to reduce the resulting U.S. income tax liability. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable. HP will remit non-indefinitely reinvested earnings of its non-US subsidiaries for which deferred U.S. federal and withholding taxes have been provided where excess cash has accumulated and it determines that it is advantageous for business operations, tax or cash management reasons.