Microsoft 2013 Annual Report Download - page 67

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U.S. and international components of income before income taxes were as follows:
(In millions)
Year Ended June 30,
2013
2012
2011
U.S.
$ 6,674
$ 1,600
$ 8,862
International
20,378
20,667
19,209
Income before income taxes
$ 27,052
$ 22,267
$ 28,071
The items accounting for the difference between income taxes computed at the U.S. federal statutory rate and our
effective rate were as follows:
Year Ended June 30,
2013
2012
2011
Federal statutory rate
35.0%
35.0%
35.0%
Effect of:
Foreign earnings taxed at lower rates
(17.5)%
(21.1)%
(15.6)%
Goodwill impairment
0%
9.7%
0%
I.R.S. settlement
0%
0%
(1.7)%
Other reconciling items, net
1.7%
0.2%
(0.2)%
Effective rate
19.2%
23.8%
17.5%
The reduction from the federal statutory rate from foreign earnings taxed at lower rates results from producing and
distributing our products and services through our foreign regional operations centers in Ireland, Singapore, and Puerto
Rico. Our foreign earnings, which are taxed at rates lower than the U.S. rate and are generated from our regional
operating centers, were 79%, 79%, and 78% of our international income before tax in fiscal years 2013, 2012, and 2011,
respectively. In general, other reconciling items consist of interest, U.S. state income taxes, domestic production
deductions, and credits. In fiscal years 2013, 2012, and 2011, there were no individually significant other reconciling
items. The I.R.S. settlement is discussed below.