UPS 2012 Annual Report Download - page 107

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
95
Our effective tax rate declined to 17.1% in 2012 compared with 34.1% in 2011 largely due to the significance of U.S.
Federal tax credits and the proportion of taxable income in certain non-U.S. jurisdictions relative to total pre-tax income.
In the third quarter of 2010, we recognized a $40 million tax benefit associated with the release of a valuation allowance
against deferred tax assets in our international package operations, partially offset by tax provided for interest earned on
refunds.
In the first quarter of 2010, we changed the tax status of a German subsidiary that was taxable in the U.S. and its local
jurisdiction to one that is taxed solely in its local jurisdiction. This change was made primarily to allow for more flexibility in
funding this subsidiary’s operations with local liquidity sources, improve the cash flow position in the U.S., and help mitigate
future currency remeasurement risk. As a result of this change in tax status, we recorded a non-cash charge of $76 million,
which resulted primarily from the write-off of related deferred tax assets which will not be realizable following the change in
tax status.
Beginning in 2012, we were granted a tax incentive for certain of our non-U.S. operations, which is effective through
December 31, 2017 and may be extended through December 31, 2022 if additional requirements are satisfied. The tax
incentive is conditional upon our meeting specific employment and investment thresholds. The impact of this tax incentive
decreased non-U.S. tax expense by $22 million, or $0.02 per share, for 2012.
Deferred tax liabilities and assets are comprised of the following at December 31 (in millions):
2012 2011
Property, plant and equipment $ (3,624) $ (3,607)
Goodwill and intangible assets (1,035)(951)
Other (617)(554)
Deferred tax liabilities (5,276)(5,112)
Pension and postretirement benefits 4,608 2,106
Loss and credit carryforwards (non-U.S. and state) 258 259
Insurance reserves 737 696
Vacation pay accrual 209 208
Stock compensation 159 211
Other 708 635
Deferred tax assets 6,679 4,115
Deferred tax assets valuation allowance (220)(205)
Deferred tax asset (net of valuation allowance) 6,459 3,910
Net deferred tax asset (liability) $ 1,183 $ (1,202)
Amounts recognized in the consolidated balance sheets:
Current deferred tax assets $ 583 $ 611
Current deferred tax liabilities (included in other current liabilities) (36)(31)
Non-current deferred tax assets 684 118
Non-current deferred tax liabilities (48)(1,900)
Net deferred tax asset (liability) $ 1,183 $ (1,202)
The valuation allowance increased by $15, $2 and $30 million during the years ended December 31, 2012, 2011 and
2010, respectively.
We have U.S. state and local operating loss and credit carryforwards as follows (in millions):
2012 2011
U.S. state and local operating loss carryforwards $ 608 $ 859
U.S. state and local credit carryforwards $ 61 $ 77
The operating loss carryforwards expire at varying dates through 2032. The state credits can be carried forward for
periods ranging from three years to indefinitely.