PROVISION FOR INCOME TAXES



	2012			2011			2010
Current tax expense (benefit) on continuing operations:
U.S. federal	$	121		$	353		$	(142	)
U.S. state and local	16			(20		)	(9		)
International	663			482			401
Total current tax expense on continuing operations	800			815			250
Deferred tax expense (benefit) on continuing operations:
U.S. federal	(103		)	(147		)	240
U.S. state and local	(46		)	(4		)	22
International	(29		)	(38		)	3
Total deferred tax (benefit) expense on continuing operations	(178		)	(189		)	265
Provision for income taxes on continuing operations	$	622		$	626		$	515

The significant components of deferred tax assets and liabilities at December 31, 2012 and 2011, are as follows:



	2012					2011
	Asset			Liability		Asset			Liability
Depreciation	$	—		$	1,696	$	—		$	1,781
Accrued employee benefits	5,198			167		5,562			252
Other accrued expenses	1,157			499		1,020			354
Inventories	249			68		199			39
Unrealized exchange gains/losses	—			56		—			35
Tax loss/tax credit carryforwards/backs	2,733			—		2,854			—
Investment in subsidiaries and affiliates	81			92		46			259
Amortization of intangibles	58			1,335		69			1,399
Other	270			287		250			279
Valuation allowance	(1,914		)	—		(1,971		)	—
	$	7,832		$	4,200	$	8,029		$	4,398
Net deferred tax asset	$	3,632				$	3,631

An analysis of the company's effective income tax rate (EITR) on continuing operations is as follows:



	2012		2011		2010
Statutory U.S. federal income tax rate	35.0	%	35.0	%	35.0	%
Exchange gains/losses¹	0.1		(0.8	)	2.2
Domestic operations²	(2.3	)	(3.4	)	(3.3	)
Lower effective tax rates on international operations-net²	(10.8	)	(11.7	)	(16.0	)
Tax settlements	(2.0	)	(0.2	)	(2.1	)
Sale of a business	—		(2.3	)	—
	20.0	%	16.6	%	15.8	%


^1.	Principally reflects the impact of non-taxable exchange gains and losses resulting from remeasurement of foreign currency-denominated monetary assets and liabilities. Further information about the company's foreign currency hedging program is included in Note 20 under the heading Foreign Currency Risk.

^2.

On January 2, 2013, U.S. tax law was enacted which extends through 2013 several expired or expiring temporary business tax provisions. In accordance with GAAP, this extension will be taken into account in the quarter in which the legislation was enacted (i.e. first quarter 2013). The company is still quantifying the impact of this law change; however, it is expected that the retroactive 2012 benefit derived from these extenders will be approximately $70.

Consolidated income from continuing operations before income taxes for U.S. and international operations was as follows:



	2012		2011		2010
U.S. (including exports)	$	652	$	701	$	793
International	2,463		3,080		2,467
	$	3,115	$	3,781	$	3,260

The decrease in pre-tax earnings from continuing operations from 2011 to 2012 is primarily driven by pre-tax charges related to Imprelis^® and employee separation/asset related charges in 2012, in addition to the results of the company's hedging program. See Note 3 and Note 16 for additional information. In 2012 and 2011, the U.S. recorded exchange losses associated with the hedging program of $157 and $133, respectively. While the taxation of the amounts reflected on the chart above does not correspond precisely to the jurisdiction of taxation (due to taxation in multiple countries, exchange gains/losses, etc.), it represents a reasonable approximation of the income before income taxes split between U.S. and international jurisdictions. See Note 20 for additional information regarding the company's hedging program.

Under the tax laws of various jurisdictions in which the company operates, deductions or credits that cannot be fully utilized for tax purposes during the current year may be carried forward or back, subject to statutory limitations, to reduce taxable income or taxes payable in future or prior years. At December 31, 2012, the tax effect of such carryforwards/backs, net of valuation allowance approximated $1,298. Of this amount, $1,074 has no expiration date, $42 expires after 2012 but before the end of 2017 and $182 expires after 2017.

At December 31, 2012, unremitted earnings of subsidiaries outside the U.S. totaling $13,179 were deemed to be indefinitely reinvested. No deferred tax liability has been recognized with regard to the remittance of such earnings. It is not practical to estimate the income tax liability that might be incurred if such earnings were remitted to the U.S.

Each year the company files hundreds of tax returns in the various national, state and local income taxing jurisdictions in which it operates. These tax returns are subject to examination and possible challenge by the taxing authorities. Positions challenged by the taxing authorities may be settled or appealed by the company. As a result, there is an uncertainty in income taxes recognized in the company's financial statements in accordance with accounting for income taxes and accounting for uncertainty in income taxes. It is reasonably possible that changes to the company's global unrecognized tax benefits could be significant, however, due to the uncertainty regarding the timing of completion of audits and possible outcomes, a current estimate of the range of increases or decreases that may occur within the next twelve months cannot be made.

The company and/or its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and non-U.S. jurisdictions. With few exceptions, the company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 1999. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:



	2012			2011			2010
Total unrecognized tax benefits as of January 1	$	800		$	693		$	739
Gross amounts of decreases in unrecognized tax benefits as a result of tax positions taken during the prior period	(94		)	(82		)	(155		)
Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken during the prior period	73			170			169
Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken during the current period	78			79			51
Amount of decreases in the unrecognized tax benefits relating to settlements with taxing authorities	(29		)	(6		)	(90		)
Reduction to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations	(10		)	(32		)	(24		)
Exchange gain (loss)	(13		)	(22		)	3
Total unrecognized tax benefits as of December 31	$	805		$	800		$	693
Total unrecognized tax benefits that, if recognized, would impact the effective tax rate	$	693		$	683		$	545
Total amount of interest and penalties recognized in the Consolidated Income Statements	$	4		$	7		$	(70	)
Total amount of interest and penalties recognized in the Consolidated Balance Sheets	$	116		$	113		$	99