Note 5 — Income Taxes


		2011			2010			2009
*Income before income taxes*
U.S.		$	3,964		$	4,008		$	4,209
Foreign			4,870			4,224			3,870

		$	8,834		$	8,232		$	8,079

*Provision for income taxes*
Current:	U.S. Federal	$	611		$	932		$	1,238
	Foreign		882			728			473
	State		124			137			124

			1,617			1,797			1,835

Deferred:	U.S. Federal		789			78			223
	Foreign		(88	)		18			21
	State		54			1			21

			755			97			265

		$	2,372		$	1,894		$	2,100

*Tax rate reconciliation*
U.S. Federal statutory tax rate			35.0	%		35.0	%		35.0	%
State income tax, net of U.S. Federal tax benefit			1.3			1.1			1.2
Lower taxes on foreign results			(8.7	)		(9.4	)		(7.9	)
Acquisitions of PBG and PAS			—			(3.1	)		—
Other, net			(0.8	)		(0.6	)		(2.3	)

Annual tax rate			26.8	%		23.0	%		26.0	%

*Deferred tax liabilities*
Investments in noncontrolled affiliates		$	41		$	74
Debt guarantee of wholly owned subsidiary			828			828
Property, plant and equipment			2,466			1,984
Intangible assets other than nondeductible goodwill			4,297			3,726
Other			184			647

Gross deferred tax liabilities			7,816			7,259

*Deferred tax assets*
Net carryforwards			1,373			1,264
Stock-based compensation			429			455
Retiree medical benefits			504			579
Other employee-related benefits			695			527
Pension benefits			545			291
Deductible state tax and interest benefits			339			320
Long-term debt obligations acquired			223			291
Other			822			904

Gross deferred tax assets			4,930			4,631
Valuation allowances			(1,264	)		(875	)

Deferred tax assets, net			3,666			3,756

Net deferred tax liabilities		$	4,150		$	3,503

Deferred taxes included within:
Assets:
Prepaid expenses and other current assets		$	845		$	554
Liabilities:
Deferred income taxes		$	4,995		$	4,057
*Analysis of valuation allowances*
Balance, beginning of year		$	875		$	586		$	657
Provision/(Benefit)			464			75			(78	)
Other (deductions)/additions			(75	)		214			7

Balance, end of year		$	1,264		$	875		$	586

For additional unaudited information on our income tax policies, including our reserves for income taxes, see "Our Critical Accounting Policies" in Management's Discussion and Analysis of Financial Condition and Results of Operations.

Reserves

A number of years may elapse before a particular matter, for which we have established a reserve, is audited and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction. Our major taxing jurisdictions and the related open tax audits are as follows:

•

U.S. – during 2011, our tax court trial related to classification of financial instruments was completed for the 1998-2002 audit cycle. We are currently awaiting a decision by the judge. We continue to dispute with the IRS Appeals Division three matters related to the 2003-2005 audit cycle. During 2011, all but three issues, which are currently under review by the IRS Appeals Division, were resolved for tax years 2006-2007. We are currently under audit for tax years 2008-2009;

•

Mexico – audits have been completed for all taxable years through 2005. We are currently under audit for 2006;

•

United Kingdom – audits have been completed for all taxable years through 2007;

•

Canada – domestic audits have been substantially completed for all taxable years through 2007. International audits have been completed for all taxable years through 2005; and

•

Russia – audits have been substantially completed for all taxable years through 2008.

While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe that our reserves reflect the probable outcome of known tax contingencies. We adjust these reserves, as well as the related interest, in light of changing facts and circumstances. Settlement of any particular issue would usually require the use of cash. Favorable resolution would be recognized as a reduction to our annual tax rate in the year of resolution. For further unaudited information on the impact of the resolution of open tax issues, see "Other Consolidated Results."

As of December 31, 2011, the total gross amount of reserves for income taxes, reported in other liabilities, was $2,167 million. Any prospective adjustments to these reserves will be recorded as an increase or decrease to our provision for income taxes and would impact our effective tax rate. In addition, we accrue interest related to reserves for income taxes in our provision for income taxes and any associated penalties are recorded in selling, general and administrative expenses. The gross amount of interest accrued, reported in other liabilities, was $660 million as of December 31, 2011, of which $90 million was recognized in 2011. The gross amount of interest accrued was $570 million as of December 25, 2010, of which $135 million was recognized in 2010.

A rollforward of our reserves for all federal, state and foreign tax jurisdictions, is as follows:


	2011			2010
Balance, beginning of year	$	2,022		$	1,731
Additions for tax positions related to the current year		233			204
Additions for tax positions from prior years		147			517
Reductions for tax positions from prior years		(46	)		(391	)
Settlement payments		(156	)		(30	)
Statute of limitations expiration		(15	)		(7	)
Translation and other		(18	)		(2	)

Balance, end of year	$	2,167		$	2,022

Carryforwards and Allowances

Operating loss carryforwards totaling $10.0 billion at year-end 2011 are being carried forward in a number of foreign and state jurisdictions where we are permitted to use tax operating losses from prior periods to reduce future taxable income. These operating losses will expire as follows: $0.1 billion in 2012, $8.2 billion between 2013 and 2031 and $1.7 billion may be carried forward indefinitely. We establish valuation allowances for our deferred tax assets if, based on the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Undistributed International Earnings

As of December 31, 2011, we had approximately $34.1 billion of undistributed international earnings. We intend to continue to reinvest earnings outside the U.S. for the foreseeable future and, therefore, have not recognized any U.S. tax expense on these earnings.