Kraft 2012 Annual Report Download - page 77

In 2010, we also recognized tax expense of $1.2 billion related to the earnings and gain from discontinued operations from
the sale of the Frozen Pizza business.
Our unrecognized tax benefits of $258 million at December 29, 2012 are included in other current liabilities and other
liabilities. If we had recognized all of these benefits, the net impact on our income tax provision would have been $173
million. The amount of net unrecognized tax benefits could decrease by $10 million to $25 million during the next 12
months. We include accrued interest and penalties related to uncertain tax positions in our tax provision. We accrued
interest and penalties of $80 million as of January 1, 2012 and $67 million as of December 29, 2012. Our 2012 provision
for income taxes included $18 million for interest and penalties and we paid interest and penalties of $4 million during
2012.
The changes in our unrecognized tax benefits for the years ended December 29, 2012, December 31, 2011, and
December 31, 2010 were:
2012 2011 2010
(in millions)
Beginning of year $ 371 $ 329 $ 237
Increases from positions taken during prior periods 11 34 3
Decreases from positions taken during prior periods (90) (19) (21)
Increases from positions taken during the current
period 16 33 104
Net transfers to / from Mondele¯z International (9) - -
(Decreases) / increases relating to settlements with
taxing authorities (33) (13) 5
Currency / other (8) 7 1
End of year $ 258 $ 371 $ 329
Our U.S. operations are included in Mondele¯ z International’s U.S. federal consolidated income tax returns for tax years
through October 1, 2012. In July 2012, Mondele¯ z International reached a final resolution on a U.S. federal income tax
audit of the 2004-2006 tax years and on a Canadian income tax audit of certain matters related to the 2003-2006 tax
years. The U.S. federal statute of limitations remains open for tax year 2007 and forward, and federal income tax returns
for 2007-2009 are currently under examination. U.S. state and local and foreign jurisdictions have statutes of limitations
generally ranging from three to five years unless we agree to an extension. In Canada, our only significant foreign
jurisdiction, the earliest open tax year is 2005.
We have entered into a tax sharing agreement with Mondele¯z International, which provides that for periods prior to
October 1, 2012, Mondele¯ z International is liable for and has indemnified us against all U.S. federal income taxes and
substantially all foreign income taxes, excluding Canadian income taxes; and that we are liable for and have indemnified
Mondele¯z International against U.S. state income taxes and Canadian federal and provincial income taxes. However, if we
breach certain covenants or other obligations or are involved in certain change-in-control transactions, Mondele¯z
International may not be required to indemnify us for income taxes arising pursuant to the Spin-Off. Similarly, if Mondele¯z
International breaches certain covenants or other obligations or are involved in other change-in-control transactions, we
may not be required to indemnify them for income taxes arising pursuant to the Spin-Off.
At December 29, 2012, applicable U.S. federal income taxes and foreign withholding taxes had not been provided on
approximately $24 million of unremitted earnings of foreign subsidiaries that are intended to be indefinitely reinvested for
continued use in foreign operations. We currently have outside tax basis in excess of book basis in certain foreign
subsidiaries in which earnings are indefinitely reinvested. The tax consequences of repatriation of these earnings would be
insignificant.
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