Pepsi 2008 Annual Report Download - page 79

77PepsiCo, Inc. 2008 Annual Report
Note 5 Income Taxes
2008 2007 2006
Income before income taxes
U.S. $3,274 $4,085 $3,844
Foreign 3,747 3,546 3,145
$7,021 $7,631 $6,989
Provision for income taxes
Current: U.S. Federal $÷«815 $1,422 $÷«776
Foreign 732 489 569
State 87 104 56
1,634 2,015 1,401
Deferred: U.S. Federal 313 22 (31)
Foreign (69) (66) (16)
State 12 (7)
245 (42) (54)
$1,879 $1,973 $1,347
Tax rate reconciliation
U.S. Federal statutory tax rate 35.0% 35.0% 35.0%
State income tax, net of
U.S. Federal tax benet 0.8 0.9 0.5
Lower taxes on foreign results (7.9) (6.5) (6.5)
Tax settlements –(1.7) (8.6)
Other, net (1.1) (1.8) (1.1)
Annual tax rate 26.8% 25.9% 19.3%
Deferred tax liabilities
Investments in noncontrolled afliates $1,193 $1,163
Property, plant and equipment 881 828
Intangible assets other than
nondeductible goodwill 295 280
Pension benets –148
Other 73 136
Gross deferred tax liabilities 2,442 2,555
Deferred tax assets
Net carryforwards 682 722
Stock-based compensation 410 425
Retiree medical benets 495 528
Other employee-related benets 428 447
Pension benets 345 –
Deductible state tax and interest benets 230 189
Other 677 618
Gross deferred tax assets 3,267 2,929
Valuation allowances (657) (695)
Deferred tax assets, net 2,610 2,234
Net deferred tax (assets)/liabilities $÷(168) $÷«321
2008 2007 2006
Deferred taxes included within:
Assets:
Prepaid expenses and other current
assets $372 $325 $223
Other assets $÷22 – –
Liabilities:
Deferred income taxes $226 $646 $528
Analysis of valuation allowances
Balance, beginning of year $695 $624 $532
(Benet)/provision (5) 39 71
Other (deductions)/additions (33) 32 21
Balance, end of year $657 $695 $624
For additional unaudited information on our income tax poli-
cies, including our reserves for income taxes, see “Our Critical
Accounting Policies” in Management’s Discussion and Analysis.
In 2007, we recognized $129 million of non-cash tax benets
related to the favorable resolution of certain foreign tax matters.
In 2006, we recognized non-cash tax benets of $602 million,
substantially all of which related to the IRS’s examination of our
consolidated income tax returns for the years 1998 through 2002.
RESERVES
A number of years may elapse before a particular matter, for
which we have established a reserve, is audited and nally
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. – continue to dispute one matter related to tax years
1998 through 2002. Our U.S. tax returns for the years 2003
through 2005 are currently under audit. In 2008, the IRS
initiated its audit of our U.S. tax returns for the years 2006
through 2007;
• Mexico – audits have been substantially completed for all
taxable years through 2005;
• United Kingdom – audits have been completed for all taxable
years prior to 2004; and
• Canada – audits have been completed for all taxable years
through 2005. We are in agreement with the conclusions,
except for one matter which we continue to dispute. The
Canadian tax return for 2006 is currently under audit.