Pepsi 2009 Annual Report Download - page 83

71PepsiCo, Inc. 2009 Annual Report
Note 5 Income Taxes
2009 2008 2007
Income before income taxes
U.S. $4,209 $3,274 $4,085
Foreign 3,870 3,771 3,558
$8,079 $7,045 $7,643
Provision for income taxes
Current: U.S. Federal $1,238 $÷«815 $1,422
Foreign 473 732 489
State 124 87 104
1,835 1,634 2,015
Deferred: U.S. Federal 223 313 22
Foreign 21 (69) (66)
State 21 1 2
265 245 (42)
$2,100 $1,879 $1,973
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 1.2 0.8 0.9
Lower taxes on foreign results (7.9) (8.0) (6.6)
Tax settlements –– (1.7)
Other, net (2.3) (1.1) (1.8)
Annual tax rate 26.0% 26.7% 25.8%
Deferred tax liabilities
Investments in noncontrolled affiliates $1,120 $1,193
Property, plant and equipment 1,056 881
Intangible assets other than
nondeductible goodwill 417 295
Other 68 73
Gross deferred tax liabilities 2,661 2,442
Deferred tax assets
Net carryforwards 624 682
Stock-based compensation 410 410
Retiree medical benefits 508 495
Other employee-related benefits 442 428
Pension benefits 179 345
Deductible state tax and interest
benefits 256 230
Other 560 677
Gross deferred tax assets 2,979 3,267
Valuation allowances (586) (657)
Deferred tax assets, net 2,393 2,610
Net deferred tax liabilities/(assets) $÷«268 $÷(168)
Deferred taxes included within:
Assets:
Prepaid expenses and other
current assets $÷«391 $÷«372 $÷«325
Other assets –$÷÷«22 –
Liabilities:
Deferred income taxes $÷«659 $÷«226 $÷«646
Analysis of valuation allowances
Balance, beginning of year $÷«657 $÷«695 $÷«624
(Benefit)/provision (78) (5) 39
Other additions/(deductions) 7(33) 32
Balance, end of year $÷«586 $÷«657 $÷«695
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.
In 2007, we recognized $129 million of non-cash tax benefits
related to the favorable resolution of certain foreign tax matters.
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.—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 2007; and
• Canada—audits have been completed for all taxable years
through 2006. The Canadian tax return for 2007 is currently
under audit.
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 26, 2009, the total gross amount of reserves
for income taxes, reported in other liabilities, was $1.7 billion. 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 $461 million as of December 26,
2009, of which $30 million was recognized in 2009. The gross
amount of interest accrued was $427 million as of December 27,
2008, of which $95 million was recognized in 2008.
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