Pepsi 2010 Annual Report Download - page 85

Notes to Consolidated Financial Statements
84 PepsiCo, Inc. 2010 Annual Report
Note 5 Income Taxes
2010 2009 2008
Income before income taxes
U.S. $4,008 $4,209 $3,274
Foreign 4,224 3,870 3,771
$8,232 $8,079 $7,045
Provision for income taxes
Current: U.S. Federal $ 932 $1,238 $ 815
Foreign 728 473 732
State 137 124 87
1,797 1,835 1,634
Deferred: U.S. Federal 78 223 313
Foreign 18 21 (69)
State 1 21 1
97 265 245
$1,894 $2,100 $1,879
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 1.1 1.2 0.8
Lower taxes on foreign results (9.4) (7.9) (8.0)
Acquisitions of PBG and PAS (3.1) – –
Other, net (0.6) (2.3) (1.1)
Annual tax rate 23.0% 26.0% 26.7%
Deferred tax liabilities
Investments in noncontrolled afliates $ 74 $1,120
Debt guarantee of wholly owned subsidiary 828 –
Property, plant and equipment 1,984 1,056
Intangible assets other than
nondeductible goodwill 3,726 417
Other 647 68
Gross deferred tax liabilities 7,259 2,661
Deferred tax assets
Net carryforwards 1,264 624
Stock-based compensation 455 410
Retiree medical benets 579 508
Other employee-related benets 527 442
Pension benets 291 179
Deductible state tax and interest benets 320 256
Long-term debt obligations acquired 291 –
Other 904 560
Gross deferred tax assets 4,631 2,979
Valuation allowances (875) (586)
Deferred tax assets, net 3,756 2,393
Net deferred tax liabilities $3,503 $ 268
2010 2009 2008
Deferred taxes included within:
Assets:
Prepaid expenses and other current assets $ 554 $391
Other assets – –
Liabilities:
Deferred income taxes $4,057 $659
Analysis of valuation allowances
Balance, beginning of year $ 586 $657 $695
Provision/(Benet) 75 (78) (5)
Other additions/(deductions) 214 7 (33)
Balance, end of year $ 875 $586 $657
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
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. — continue to dispute one matter related to tax years 1998
through 2002. During 2010, all but three issues were resolved
for tax years 2003 through 2005. These three issues are cur-
rently under review by the IRS Appeals Division. Our U.S. tax
returns for the years 2006 through 2007 are currently under
audit;
• Mexico — audits have been substantially completed for all
taxable years through 2005;
• United Kingdom — audits have been completed for all taxable
years prior to 2008; and
• Canada — domestic audits have been substantially completed
for all taxable years through 2007. International audits have
been completed for all taxable years through 2003.
While it is often dicult 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 contin-
gencies. 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 informa-
tion on the impact of the resolution of open tax issues, see “Other
Consolidated Results.”
As of December25, 2010, the total gross amount of reserves for
income taxes, reported in other liabilities, was $2,023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 eective tax rate. In addition, we accrue
interest related to reserves for income taxes in our provision for