Income before provision for income taxes, classified by source of income, was as follows:
|
| | | | | | | | | | | |
In millions | 2013 |
| | 2012 |
| | 2011 |
|
U.S. | $ | 2,912.7 |
| | $ | 2,879.7 |
| | $ | 3,202.8 |
|
Outside the U.S. | 5,291.8 |
| | 5,199.3 |
| | 4,809.4 |
|
Income before provision for income taxes | $ | 8,204.5 |
| | $ | 8,079.0 |
| | $ | 8,012.2 |
|
The provision for income taxes, classified by the timing and location of payment, was as follows: |
| | | | | | | | | | | |
In millions | 2013 |
| | 2012 |
| | 2011 |
|
U.S. federal | $ | 1,238.2 |
| | $ | 1,129.9 |
| | $ | 1,173.4 |
|
U.S. state | 175.0 |
| | 189.8 |
| | 165.2 |
|
Outside the U.S. | 1,180.2 |
| | 1,160.0 |
| | 982.1 |
|
Current tax provision | 2,593.4 |
| | 2,479.7 |
| | 2,320.7 |
|
U.S. federal | 46.2 |
| | 144.9 |
| | 189.0 |
|
U.S. state | (6.7 | ) | | 5.5 |
| | 8.6 |
|
Outside the U.S. | (14.3 | ) | | (15.9 | ) | | (9.2 | ) |
Deferred tax provision | 25.2 |
| | 134.5 |
| | 188.4 |
|
Provision for income taxes | $ | 2,618.6 |
| | $ | 2,614.2 |
| | $ | 2,509.1 |
|
Net deferred tax liabilities consisted of:
|
| | | | | | | | | |
In millions | December 31, 2013 | | | 2012 |
|
Property and equipment | | | $ | 1,812.4 |
| | $ | 1,713.9 |
|
Other | | | 639.8 |
| | 636.4 |
|
Total deferred tax liabilities | | | 2,452.2 |
| | 2,350.3 |
|
Property and equipment | | | (407.9 | ) | | (403.6 | ) |
Employee benefit plans | | | (388.9 | ) | | (362.9 | ) |
Intangible assets | | | (210.1 | ) | | (258.0 | ) |
Deferred foreign tax credits | | | (192.3 | ) | | (179.5 | ) |
Operating loss carryforwards | | | (154.0 | ) | | (92.4 | ) |
Other | | | (347.6 | ) | | (319.4 | ) |
Total deferred tax assets before valuation allowance | | | (1,700.8 | ) | | (1,615.8 | ) |
Valuation allowance | | | 172.8 |
| | 127.0 |
|
Net deferred tax liabilities | | | $ | 924.2 |
| | $ | 861.5 |
|
Balance sheet presentation: | | | | | |
Deferred income taxes | | | $ | 1,647.7 |
| | $ | 1,531.1 |
|
Other assets-miscellaneous | | | (621.4 | ) | | (603.6 | ) |
Current assets-prepaid expenses and other current assets | | (102.1 | ) | | (66.0 | ) |
Net deferred tax liabilities | | | $ | 924.2 |
| | $ | 861.5 |
|
The statutory U.S. federal income tax rate reconciles to the effective income tax rates as follows:
|
| | | | | | | | |
| 2013 |
| | 2012 |
| | 2011 |
|
Statutory U.S. federal income tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
State income taxes, net of related federal income tax benefit | 1.3 |
| | 1.6 |
| | 1.4 |
|
Benefits and taxes related to foreign operations | (4.0 | ) | | (4.1 | ) | | (4.7 | ) |
Other, net | (0.4 | ) | | (0.1 | ) | | (0.4 | ) |
Effective income tax rates | 31.9 | % | | 32.4 | % | | 31.3 | % |
As of December 31, 2013 and 2012, the Company’s gross unrecognized tax benefits totaled $512.7 million and $482.4 million, respectively. After considering the deferred tax accounting impact, it is expected that about $380 million of the total as of December 31, 2013 would favorably affect the effective tax rate if resolved in the Company’s favor.
The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits:
|
| | | | | | | |
In millions | 2013 |
| | 2012 |
|
Balance at January 1 | $ | 482.4 |
| | $ | 565.0 |
|
Decreases for positions taken in prior years | (38.3 | ) | | (65.7 | ) |
Increases for positions taken in prior years | 29.4 |
| | 36.9 |
|
Increases for positions related to the current year | 53.8 |
| | 47.3 |
|
Settlements with taxing authorities | (2.4 | ) | | (95.8 | ) |
Lapsing of statutes of limitations | (12.2 | ) | | (5.3 | ) |
Balance at December 31(1) | $ | 512.7 |
| | $ | 482.4 |
|
| |
(1) | Of this amount, $495.1 million and $481.7 million are included in long-term liabilities for 2013 and 2012, respectively, and $16.8 million is included in current liabilities - income taxes for 2013 on the Consolidated balance sheet. The remainder is included in deferred income taxes on the Consolidated balance sheet. |
In December 2012, the Company reached a final settlement with the Internal Revenue Service ("IRS") Appeals Division regarding its U.S. federal income tax returns for 2007 and 2008. The Company agreed to a settlement of about $80 million, primarily related to proposed foreign tax credit adjustments of about $400 million. The liabilities previously recorded and determined in accordance with Topic 740 - Income Taxes of the Accounting Standards Codification ("ASC") related to this matter were adequate. Additionally, no cash payment was made related to this settlement as the Company had previously made a tax deposit with the IRS. The agreement did not have a material impact on the Company's cash flows, results of operations or financial position.
The Company's 2009 and 2010 U.S. federal income tax returns are currently under examination and the completion of the field examination is expected in 2014. In connection with this examination, the Company agreed to certain adjustments that have been proposed by the IRS and appropriately accounted for these adjustments in accordance with ASC 740. The Company is also under audit in multiple state and foreign tax jurisdictions. It is reasonably possible that the audits in certain of these jurisdictions could be completed within 12 months. Due to the expected settlement of the 2009 and 2010 IRS agreed adjustments, the possible completion of the aforementioned state and foreign tax audits and the expiration of the statute of limitations in multiple tax jurisdictions, it is reasonably possible that the total amount of unrecognized tax benefits could decrease within the next 12 months by $120 million to $140 million, of which $5 million to $10 million could favorably affect the effective tax rate.
Also in connection with the Company’s 2009 and 2010 U.S. federal income tax returns, the Company received notices of proposed adjustments ("NOPAs") in 2014 and expects to receive additional NOPAs within the next 12 months from the IRS related to certain transfer pricing matters. It is reasonably possible that the receipt of these future NOPAs will provide new information that causes the Company to reassess the total amount of unrecognized tax benefits recorded. In addition, the Company is currently under audit in other tax jurisdictions. Completion of the tax audits for certain jurisdictions is not expected within 12 months. However, it is reasonably possible that, as a result of audit progression within the next 12 months, there may be new information that causes the Company to reassess the total amount of unrecognized tax benefits recorded. While the Company cannot estimate the impact that new information may have on our unrecognized tax benefit balance, we believe that the liabilities recorded are appropriate and adequate as determined under ASC 740.
The Company is generally no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2007.
The Company had $55.4 million and $37.7 million accrued for interest and penalties at December 31, 2013 and 2012, respectively. The Company recognized interest and penalties related to tax matters of $14.4 million in 2013, $11.2 million in 2012, and $4.8 million in 2011, which are included in the provision for income taxes.
Deferred U.S. income taxes have not been recorded for temporary differences related to investments in certain foreign subsidiaries and corporate joint ventures. These temporary differences were approximately $16.1 billion at December 31, 2013 and consisted primarily of undistributed earnings considered permanently invested in operations outside the U.S. Determination of the deferred income tax liability on these unremitted earnings is not practicable because such liability, if any, is dependent on circumstances existing if and when remittance occurs.
