Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

Note 9. Income Taxes

The components of the (provision)/benefit for income taxes on continuing operations were:

	Year Ended December 31
Millions of dollars	2011			2010			2009
Current income taxes:
Federal	$	(1,026	)	$	(400	)	$	30
Foreign		(334	)		(287	)		(250	)
State		(109	)		(42	)		(24	)
Total current		(1,469	)		(729	)		(244	)
Deferred income taxes:
Federal		(28	)		(124	)		(237	)
Foreign		57			3			(31	)
State		1			(3	)		(6	)
Total deferred		30			(124	)		(274	)
Provision for income taxes	$	(1,439	)	$	(853	)	$	(518	)

The United States and foreign components of income from continuing operations before income taxes were as follows:

	Year Ended December 31
Millions of dollars	2011		2010		2009
United States	$	4,040	$	1,918	$	589
Foreign		409		737		1,093
Total	$	4,449	$	2,655	$	1,682

Reconciliations between the actual provision for income taxes on continuing operations and that computed by applying the United States statutory rate to income from continuing operations before income taxes were as follows:

	Year Ended December 31
	2011			2010			2009
United States statutory rate		35.0	%		35.0	%		35.0	%
Domestic manufacturing deduction		(2.1	)		(1.8	)		-
Adjustments of prior year taxes		(1.3	)		(1.2	)		(2.1	)
Impact of foreign income taxed at different rates		(0.5	)		(1.3	)		(3.3	)
Other impact of foreign operations		(0.4	)		(1.3	)		(0.4	)
Impact of devaluation of Venezuelan Bol�var Fuerte		-			0.8			-
Other items, net		1.6			1.9			1.6
Total effective tax rate on continuing operations		32.3	%		32.1	%		30.8	%

We have not provided United States income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries as of December 31, 2011 because we intend to permanently reinvest such earnings outside the United States. If these foreign earnings were to be repatriated in the future, the related United States tax liability may be reduced by any foreign income taxes previously paid on these earnings. As of December 31, 2011, the cumulative amount of earnings upon which United States income taxes have not been provided is approximately $4.1 billion. It is not possible to estimate the amount of unrecognized deferred tax liability related to these earnings at this time.

The primary components of our deferred tax assets and liabilities were as follows:

	December 31
Millions of dollars	2011		2010
Gross deferred tax assets:
Employee compensation and benefits	$	345	$	313
Net operating loss carryforwards		139		52
Accrued liabilities		64		77
Insurance accruals		48		47
Software revenue recognition		44		50
Inventory		30		28
Capitalized research and experimentation		29		44
Other		110		106
Total gross deferred tax assets		809		717
Gross deferred tax liabilities:
Depreciation and amortization		648		631
Joint ventures, partnerships, and unconsolidated affiliates		38		48
Other		68		57
Total gross deferred tax liabilities		754		736
Valuation allowances - net operating loss carryforwards		44		22
Net deferred income tax asset (liability)	$	11	$	(41	)

At December 31, 2011, we had a total of $346 million of foreign net operating loss carryforwards, of which $211 million will expire from 2012 through 2032. The balance will not expire due to indefinite expiration dates.

The following table presents a rollforward of our unrecognized tax benefits and associated interest and penalties.

		Unrecognized		Interest
Millions of dollars		Tax Benefits		and Penalties
Balance at January 1, 2009	$	300	$	43
Change in prior year tax positions		(42)		(6)
Change in current year tax positions		23		2
Cash settlements with taxing authorities		(7)		(1)
Lapse of statute of limitations		(11)		(9)
Balance at December 31, 2009	$	263	$	29
Change in prior year tax positions		(74)		7
Change in current year tax positions		19		2
Cash settlements with taxing authorities		(28)		(5)
Lapse of statute of limitations		(3)		(1)
Balance at December 31, 2010	$	177(a)	$	32
Change in prior year tax positions		38		41
Change in current year tax positions		5		1
Cash settlements with taxing authorities		(12)		(3)
Lapse of statute of limitations		(3)		(2)
Balance at December 31, 2011	$	205(a)(b)	$	69

(a)

Includes $67 million as of December 31, 2011 and $62 million as of December 31, 2010 in amounts to be settled in accordance with our Tax Sharing Agreement with KBR and foreign unrecognized tax benefits that would give rise to a United States tax credit. See Note 7 for further information. The remaining balance of $138 million as of December 31, 2011 and $115 million as of December 31, 2010, if resolved in our favor, would positively impact the effective tax rate and, therefore, be recognized as additional tax benefits in our statement of operations.

(b)

Includes $42 million that could be resolved within the next 12 months.

 We file income tax returns in the United States federal jurisdiction and in various states and foreign jurisdictions. In most cases, we are no longer subject to state, local, or non-United States income tax examination by tax authorities for years before 2000. Tax filings of our subsidiaries, unconsolidated affiliates, and related entities are routinely examined in the normal course of business by tax authorities. Currently, our United States federal tax filings are under review for tax years 2008 and 2009.