Income Taxes

The components of income before income taxes are as follows:



		2015			2014			2013
U.S.		$	2,879		$	2,557		$	3,078
Foreign		4,563			6,200			5,813
		$	7,442		$	8,757		$	8,891

The provision for income taxes consisted of the following:

		2015			2014			2013
Current:	U.S. Federal	$	1,143		$	1,364		$	1,092
	Foreign	773			851			807
	State	65			210			124
		1,981			2,425			2,023
Deferred:	U.S. Federal	(14		)	(33		)	87
	Foreign	(32		)	(60		)	11
	State	6			(133		)	(17		)
		(40		)	(226		)	81
		$	1,941		$	2,199		$	2,104



A reconciliation of the U.S. Federal statutory tax rate to our annual tax rate is as follows:

	2015		2014		2013
U.S. Federal statutory tax rate	35.0	%	35.0	%	35.0	%
State income tax, net of U.S. Federal tax benefit	0.6		0.6		1.2
Lower taxes on foreign results	(10.5	)	(8.6	)	(8.8	)
Impact of Venezuela impairment charges	6.4		—		—
Tax settlements	(3.1	)	—		(2.4	)
Other, net	(2.3	)	(1.9	)	(1.3	)
Annual tax rate	26.1	%	25.1	%	23.7	%

Deferred tax liabilities and assets are comprised of the following:



Deferred tax liabilities	2015			2014
Debt guarantee of wholly-owned subsidiary	$	842		$	842
Property, plant and equipment	2,023			2,174
Intangible assets other than nondeductible goodwill	3,920			4,068
Other	299			264
Gross deferred tax liabilities	7,084			7,348
Deferred tax assets
Net carryforwards	1,279			1,329
Share-based compensation	240			265
Retiree medical benefits	343			388
Other employee-related benefits	547			646
Pension benefits	424			263
Deductible state tax and interest benefits	186			158
Other	933			1,100
Gross deferred tax assets	3,952			4,149
Valuation allowances	(1,136		)	(1,230		)
Deferred tax assets, net	2,816			2,919
Net deferred tax liabilities	$	4,268		$	4,429

Deferred taxes are included within the following balance sheet accounts:



	2015		2014
Assets:
Prepaid expenses and other current assets	$	691	$	875
Liabilities:
Deferred income taxes	$	4,959	$	5,304

A summary of our valuation allowance activity is as follows:



	2015			2014			2013
Balance, beginning of year	$	1,230		$	1,360		$	1,233
(Benefit)/provision	(26		)	(25		)	111
Other (deductions)/additions	(68		)	(105		)	16
Balance, end of year	$	1,136		$	1,230		$	1,360

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.

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:



Jurisdiction	Years Open to Audit	Years Currently Under Audit
United States	2010-2014	None
Mexico	2010-2014	None
United Kingdom	2013-2014	None
Canada (Domestic)	2011-2014	2011-2013
Canada (International)	2008-2014	2008-2013
Russia	2012-2014	2012-2014

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” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

In the fourth quarter of 2015, we reached an agreement with the IRS resolving substantially all open matters related to the audits of taxable years 2010 and 2011 (two immaterial matters were still open as of December 26, 2015). The agreement resulted in a fourth quarter non-cash tax benefit totaling $230 million.

In 2013, we reached an agreement with the IRS resolving all open matters related to the audits for taxable years 2003 through 2009. As a result, we made U.S. Federal net cash tax payments of $758 million, including interest. The settlement reduced our 2013 net cash provided by operating activities and our reserves for uncertain tax positions for the tax years 2003 through 2012 and resulted in a non-cash tax benefit of $209 million in 2013. In addition, payments for other U.S. Federal, state and local tax matters related to open tax years totaling $226 million were made in 2013. See additional unaudited information in “Items Affecting Comparability” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

As of December 26, 2015, the total gross amount of reserves for income taxes, reported in other liabilities, was $1,547 million. 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 $144 million as of December 26, 2015, of which $14 million of expense was recognized in 2015. The gross amount of interest accrued, reported in other liabilities, was $141 million as of December 27, 2014, of which $31 million of expense was recognized in 2014.

A rollforward of our reserves for all federal, state and foreign tax jurisdictions, is as follows:



	2015			2014
Balance, beginning of year	$	1,587		$	1,268
Additions for tax positions related to the current year	248			349
Additions for tax positions from prior years	122			215
Reductions for tax positions from prior years	(261		)	(81		)
Settlement payments	(78		)	(70		)
Statutes of limitations expiration	(34		)	(42		)
Translation and other	(37		)	(52		)
Balance, end of year	$	1,547		$	1,587

Carryforwards and Allowances

Operating loss carryforwards totaling $10.9 billion at year-end 2015 are being carried forward in a number of foreign and state jurisdictions where we are permitted to use tax operating losses from prior periods to reduce future taxable income. These operating losses will expire as follows: $0.2 billion in 2016, $9.8 billion between 2017 and 2035 and $0.9 billion may be carried forward indefinitely. We establish valuation allowances for our deferred tax assets if, based on the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Undistributed International Earnings

As of December 26, 2015, we had approximately $40.2 billion of undistributed international earnings. We intend to continue to reinvest earnings outside the U.S. for the foreseeable future and, therefore, have not recognized any U.S. tax expense on these earnings. It is not practicable for us to determine the amount of unrecognized U.S. tax expense on these reinvested international earnings.