v2.4.0.6

Income Taxes | 12 Months Ended
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Dec. 31, 2011
Income Taxes | Note 20—Income Taxes Income taxes charged to income from continuing operations were:
|  | Millions of Dollars |
|  | 2011 |  |  | 2010 |  |  | 2009 |
Income Taxes |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 1,073 |  |  |  | 1,240 |  |  |  | 289 |
Deferred |  |  | 264 |  |  |  | 126 |  |  |  | 257 |
Foreign |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 6,966 |  |  |  | 7,289 |  |  |  | 5,366 |
Deferred |  |  | 49 |  |  |  | (1,058 | ) |  |  | (1,082 | )
State and local |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 317 |  |  |  | 260 |  |  |  | 99 |
Deferred |  |  | 101 |  |  |  | 6 |  |  |  | (12 | )
|  | $ | 8,770 |  |  |  | 7,863 |  |  |  | 4,917 |
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Major components of deferred tax liabilities and assets at December 31 were:
|  | Millions of Dollars |
|  | 2011 |  |  | 2010 |
Deferred Tax Liabilities |  |  |  |  |  |  |  |
PP&E and intangibles |  | $ | 21,159 |  |  |  | 20,344 |
Investment in joint ventures |  |  | 2,943 |  |  |  | 2,201 |
Inventory |  |  | — |  |  |  | 43 |
Partnership income deferral |  |  | 363 |  |  |  | 434 |
Other |  |  | 703 |  |  |  | 571 |
Total deferred tax liabilities |  |  | 25,168 |  |  |  | 23,593 |
Deferred Tax Assets |  |  |  |  |  |  |  |
Benefit plan accruals |  |  | 2,063 |  |  |  | 1,691 |
Asset retirement obligations and accrued environmental costs |  |  | 4,254 |  |  |  | 3,971 |
Inventory |  |  | 43 |  |  |  | — |
Deferred state income tax |  |  | 299 |  |  |  | 257 |
Other financial accruals and deferrals |  |  | 618 |  |  |  | 394 |
Loss and credit carryforwards |  |  | 1,608 |  |  |  | 1,344 |
Other |  |  | 692 |  |  |  | 717 |
Total deferred tax assets |  |  | 9,577 |  |  |  | 8,374 |
Less valuation allowance |  |  | (1,487 | ) |  |  | (1,400 | )
Net deferred tax assets |  |  | 8,090 |  |  |  | 6,974 |
Net deferred tax liabilities |  | $ | 17,078 |  |  |  | 16,619 |
Current assets, long-term assets, current liabilities and long-term liabilities included deferred taxes of $788 million, $183 million, $9 million and $18,040 million, respectively, at December 31, 2011, and $562 million, $160 million, $21 million and $17,320 million, respectively, at December 31, 2010. We have loss and credit carryovers in multiple taxing jurisdictions. These attributes generally expire between 2012 and 2031 with some carryovers having indefinite carryforward periods. Valuation allowances have been established to reduce deferred tax assets to an amount that will, more likely than not, be realized. During 2011, valuation allowances increased a total of $87 million. This reflects increases of $174 million primarily related to U.S. foreign tax credit and foreign loss carryforwards, partially offset by decreases of $87 million, primarily related to utilization of U.S. foreign tax credit and state loss carryforwards, currency effects and asset relinquishment. Based on our historical taxable income, expectations for the future, and available tax-planning strategies, management expects remaining net deferred tax assets will be realized as offsets to reversing deferred tax liabilities and as offsets to the tax consequences of future taxable income. At December 31, 2011 and 2010, income considered to be permanently reinvested in certain foreign subsidiaries and foreign corporate joint ventures totaled approximately $4,227 million and $4,134 million, respectively. Deferred income taxes have not been provided on this income, as we do not plan to initiate any action that would require the payment of income taxes. It is not practicable to estimate the amount of additional tax that might be payable on this foreign income if distributed. The following table shows a reconciliation of the beginning and ending unrecognized tax benefits for 2011, 2010 and 2009:
|  | Millions of Dollars |
|  | 2011 |  |  | 2010 |  |  | 2009 |
Balance at January 1 |  | $ | 1,125 |  |  |  | 1,208 |  |  |  | 1,068 |
Additions based on tax positions related to the current year |  |  | 46 |  |  |  | 63 |  |  |  | 18 |
Additions for tax positions of prior years |  |  | 145 |  |  |  | 344 |  |  |  | 177 |
Reductions for tax positions of prior years |  |  | (35 | ) |  |  | (199 | ) |  |  | (33 | )
Settlements |  |  | (206 | ) |  |  | (215 | ) |  |  | (19 | )
Lapse of statute |  |  | (4 | ) |  |  | (76 | ) |  |  | (3 | )
Balance at December 31 |  | $ | 1,071 |  |  |  | 1,125 |  |  |  | 1,208 |
Included in the balance of unrecognized tax benefits for 2011, 2010 and 2009 were $815 million, $914 million and $931 million, respectively, which, if recognized, would affect our effective tax rate. At December 31, 2011, 2010 and 2009, accrued liabilities for interest and penalties totaled $141 million, $171 million and $166 million, respectively, net of accrued income taxes. Interest and penalties resulted in a charge to earnings in 2011 of $10 million, a benefit to earnings in 2010 of $2 million, and a charge to earnings in 2009 of $18 million. We and our subsidiaries file tax returns in the U.S. federal jurisdiction and in many foreign and state jurisdictions. Audits in major jurisdictions are generally complete as follows: United Kingdom (2008), Canada (2005), United States (2006) and Norway (2010). Issues in dispute for audited years and audits for subsequent years are ongoing and in various stages of completion in the many jurisdictions in which we operate around the world. As a consequence, the balance in unrecognized tax benefits can be expected to fluctuate from period to period. It is reasonably possible such changes could be significant when compared with our total unrecognized tax benefits, but the amount of change is not estimable. The amounts of U.S. and foreign income from continuing operations before income taxes, with a reconciliation of tax at the federal statutory rate with the provision for income taxes, were:
|  |  |  |  |  |  |  |  |  |  | Percent of |
|  | Millions of Dollars |  |  | Pretax Income |
|  | 2011 |  |  | 2010 |  |  | 2009 |  |  | 2011 |  |  | 2010 |  |  | 2009 |
Income from continuing operations before income taxes |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
United States |  | $ | 4,703 |  |  |  | 3,810 |  |  |  | 2,218 |  |  |  | 29.0 |  |  |  | 20.8 |  |  |  | 25.5 |
Foreign |  |  | 11,522 |  |  |  | 14,502 |  |  |  | 6,496 |  |  |  | 71.0 |  |  |  | 79.2 |  |  |  | 74.5 |
|  | $ | 16,225 |  |  |  | 18,312 |  |  |  | 8,714 |  |  |  | 100.0 | % |  |  | 100.0 |  |  |  | 100.0 |
Federal statutory income tax |  | $ | 5,679 |  |  |  | 6,409 |  |  |  | 3,050 |  |  |  | 35.0 | % |  |  | 35.0 |  |  |  | 35.0 |
Foreign taxes in excess of federal statutory rate |  |  | 2,924 |  |  |  | 1,375 |  |  |  | 1,902 |  |  |  | 18.0 |  |  |  | 7.5 |  |  |  | 21.8 |
Federal manufacturing deduction |  |  | (73 | ) |  |  | (75 | ) |  |  | (40 | ) |  |  | (0.4 | ) |  |  | (0.4 | ) |  |  | (0.5 | )
State income tax |  |  | 272 |  |  |  | 173 |  |  |  | 57 |  |  |  | 1.7 |  |  |  | 0.9 |  |  |  | 0.7 |
Other |  |  | (32 | ) |  |  | (19 | ) |  |  | (52 | ) |  |  | (0.2 | ) |  |  | (0.1 | ) |  |  | (0.6 | )
|  | $ | 8,770 |  |  |  | 7,863 |  |  |  | 4,917 |  |  |  | 54.1 | % |  |  | 42.9 |  |  |  | 56.4 |
The change in the effective tax rate from 2010 to 2011, as well as from 2009 to 2010, was primarily due to tax benefits associated with asset dispositions occurring in 2010. In the United Kingdom, legislation was enacted on July 19, 2011, which increased the supplementary corporate tax rate applicable to U.K. Upstream activity from 20 to 32 percent, retroactively effective from March 24, 2011. This resulted in the overall U.K. corporate rate increasing from 50 percent to 62 percent. The enactment resulted in increased income tax expense of $316 million in 2011. This is comprised of $106 million due to remeasurement of U.K. deferred tax liabilities, and $210 million to reflect the new rate from March 24, 2011, through the end of the year. Statutory tax rate changes did not have a significant impact on our income tax expense in 2010 or 2009.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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