Income Taxes

12 Months Ended

Oct. 01, 2011

Income Taxes [Abstract]

Income Taxes

NOTE 8: INCOME TAXES

Detail of the provision for income taxes from continuing operations consists of the following:

					in millions
	2011		2010		2009
Federal		$320		$374		$7
State		21		44		(4)
Foreign		0		20		4
		$341		$438		$7
Current		$255		$420		$40
Deferred		86		18		(33)
		$341		$438		$7

The reasons for the difference between the statutory federal income tax rate and our effective income tax rate from continuing operations are as follows:

	2011		2010		2009
Federal income tax rate		35.0%		35.0%		35.0%
State income taxes		1.6		2.4		0.1
Unrecognized tax benefits, net		(1.7)		(1.4)		(0.3)
Goodwill impairment		0.0		0.9		(36.1)
General business credits		(0.9)		(0.7)		2.2
Domestic production deduction		(2.3)		(2.0)		0.5
Change in foreign valuation allowance		0.3		0.8		(3.8)
Tax planning in foreign jurisdictions		0.0		0.0		1.7
Other		(0.2)		1.4		(0.8)
		31.8%		36.4%		(1.5)%

During fiscal 2011, tax expense was impacted by the domestic production deduction, adjustments to reserves for uncertain tax positions due to domestic and foreign tax audit activities, and estimated general business credits, which decreased tax expense by $25 million, $19 million, and $9 million, respectively.

During fiscal 2010, tax expense was impacted by the domestic production deduction and reductions in unrecognized tax benefits, which decreased tax expense by $24 million and $16 million, respectively.

The fiscal 2009 goodwill impairment is not deductible for income tax purposes and negatively impacted our effective income tax rate by 36.1%. During fiscal 2009, our tax expense was impacted by an increase in foreign valuation allowance which increased tax expense by $21 million, estimated general business credits, which decreased tax expense by $12 million, and tax planning in foreign jurisdictions which decreased tax expense by $9 million.

We recognize deferred income taxes for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The tax effects of major items recorded as deferred tax assets and liabilities are as follows:

							in millions
	2011				2010
	Deferred Tax				Deferred Tax
	Assets		Liabilities		Assets		Liabilities
Property, plant and equipment		$0		$401		$0		$347
Suspended taxes from conversion to accrual method		0		81		0		86
Intangible assets		0		35		0		34
Inventory		9		113		9		85
Accrued expenses		196		0		202		0
Net operating loss and other carryforwards		97		0		97		0
Insurance reserves		23		0		20		0
Other		80		68		108		90
		$405		$698		$436		$642
Valuation allowance		$(92)				$(96)
Net deferred tax liability				$385				$302

We record deferred tax amounts in Other Current Assets and in Deferred Income Taxes on the Consolidated Balance Sheets.

The deferred tax liability for suspended taxes from conversion to accrual method represents the 1987 change from the cash to accrual method of accounting and will be recognized by 2027.

At October 1, 2011, our gross state tax net operating loss carryforwards approximated $635 million and expire in fiscal years 2012 through 2029. Gross foreign net operating loss carryforwards approximated $160 million, of which $63 million expire in fiscal years 2012 through 2020, and the remainder has no expiration. We also have tax credit carryforwards of approximately $19 million that expire in fiscal years 2012 through 2025.

We have accumulated undistributed earnings of foreign subsidiaries aggregating approximately $339 million and $260 million at October 1, 2011, and October 2, 2010, respectively. These earnings are expected to be indefinitely reinvested outside of the United States. If those earnings were distributed in the form of dividends or otherwise, we would be subject to federal income taxes (subject to an adjustment for foreign tax credits), state income taxes and withholding taxes payable to the various foreign countries. It is not currently practicable to estimate the tax liability that might be payable on the repatriation of these foreign earnings.

The following table summarizes the activity related to our gross unrecognized tax benefits at October 1, 2011, October 2, 2010, and October 3, 2009:

in millions
	2011		2010		2009
Balance as of the beginning of the year		$184		$233		$220
Increases related to current year tax positions		4		4		7
Increases related to prior year tax positions		21		11		60
Reductions related to prior year tax positions		(24)		(35)		(21)
Reductions related to settlements		(9)		(25)		(25)
Reductions related to expirations of statute of limitations		(2)		(4)		(8)
Balance as of the end of the year		$174		$184		$233

The amount of unrecognized tax benefits, if recognized, that would impact our effective tax rate was $155 million and $150 million at October 1, 2011, and October 2, 2010, respectively. We classify interest and penalties on unrecognized tax benefits as income tax expense. At October 1, 2011, and October 2, 2010, before tax benefits, we had $58 million and $64 million, respectively, of accrued interest and penalties on unrecognized tax benefits.

As of October 1, 2011, we are subject to income tax examinations for U.S. federal income taxes for fiscal years 2003 through 2010. We are also subject to income tax examinations for state and foreign income taxes for fiscal years 2001 through 2010. During fiscal 2012, tax audit resolutions could potentially reduce our unrecognized tax benefits by approximately $10 million, either because tax positions are sustained on audit or because we agree to their disallowance.