Pre-Tax Income and Income Taxes

12 Months Ended

May 29, 2011

Pre-Tax Income and Income Taxes [Abstract]

PRE-TAX INCOME AND INCOME TAXES

16.  PRE-TAX INCOME AND INCOME TAXES

Pre-tax income from continuing operations (including equity method investment earnings) consisted of the following:

	2011		2010		2009
United States	$	1,176.5	$	1,036.9	$	868.0
Foreign		74.8		66.6		64.3
	$	1,251.3	$	1,103.5	$	932.3

The provision for income taxes included the following:

	2011		2010		2009
Current
Federal	$	157.3	$	259.0	$	111.8
State		21.0		27.5		15.1
Foreign		11.9		14.4		19.3
		190.2		300.9		146.2
Deferred
Federal		218.7		51.9		150.3
State		9.7		1.7		26.2
Foreign		2.4		6.4		(5.6	)
		230.8		60.0		170.9
	$	421.0	$	360.9	$	317.1

Income taxes computed by applying the U.S. Federal statutory rates to income from continuing operations before income taxes are reconciled to the provision for income taxes set forth in the consolidated statements of earnings as follows:

	2011			2010			2009
Computed U.S. Federal income taxes	$	437.7		$	386.2		$	326.4
State income taxes, net of U.S. Federal tax impact		20.0			21.0			26.7
Tax credits and domestic manufacturing deduction		(27.5	)		(27.3	)		(26.0	)
Foreign tax credits and related items, net		(0.2	)		(4.3	)		(1.2	)
IRS audit adjustments and settlements		0.5			(17.4	)		3.2
Other		(9.5	)		2.7			(12.0	)
	$	421.0		$	360.9		$	317.1

Income taxes paid, net of refunds, were $172.3 million, $290.5 million, and $512.6 million in fiscal 2011, 2010, and 2009, respectively.

The tax effect of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consisted of the following:

	2011					2010
	Assets			Liabilities		Assets			Liabilities
Property, plant and equipment	$	—		$	452.3	$	—		$	321.1
Goodwill, trademarks and other intangible assets		—			610.9		—			575.7
Accrued expenses		15.9			—		21.5			—
Compensation related liabilities		66.2			—		68.4			—
Pension and other postretirement benefits		230.9			—		309.2			—
Other liabilities that will give rise to future tax deductions		121.5			—		126.0			—
Long-term debt		—			2.9		—			7.9
Foreign tax credit carryforwards		0.2			—		4.1			—
Net operating loss carryforwards		52.1			—		46.5			—
Other		29.4			—		22.5			—
		516.2			1,066.1		598.2			904.7
Less: Valuation allowance		(50.8	)		—		(48.7	)		—
Net deferred taxes	$	465.4		$	1,066.1	$	549.5		$	904.7

At May 29, 2011 and May 30, 2010, net deferred tax assets of $93.4 million and $110.8 million, respectively, are included in prepaid expenses and other current assets. At May 29, 2011 and May 30, 2010, net deferred tax liabilities of $694.1 million and $466.0 million, respectively, are included in other noncurrent liabilities.

The liability for gross unrecognized tax benefits at May 29, 2011 was $56.5 million, excluding a related liability of $14.7 million for gross interest and penalties. Included in the balance at May 29, 2011 was $3.3 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. Any associated interest and penalties imposed would affect the tax rate. As of May 30, 2010, our gross liability for unrecognized tax benefits was $53.4 million, excluding a related liability of $14.8 million for gross interest and penalties.

The net amount of unrecognized tax benefits at May 29, 2011 and May 30, 2010 that, if recognized, would favorably impact our effective tax rate was $35.7 million and $32.6 million, respectively.

We accrue interest and penalties associated with uncertain tax positions as part of income tax expense.

We conduct business and file tax returns in numerous countries, states, and local jurisdictions. The U.S. Internal Revenue Service (“IRS”) has completed its audit for tax years through fiscal 2009 and all resulting significant items for fiscal 2009 and prior years have been settled with the IRS. Other major jurisdictions where we conduct business generally have statutes of limitations ranging from 3 to 5 years.

We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by $0 to $5 million over the next twelve months due to various federal, state, and foreign audit settlements and the expiration of statutes of limitations.

The change in the unrecognized tax benefits for the year ended May 29, 2011 was:

Beginning balance on May 30, 2010	$	53.4
Increases from positions established during prior periods		4.9
Decreases from positions established during prior periods		(2.8	)
Increases from positions established during the current period		6.3
Decreases relating to settlements with taxing authorities		(3.1	)
Reductions resulting from lapse of applicable statute of limitation		(2.2	)
Ending balance on May 29, 2011	$	56.5

We have approximately $68.7 million of foreign net operating loss carryforwards ($23.8 million expire between fiscal 2012 and 2022 and $44.9 million have no expiration dates). Substantially all of our foreign tax credits will expire between fiscal 2016 and 2020. State tax credits of approximately $15.1 million expire in various years ranging from fiscal 2013 to 2017.

We have recognized a valuation allowance for the portion of the net operating loss carryforwards, tax credit carryforwards, and other deferred tax assets we believe are not more likely than not to be realized. The net impact on income tax expense related to changes in the valuation allowance for fiscal 2011 was a charge of $2.1 million. For fiscal 2010 and 2009, changes in the valuation allowance were a benefit of $4.6 million and a charge of $3.8 million, respectively. The current year change principally relates to increases to the valuation allowances for foreign net operating losses, offset by decreases related to state net operating losses and credits.

We have not provided U.S. deferred taxes on cumulative earnings of non-U.S. affiliates and associated companies that the Company considers to be reinvested indefinitely. It is not practicable to estimate the amount of U.S. income taxes that would be incurred in the event that we were to repatriate the cumulative earnings of non-U.S. affiliates and associated companies. Deferred taxes are provided for earnings of non-U.S. affiliates and associated companies when we determine that such earnings are no longer indefinitely reinvested.