INCOME TAXES

9 Months Ended

Jul. 31, 2011

INCOME TAXES

INCOME TAXES

(8)The Company’s unrecognized tax benefits at July 31, 2011 were $207 million, compared to $218 million at October 31, 2010.  The liability at July 31, 2011 consisted of approximately $54 million, which would affect the effective tax rate if it was recognized.  The remaining liability was related to tax positions for which there are offsetting tax receivables, or the uncertainty was only related to timing.  The 2007 and 2008 U.S. Internal Revenue Service examinations were closed in the third quarter of 2011.  All U.S. federal examinations of the Company’s income tax returns prior to 2009 have now been completed.  The changes in the unrecognized tax benefits in the first nine months of 2011 were not significant.  The Company expects that any reasonably possible change in the amounts of unrecognized tax benefits in the next twelve months would not be significant.

The Patient Protection and Affordable Care Act as amended by the Healthcare and Education Reconciliation Act of 2010 was signed into law in the Company’s second fiscal quarter of 2010.  Under the legislation, to the extent the Company’s future health care drug expenses are reimbursed under the Medicare Part D retiree drug subsidy (RDS) program, the expenses will no longer be tax deductible effective November 1, 2013.  Since the tax effects for the retiree health care liabilities are reflected in the Company’s financial statements, the entire impact of this tax change relating to the future retiree drug costs was recorded in tax expense in the period in which the legislation was enacted.  As a result of the legislation, the Company’s tax expenses were approximately $130 million higher in the first nine months of 2010.