Income Taxes

12 Months Ended

Apr. 27, 2011


6.	Income Taxes

The following table summarizes the (benefit)/provision for U.S. federal, state and foreign taxes on income from continuing operations.


	2011			2010			2009
	(Dollars in thousands)

Current:
U.S. federal	$	38,686		$	(24,446	)	$	73,490
State		14,507			(809	)		1,855
Foreign		161,304			163,241			192,765

		214,497			137,986			268,110

Deferred:
U.S. federal		123,601			165,141			73,130
State		(4,318	)		8,141			8,230
Foreign		34,441			47,246			26,013

		153,724			220,528			107,373

Provision for income taxes	$	368,221		$	358,514		$	375,483

Tax benefits related to stock options and other equity instruments recorded directly to additional capital totaled $21.4 million in Fiscal 2011, $9.3 million in Fiscal 2010 and $17.6 million in Fiscal 2009.

The components of income from continuing operations before income taxes consist of the following:


	2011		2010		2009
	(Dollars in thousands)

Domestic	$	565,831	$	499,059	$	534,217
Foreign		808,338		791,395		785,666

From continuing operations	$	1,374,169	$	1,290,454	$	1,319,883

The differences between the U.S. federal statutory tax rate and the Company’s consolidated effective tax rate on continuing operations are as follows:


	2011			2010			2009

U.S. federal statutory tax rate		35.0	%		35.0	%		35.0	%
Tax on income of foreign subsidiaries		(5.3	)		(3.5	)		(4.1	)
State income taxes (net of federal benefit)		0.3			0.3			0.6
Earnings repatriation		3.3			1.2			0.4
Tax free interest		(4.2	)		(4.6	)		(2.5	)
Effects of revaluation of tax basis of foreign assets		(1.6	)		(0.5	)		(0.7	)
Other		(0.7	)		(0.1	)		(0.3	)

Effective tax rate		26.8	%		27.8	%		28.4	%

The decrease in the effective tax rate in Fiscal 2011 is primarily the result of increased benefits from foreign tax planning and increased tax exempt foreign income, partially offset by higher taxes on repatriation of earnings. The decrease in the effective tax rate in Fiscal 2010 was primarily the result of tax efficient financing of the Company’s operations, partially offset by higher taxes on repatriation of earnings. The effective tax rate in Fiscal 2009 was impacted by a smaller benefit from tax free interest partially offset by lower earnings repatriation costs.

The following table and note summarize deferred tax (assets) and deferred tax liabilities as of April 27, 2011 and April 28, 2010.


	2011			2010
	(Dollars in thousands)

Depreciation/amortization	$	939,545		$	754,353
Benefit plans		93,916			38,718
Deferred income		126,917			66,920
Financing costs		118,118			118,512
Other		48,839			102,663

Deferred tax liabilities		1,327,335			1,081,166

Operating loss carryforwards and carrybacks		(120,261	)		(159,519	)
Benefit plans		(168,001	)		(178,363	)
Depreciation/amortization		(108,873	)		(74,925	)
Tax credit carryforwards		(41,850	)		(62,284	)
Deferred income		(24,235	)		(36,373	)
Other		(109,929	)		(123,681	)

Deferred tax assets		(573,149	)		(635,145	)

Valuation allowance		64,386			62,519

Net deferred tax liabilities	$	818,572		$	508,540

The Company also has foreign deferred tax assets and valuation allowances of $135.1 million, each related to statutory increases in the capital tax bases of certain internally generated intangible assets for which the probability of realization is remote.

The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. When assessing the need for valuation allowances, the Company considers future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income.

The resolution of tax reserves and changes in valuation allowances could be material to the Company’s results of operations for any period, but is not expected to be material to the Company’s financial position.

At the end of Fiscal 2011, foreign operating loss carryforwards totaled $419.2 million. Of that amount, $288.8 million expire between 2012 and 2031; the other $130.4 million do not expire. Deferred tax assets of $18.1 million have been recorded for foreign tax credit carryforwards. These credit carryforwards expire in 2020. Deferred tax assets of $12.6 million have been recorded for state operating loss carryforwards. These losses expire between 2012 and 2031. Additionally, the Company has incurred losses in a foreign jurisdiction where realization of the future economic benefit is so remote that the benefit is not reflected as a deferred tax asset.

The net change in the Fiscal 2011 valuation allowance shown above is an increase of $1.9 million. The increase was primarily due to the recording of additional valuation allowance for foreign loss carryforwards that are not expected to be utilized, partially offset by the release of valuation allowance related to state tax loss and credit carryforwards resulting from a reorganization plan. The net change in the Fiscal 2010 valuation allowance was an increase of $3.4 million. The increase was primarily due to the recording of additional valuation allowance for foreign loss carryforwards that are not expected to be utilized prior to their expiration date, partially offset by a reduction in unrealizable net state deferred tax assets. The net change in the Fiscal 2009 valuation allowance was an increase of $7.1 million. The increase was primarily due to the recording of additional valuation allowance for foreign loss carryforwards and state deferred tax assets that were not expected to be utilized prior to their expiration date.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:


	2011			2010			2009
	(Dollars in millions)

Balance at the beginning of the fiscal year	$	57.1		$	86.6		$	129.1
Increases for tax positions of prior years		13.5			3.7			9.4
Decreases for tax positions of prior years		(26.0	)		(35.4	)		(59.5	)
Increases based on tax positions related to the current year		10.8			10.4			13.1
Increases due to business combinations		26.9			—			3.8
Decreases due to settlements with taxing authorities		(5.4	)		(0.8	)		(0.8	)
Decreases due to lapse of statute of limitations		(6.2	)		(7.4	)		(8.5	)

Balance at the end of the fiscal year	$	70.7		$	57.1		$	86.6

The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $56.5 million and $38.2 million, on April 27, 2011 and April 28, 2010, respectively.

The Company classifies interest and penalties on tax uncertainties as a component of the provision for income taxes. For Fiscal 2011, the total amount of net interest and penalty expense included in the provision for income taxes was a benefit of $1.3 million and $0.1 million, respectively. For Fiscal 2010, the total amount of net interest and penalty expense included in the provision for income taxes was a benefit of $5.2 million and $1.0 million, respectively. For Fiscal 2009, the total amount of net interest and penalty expense included in the provision for income taxes was an expense of $3.1 million and a benefit of $0.6 million, respectively. The total amount of interest and penalties accrued as of April 27, 2011 was $27.3 million and $21.1 million, respectively. The corresponding amounts of accrued interest and penalties at April 28, 2010 were $17.3 million and $1.2 million, respectively.

It is reasonably possible that the amount of unrecognized tax benefits will decrease by as much as $17.9 million in the next 12 months primarily due to the expiration of statutes in various foreign jurisdictions along with the progression of state and foreign audits in process.

During Fiscal 2009, the Company effectively settled its appeal filed October 15, 2007 of a U.S. Court of Federal Claims decision regarding a refund claim resulting from a Fiscal 1995 transaction. The effective settlement resulted in a $42.7 million decrease in the amount of unrecognized tax benefits, $8.5 million of which was recorded as a credit to additional capital and was received as a refund of tax during Fiscal 2009.

The provision for income taxes consists of provisions for federal, state and foreign income taxes. The Company operates in an international environment with significant operations in various locations outside the U.S. Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in various locations and the applicable tax rates. In the normal course of business the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Australia, Canada, Italy, the United Kingdom and the United States. The Company has substantially concluded all national income tax matters for years through Fiscal 2009 for the U.S., through Fiscal 2008 for the United Kingdom, through Fiscal 2007 for Italy, and through Fiscal 2006 for Australia and Canada.

Undistributed earnings of foreign subsidiaries considered to be indefinitely reinvested or which may be remitted tax free in certain situations, amounted to $4.4 billion at April 27, 2011. The Company has not determined the deferred tax liability associated with these undistributed earnings, as such determination is not practicable.