Income Taxes

9 Months Ended

Nov. 25, 2011

Income Taxes [Abstract]

Income Taxes

Note 16—Income Taxes

The Corporation’s provision for income taxes in interim periods is computed by applying its estimated annual effective tax rate against income before income tax expense for the period. In addition, non-recurring or discrete items are recorded during the period in which they occur. The magnitude of the impact that discrete items have on the Corporation’s quarterly effective tax rate is dependent on the level of pre-tax income in the period. The effective tax rate was 31.8% and 36.2% for the three and nine months ended November 25, 2011, respectively, and 37.6% and 40.2% for the three and nine months ended November 26, 2010, respectively. In the prior year, the higher than statutory rate for the nine months ended November 26, 2010 was due primarily to the impact of unfavorable settlements of audits in foreign jurisdictions, the release of insurance reserves that generated taxable income and the recognition of the deferred tax effects of the reduced deductibility of the postretirement prescription drug coverage due to the enacted U.S. Patient Protection and Affordability Care Act.

At November 25, 2011, the Corporation had unrecognized tax benefits of $32.2 million that, if recognized, would have a favorable effect on the Corporation’s income tax expense of $21.4 million. During the third quarter of 2012, the Corporation’s unrecognized tax benefits decreased approximately $11.1 million primarily due to a cash payment from the settlement of an Internal Revenue Service exam for fiscal years 1996 through 2005 and the effective settlement of certain other unrecognized tax benefits. It is reasonably possible that the Corporation’s unrecognized tax positions as of November 25, 2011 could decrease approximately $13.9 million during the next twelve months due to anticipated settlements and resulting cash payments related to open years after 1996, which are currently under examination.

The Corporation recognizes interest and penalties accrued on unrecognized tax benefits and refundable income taxes as a component of income tax expense. During the nine months ended November 25, 2011, the Corporation recognized net expense of $4.0 million for interest and penalties on unrecognized tax benefits and refundable income taxes. As of November 25, 2011, the total amount of gross accrued interest and penalties related to unrecognized tax benefits less refundable income taxes was a net payable of $8.5 million.

The Corporation is subject to examination by the Internal Revenue Service and various U.S. state and local jurisdictions for tax years 1996 to the present. The Corporation is also subject to tax examination in various international tax jurisdictions, including Canada, the United Kingdom, Australia, France, Italy, Mexico and New Zealand for tax years 2006 to the present.