Income Taxes

3 Months Ended

Jun. 30, 2011

Notes To Condensed Consolidated Financial Statements [Abstract]

Income Taxes

7. Income Taxes

The effective tax rate for the three months ended June 30, 2011 and 2010 was 33.3% and 33.9%, respectively, and the effective tax rate for the six months ended June 30, 2011 and 2010 was 32.2% and 41.1%, respectively. The year-to-date 2011 rate includes a $9 million tax benefit arising from a favorable conclusion of a foreign tax examination and a $2 million charge from the write-off of deferred tax assets associated with the expiration of out-of-the-money vested stock options and the vesting of restricted stock units previously granted to our employees. The year-to-date 2010 rate included a $9 million charge from the write-off of deferred tax assets related to the U.S. health care reform legislation that eliminated the tax deduction for retiree health care costs to the extent of federal subsidies received by companies that provide retiree prescription drug benefits equivalent to Medicare Part D coverageand a $9 million charge from the write-off of deferred tax assets associated with the expiration of out-of-the-money vested stock options and the vesting of restricted stock units previously granted to our employees.

We regularly assess the likelihood of tax adjustments in each of the tax jurisdictions in which we have operations and account for the related financial statement implications. Tax reserves have been established which we believe to be appropriate given the possibility of tax adjustments. Determining the appropriate level of tax reserves requires us to exercise judgment regarding the uncertain application of tax law. The amount of reserves is adjusted when information becomes available or when an event occurs indicating a change in the reserve is appropriate. Future changes in tax reserve requirements could have a material impact on our results of operations.

We are continually under examination by tax authorities in the United States, other countries and local jurisdictions in which we have operations. The IRS exam of tax years 2001-2004 is estimated to be completed within the next six months and the examination of years 2005-2008 within the next 12-to-18 months. In connection with the 2001-2004 exam, during July 2011 we entered into a series of settlements with the IRS under which we agreed on the tax treatment of a number of disputed issues and we agreed to revised tax calculations. In the third quarter, we expect to release approximately $50 million of tax reserves including interest, about $30 million of which will be released through Discontinued Operations. We also expect our additional liability to be approximately $400 million of taxand interest that has previously been paid through the purchase of tax bonds. Consequently, this settlement will have no impact on our cash position. In connection with the 2005-2008 IRS exam, we have received notices of proposed adjustments to our filed returns. A variety of post-2000 tax years remain subject to examination by other tax authorities, including the U.K., Canada, France, Germany and various U.S. states. It is reasonably possible that the amount of our unrecognized tax benefits will decrease in the next 12 months, and we expect this change could be up to two-thirds of our unrecognized tax benefits. Tax reserves have been established which we believe to be appropriate given the possibility of tax adjustments. However, depending upon the size of the reserve as compared to the ultimate determination of such matters, the resolution could have a material impact, positive or negative, on our results of operations, financial position and cash flows.