Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

Note 6—Income Taxes

The following presents the domestic and foreign components of income from continuing operations before provision for income taxes and non-controlling interest:

	Fiscal 2011		Fiscal 2010		Fiscal 2009
Income from continuing operations before provision for income taxes and non-controlling interest:
Domestic	$	53,358	$	70,997	$	53,405
Foreign		114,643		158,908		115,592
Total	$	168,001	$	229,905	$	168,997

The following presents the components of the Company’s total income tax provision from continuing operations:

	Fiscal 2011			Fiscal 2010			Fiscal 2009
Current:
Federal	$	2,580		$	393		$	2,784
State and local		6,755			8,385			13,348
Foreign		44,014			50,139			30,663
Total current tax provision		53,349			58,917			46,795
Deferred:
Federal		14,208			22,680			21,241
State and local		(2,936	)		2,699			(7,585	)
Foreign		(27,981	)		(2,583	)		(671	)
Valuation allowance increase (decrease)		(634	)		394			4,492
Total deferred tax provision		(17,343	)		23,190			17,477
Provision for income taxes	$	36,006		$	82,107		$	64,272

The following presents the reconciliation of the provision for income taxes to United States federal income taxes computed at the statutory rate:

	Fiscal 2011			Fiscal 2010			Fiscal 2009
Income from continuing operations before provision for income taxes and non-controlling interest:	$	168,001		$	229,905		$	168,997
Income tax expense computed at U.S. statutory rate		58,800			80,467			59,149
State income taxes, net of federal benefit		2,447			8,193	(b)		3,647
Foreign taxes less than the U.S. statutory rate		(25,277	)(a)		(8,386	)		(10,465	)
Foreign income taxed in the US		531			508			2,428
Increase (Decrease) in valuation allowance		(634	)		394			4,492
Cancellation of indebtedness recapture		—			—			3,606
Other, net		139			931			1,415
Provision for income taxes	$	36,006		$	82,107		$	64,272	(c)

(a)	Includes an $10,900 tax benefit associated with the recognition of pre-2004 net operating losses in a foreign jurisdiction as a result of receiving a favorable ruling from that country’s taxing authority and a tax benefit of $7,300 related to a reduction in the reserve for uncertain tax positions in certain foreign tax jurisdictions.
(b)	Includes a tax charge of approximately $2,700 associated with the correction of an error in the 2006 through 2009 income tax provisions as a consequence of the loss of a credit related to prior year tax overpayments caused by the delayed filing of tax returns in a U.S. state taxing jurisdiction.
(c)	Includes a charge of approximately $3,600 in order to correct an error in prior period income tax provisions related to the recapture of cancellation of indebtedness income, which had been deferred in connection with the Company’s bankruptcy proceedings in 2003.

The components of deferred tax assets and liabilities as of December 31, 2011 and January 1, 2011 were as follows:

	December 31, 2011			January 1, 2011
Deferred tax assets:
Inventory	$	7,300		$	7,010
Pension and post-retirement benefits		16,625			11,170
Advertising credits		1,381			—
Stock-based compensation		19,062			13,536
Reserves and accruals		50,352			47,225
Net operating losses		24,654			12,516
Other		22,410			18,672
		141,784			110,129
Valuation allowance		(17,975	)		(18,513	)
Subtotal		123,809			91,616
Gross deferred tax liabilities:
Depreciation and amortization		81,798			96,072
Subtotal		81,798			96,072
Deferred tax liability — net	$	42,011		$	(4,456	)

Realization of Deferred Tax Assets

Realization of the Company’s deferred tax assets is dependent upon future earnings in specific tax jurisdictions, the timing and amount of which are uncertain. Accordingly, the Company evaluates all available positive and negative evidence and records a valuation allowance for those deferred tax assets for which management does not anticipate future realization. The Company considers income earned and losses incurred in each jurisdiction for the three most recent fiscal years and also considers its forecast of future taxable income in assessing the need for a valuation allowance. The underlying assumptions used in forecasting future taxable income requires significant judgment and takes into account the Company’s recent performance. A valuation allowance is established to reduce the deferred tax assets to the amount that is more likely than not to be realized. As of December 31, 2011, the Company determined that it is more likely than not that it will realize a benefit from its domestic federal and certain state deferred tax assets based on the criteria described above.

Domestically, the valuation allowance was approximately $7,200 and $6,700 as of December 31, 2011 and January 1, 2011, respectively, relating to certain of the Company’s state tax loss carryforwards, state tax credits, and deductible temporary differences. The increase in the valuation allowance relates to an increase in deductible temporary differences during Fiscal 2011. Internationally, the valuation allowance was approximately $10,700 and $11,800 as of December 31, 2011 and January 1, 2011, respectively. The decrease relates primarily to the release in the valuation allowance related to net operating losses where management has determined that it is more-likely-than-not that a tax benefit will be realized, offset by additional tax loss carryforwards generated during Fiscal 2011.

Attribute Reduction and Limitations

In connection with the Company’s emergence from bankruptcy on the Effective Date, certain of its domestic subsidiaries realized cancellation of debt (“COD”) income during the period from January 5, 2003 to February 4, 2003. Under U.S. tax law, a company that realized COD income while in bankruptcy is entitled to exclude such income from its U.S. Federal taxable income. A company that excludes COD income is then required to reduce certain tax attributes in an amount equal to the excluded COD income. The tax attributes impacted by these rules included net operating loss carry-forwards, tax credit carry-forwards and tax bases in certain assets.

There are two alternative interpretations on how the attribute reduction rule should be applied to reduce tax attributes of a U.S. affiliated group of companies. Under one approach, the attribute reduction would be applied on a consolidated return basis and eliminate all of the Company’s U.S. consolidated net operating loss (“NOL”) carryovers generated prior to the fiscal year ended 2004 and reduce certain of its other U.S. tax attributes. Alternatively, the attribute reduction would be applied on a separate company basis and reduce the attributes of each respective entity based on the COD income excluded in that entity. The Company has applied the attribute reduction rules on a separate company basis which resulted in the retention of U.S. net operating loss carryforwards of approximately $231,000 upon the Company’s emergence from bankruptcy on the Effective Date. There can be no assurance that the Company’s position with respect to the separate company attribute reduction approach discussed above will be sustained upon audit by the Internal Revenue Service.

During Fiscal 2009, in addition to the tax charge of approximately $3,600 discussed above, the Company also corrected certain of its assets recorded upon its emergence from bankruptcy on February 4, 2003 in accordance with fresh start accounting which resulted in the following adjustments to the Company’s Consolidated Statement of Operations for Fiscal 2009:

A reduction in Net income of $4,147, comprised of:

• an increase of $724 in Amortization of intangible assets (net of tax benefits of approximately $371)

• a $3,423 charge to Loss from discontinued operations, net of taxes

The Company determined that the errors were not material to any previously issued financial statements.

The use of the NOL carryforwards is also subject to an annual limitation under Section 382 of the Internal Revenue Code. Under this provision the Company can use its NOL carryforwards to reduce U.S. taxable income, if any, by approximately $23,400 per year. Any portion of the annual limitation not utilized in any given year may be carried forward and increase the annual limitation in the subsequent year. Additionally, certain losses and expenses generated during the five-year period after the Effective Date may be subject to the Section 382 limitation. NOL carryforwards are also subject to the Section 382 limitation in many state jurisdictions.

At December 31, 2011, the Company had U.S. NOL carryforwards of approximately $49,000 (including approximately $15,000 that is subject to Section 382, as described above) expiring in periods beginning in 2022 through 2027. The entire $49,000 of NOL carryforwards relates to stock-based compensation in excess of that recognized for financial reporting purposes and the tax benefit will be recorded as a direct addition to paid-in-capital when the utilization results in a reduction of current taxes payable. The Company had state and local NOL carryforwards of approximately $150,000 expiring in periods beginning in 2012 through 2030. The Company had foreign NOL carryforwards of approximately $87,000 of which $4,000 expire between the years 2016 and 2020 and $74,000 have an indefinite life.

At December 31, 2011, the Company had alternative minimum tax credit carryforwards of $3,600 which have an indefinite carryforward period. The Company has income tax credit carryforwards in certain foreign jurisdictions of $220 which have an indefinite carryforward period. The Company also had state tax credit carryforwards of $2,000 of which $50 expire beginning in 2012 through 2013, $1,550 expires beginning in 2014 through 2027, and $400 have an indefinite life.

Reinvestment of Foreign Earnings

As of December 31, 2011, the total amount of undistributed earnings of foreign subsidiaries was approximately $533,000.

At December 31, 2011, the Company had $232,500 in cash and cash equivalents, of which $216,300 was held by foreign subsidiaries. The Company currently intends that cash and cash equivalents held by foreign subsidiaries will be indefinitely reinvested in foreign jurisdictions in order to fund strategic initiatives (such as investment, expansion and acquisitions), fund working capital requirements and repay debt (both third-party and inter-company) of its foreign subsidiaries in the normal course of business. Moreover, the Company does not currently intend to repatriate cash and cash equivalents held by foreign subsidiaries to the United States because cash generated from the Company’s domestic businesses and credit available under its domestic financing facilities are currently sufficient (and are expected to continue to be sufficient for the foreseeable future) to fund the cash needs of its operations in the United States. However, if, in the future, cash and cash equivalents held by foreign subsidiaries are needed to fund the Company’s operations in the United States, the repatriation of such amounts to the United States would result in a significant incremental tax liability in the period the decision to repatriate occurs. Payment of any incremental tax liability would reduce the cash available to the Company to fund its operations by the amount of taxes paid. Accordingly, no domestic deferred income tax provision has been made for foreign withholding taxes or U.S. income taxes which may become payable if undistributed earnings were paid as dividends to the Company. Determination of the amount of unrecognized U.S. income tax liability with respect to such earnings is not practical.

Accounting for Uncertainty in Income Taxes

At December 31, 2011 the Company had gross tax-effected unrecognized tax benefits of $79,414, all of which if recognized, would impact the effective tax rate.

Tax Years Subject to Examination - The Company and its subsidiaries conduct business globally, and as a result file income tax returns in the United States, including various U.S. state and local jurisdictions, as well as in foreign jurisdictions. The Company’s income tax returns are routinely examined by the U.S. and international tax authorities including key jurisdictions such as Canada, the People’s Republic of China, the Netherlands, France, Italy, Hong Kong, Korea, Mexico and Brazil. In the U.S. the Company is no longer subject to U.S. Federal income tax examinations by tax authorities for years before 2000. With respect to the Company’s major foreign jurisdictions, the Company is no longer subject to tax examinations by tax authorities for years before 1999. The Company regularly assesses the potential outcomes of both ongoing and future examinations for the current or prior years to ensure the Company’s provision for income taxes is sufficient. The Company recognizes liabilities based on estimates of whether additional taxes will be due and believes its reserves are adequate in relation to the potential assessments.

Classification of Interest and Penalties - The Company recognizes penalties and interest accrued on uncertain tax positions in income tax expense. As of December 31, 2011 and January 1, 2011, total accrued interest and penalties were approximately $9,300 and $11,400, respectively and were recorded in both the current and non-current taxes payable. During Fiscal 2011, Fiscal 2010 and Fiscal 2009, the Company recognized interest and penalties for uncertain tax positions of approximately $2,100 $4,400 and $2,500, respectively.

Tabular Reconciliation of Unrecognized Tax Benefit — The following is a tabular reconciliation of the total amount of unrecognized tax benefits at the beginning and end of Fiscal 2011, Fiscal 2010 and Fiscal 2009:

	Fiscal 2011			Fiscal 2010			Fiscal 2009
Balance as of the beginning of the fiscal year	$	86,556		$	88,171		$	85,968
Increases:
Tax Positions Taken — Current Year		2,179			4,711			8,210
Tax Positions Taken — Prior Year		593			6,590	(a)		6,495
Decreases:
Tax Positions Taken — Prior Year		(6,661	)		(10,409	)(b)		(10,578	)
Settlements During Year		(1,821	)		(1,676	)		(1,909	)
Lapse of Statute of Limitations		(1,432	)		(831	)		(15	)
Balance at the end of the fiscal year	$	79,414		$	86,556		$	88,171

(a)	Included in Fiscal 2010 is an adjustment of approximately $3,500 related to uncertain tax positions which were excluded from the tabular rollforward presentation for uncertain tax positions in prior periods. The amounts were appropriately included in the “Other long-term liabilities” line item in the Company’s Consolidated Balance Sheet for all periods presented.
(b)	Included in Fiscal 2010 is an adjustment of approximately $7,000 related to cumulative accrued interest and penalties which were historically included in the tabular rollforward for uncertain tax positions. The amounts were appropriately included the Company’s Consolidated Balance Sheets for all periods presented.

These items described above affect the tabular presentation for uncertain tax position disclosure only. The Company has determined that they are not material to any previously issued financial statements.

Anticipated Changes within Twelve Months — It is difficult to predict the final timing and resolution of any particular uncertain tax position. Based upon the Company’s assessment of many factors, including past experience and complex judgments about future events, it is reasonably possible that within the next twelve months the reserve for uncertain tax positions may change by a net decrease of $9,000 to $12,000. The reasons for such change includes but is not limited to tax positions expected to be taken during the year ending December 29, 2012, the reevaluation of current uncertain tax positions arising from developments, the finalization of tax examinations, and the closure of statutes.