NOTE 11: INCOME TAXES

Income tax expense (benefit) consists of the following:



	Fiscal Years
	2011		2010			2009
	(in millions)
Current income tax (benefit) expense:
Federal	$	57.6	$	(150.2	)	$	(45.1	)
State	17.2		2.5			2.0
Foreign	3.1		(0.8		)	10.4
	77.9		(148.5		)	(32.7		)
Deferred income tax (benefit) expense:
Federal	128.3		55.0			(78.1		)
State	24.2		(23.1		)	(17.0		)
Foreign	5.7		3.4			(3.5		)
	158.2		35.3			(98.6		)
Total income tax (benefit) expense	$	236.1	$	(113.2	)	$	(131.3	)

A reconciliation of taxes computed at the federal statutory rate to the provision for income taxes is as follows:



	Fiscal Years
	2011		2010		2009
Federal income taxes at statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	3.4		6.5		4.5
Foreign income taxes	(1.2	)	9.6		8.7
Groupe Smithfield / Campofrío merger	—		—		(7.2	)
Net change in valuation allowance	(3.4	)	(0.4	)	(4.9	)
Tax credits	(1.1	)	2.3		2.5
Manufacturer's deduction	(1.8	)	—		—
Impact of non-deductible goodwill	2.0		1.0		—
Other	(1.7	)	(1.3	)	(4.2	)
Effective tax rate	31.2	%	52.7	%	34.4	%

We had income taxes payable of $18.8 million as of May 1, 2011 and income taxes receivable of $103.6 million as of May 2, 2010.

The tax effects of temporary differences consist of the following:



	May 1, 2011			May 2, 2010
	(in millions)
Deferred tax assets:
Pension liabilities	$	138.6		$	175.3
Tax credits, carryforwards and net operating losses	96.8			141.2
Accrued expenses	41.7			48.3
Derivatives	—			52.8
Employee benefits	11.1			11.1
Other	39.6			45.3
	327.8			474.0
Valuation allowance	(66.8		)	(91.5		)
Total deferred tax assets	$	261.0		$	382.5

Deferred tax liabilities:
Property, plant and equipment	$	337.4		$	267.5
Intangible assets	108.5			98.2
Derivatives	44.7			—
Investments in subsidiaries	53.5			59.6
Total deferred tax liabilities	$	544.1		$	425.3

The following table presents the classification of deferred taxes in our balance sheets as of May 1, 2011 and May 2, 2010:



	May 1, 2011		May 2, 2010
	(in millions)
Other current assets	$	39.3	$	96.5
Other assets	5.6		5.2
Accrued expenses and other current liabilities	3.9		—
Other liabilities	324.1		144.5

Management makes an assessment to determine if its deferred tax assets are more likely than not to be realized. Valuation allowances are established in the event that management believes the related tax benefits will not be realized. The valuation allowance primarily relates to state credits, state net operating loss carryforwards and losses in foreign jurisdictions for which no tax benefit was recognized. During fiscal 2011, the valuation allowance decreased by $24.7 million resulting primarily from currency translation, release of a valuation allowance on foreign tax credits, lapse of statute of limitations and deferred tax adjustments with an immaterial amount impacting the effective tax rate.

The tax credits, carry-forwards and net operating losses expire from fiscal 2012 to 2031.

As a result of the merger of Groupe Smithfield with and into Campofrío during fiscal 2009, we were required to provide additional deferred taxes on the earnings of Groupe Smithfield that were previously deferred because they were considered permanently reinvested, as well as on inherent gains related to the pre-merger holdings of Groupe Smithfield and Campofrío. There were foreign subsidiary net earnings that were considered permanently reinvested of $97.8 million and $19.5 million as of May 1, 2011 and May 2, 2010, respectively. It is not reasonably determinable as to the amount of deferred tax liability that would need to be provided if such earnings were not reinvested.

A reconciliation of the beginning and ending liability for unrecognized tax benefits is as follows:



	(in millions)
Balance as of May 3, 2009	$	40.5
Additions for tax positions taken in the current year	3.3
Additions for tax positions taken in prior years	4.0
Reductions for tax positions taken in prior years	(2.1		)
Settlements with taxing authorities	(1.6		)
Lapse of statute of limitations	(0.9		)
Balance as of May 2, 2010	43.2

Additions for tax positions taken in the current year	4.9
Additions for tax positions taken in prior years	0.9
Settlements with taxing authorities	(7.3		)
Lapse of statute of limitations	(8.1		)
Balance as of May 1, 2011	$	33.6

We operate in multiple taxing jurisdictions, both within the U.S. and outside of the U.S., and are subject to examination from various tax authorities. The liability for unrecognized tax benefits included $10.4 million and $10.5 million of accrued interest as of May 1, 2011 and May 2, 2010, respectively. We recognized $0.1 million of net interest income and $0.4 million and $0.5 million of net interest expense in income tax expense (benefit) during fiscal 2011, 2010 and 2009, respectively. The liability for unrecognized tax benefits included $32.6 million as of May 1, 2011 and $32.9 million as of May 2, 2010, that if recognized, would impact the effective tax rate.

We are currently being audited in several tax jurisdictions and remain subject to examination until the statute of limitations expires for the respective tax jurisdiction. Within specific countries, we may be subject to audit by various tax authorities, or subsidiaries operating within the country may be subject to different statute of limitations expiration dates. We have concluded all U.S. federal income tax matters through fiscal 2005. We are currently in appeals for the 2006 through 2010 tax years and under U.S federal examination for the 2011 tax year.

Based upon the expiration of statutes of limitations and/or the conclusion of tax examinations in several jurisdictions as of May 1, 2011, we believe it is reasonably possible that the total amount of previously unrecognized tax benefits may decrease by up to $2.0 million within twelve months of May 1, 2011.