Sara Lee 2008 Annual Report Download - page 19

•Finalization of Tax Reviews and Audits – During 2007, the
corporation recorded net adjustments to reduce its tax contingency
reserves related to uncertain tax positions by approximately $110 mil-
lion. The adjustments resulted in a tax benefit for the corporation.
Approximately $80 million of the reserve reduction related to the
finalization of federal, state and foreign examinations, including
the federal income tax examinations covering the corporation’s tax
years 2003 and 2004. The remaining $30 million of reserve reduc-
tions related to the lapsing of the statute of limitations in two
foreign jurisdictions.
•Receipt of Contingent Sales Proceeds – The corporation
recognized a tax benefit of $42 million related to its receipt of
non-taxable contingent sales proceeds pursuant to the sale terms
of its European cut tobacco business in 1999. The corporation will
continue to recognize a tax rate reduction related to contingent
sales proceeds received during the agreement term, which is
effective through July 2009.
•Goodwill Impairment – In 2007, the corporation’s tax rate
increased by 7.8% as a result of recognizing $95 million of non-
deductible goodwill impairments.
•Valuation Allowance – After considering the lower profit
expectations of a Brazilian coffee operation, the corporation concluded
that it was necessary to increase the valuation allowances on cer-
tain deferred tax asset balances related to Brazilian net operating
loss carryforwards, as the corporation does not believe that it will
be able to utilize these tax benefits. This adjustment resulted in
a $27 million tax charge for 2007.
•Foreign Earnings – The corporation’s global mix of earnings, the
tax characteristics of the corporation’s income, and the benefit from
certain foreign jurisdictions having lower tax rates also reduced the
corporation’s tax expense during 2007.
In 2006, the corporation recognized tax expense of $158 million,
or an effective tax rate of 83.6%, as the corporation recognized a
$529 million tax charge to repatriate to the U.S. approximately
$1.7 billion of cash related to current and prior year earnings of
certain foreign subsidiaries previously deemed to be permanently
invested. Of the $529 million charge, $291 million relates to earn-
ings of prior years. This charge was partially offset by a $332 million
credit related to the favorable outcome of certain foreign tax audits
and reviews that were completed during 2006 and a $36 million
benefit due to a change in a valuation allowance.
Sara Lee Corporation and Subsidiaries 17
In 2008, the corporation recognized tax expense on continuing
operations of $201 million, or an effective tax rate of 125.6%.
The significant components impacting the corporation’s effective
tax rate are as follows:
•Goodwill Impairment – The corporation’s tax rate increased by
173.5% as a result of recognizing $790 million of non-deductible
goodwill impairments during the year.
•Remittance of Foreign Earnings – The corporation incurred a tax
charge of $118 million related to the repatriation of earnings from
certain foreign subsidiaries. This charge increased the effective
rate by 74.0%.
•Finalization of Tax Reviews and Audits – A $96 million benefit
resulted from the completion of tax audits and the expiration of
statutes of limitations in France, Morocco, the Netherlands, the
Philippines and various state and local jurisdictions. Of this amount,
$40 million related to the completion of tax audits and $56 million
related to the expiration of statutes of limitations.
•Receipt of Contingent Sales Proceeds – The corporation
recognized a tax benefit of $46 million related to its receipt of
non-taxable contingent sales proceeds pursuant to the sale terms
of its European cut tobacco business in 1999. The corporation will
continue to recognize a tax rate reduction related to contingent sales
proceeds received during the agreement term, which is effective
through July 2009.
•Valuation Allowance – A $19 million benefit relates to the net
reversal of valuation allowances, primarily on German deferred tax
assets. The corporation determined that a valuation allowance was
no longer necessary due to the recent projected profitability of the
German operations. This benefit was partially offset by the establish-
ment of valuation allowances for certain state deferred tax assets in
which the corporation does not anticipate future realization.
•Foreign Earnings – The corporation’s global mix of earnings, the
tax characteristics of the corporation’s income, and the benefit from
certain foreign jurisdictions that have lower tax rates also reduced
the corporation’s tax expense during 2008.
In 2007, the corporation recognized a tax benefit on continuing
operations of $11 million, or a negative effective tax rate of (2.6)%.
The significant components impacting the corporation’s effective
tax rate are as follows:
•Remittance of Foreign Earnings – In 2007, the corporation
incurred a tax charge of $194 million related to the repatriation
of earnings from certain foreign subsidiaries.
•Sale of Capital Assets – The corporation sold the shares of
a subsidiary in the first quarter of 2007, which resulted in a
$169 million tax benefit.