Sara Lee 2010 Annual Report Download - page 49

repatriation of foreign earnings was significantly higher due to the
corporation’s decision to no longer reinvest overseas earnings
primarily attributable to existing overseas cash and the book value
of the household and body care businesses. In its determination of
which foreign earnings are permanently reinvested, the corporation
considers numerous factors, including the financial requirements of
the U.S. parent company, the financial requirements of its foreign
subsidiaries, and the tax consequences of remitting the foreign
earnings to the U.S. Variability in the corporation’s effective tax rate
will occur over time as a result of these and other factors which could
materially change the estimated cost of future repatriation actions.
•Tax legislation in the jurisdictions in which the corporation does
business may change in future periods. While such changes cannot
be predicted, if they occur, the impact on the corporation’s tax assets
and obligations will need to be measured and recognized in the
financial statements.
•The corporation has ongoing U.S. and foreign tax audits for
various tax periods. The U.S. federal tax years from 2007 onward
remain subject to audit. Fiscal years remaining open to examination
in the Netherlands include 2003 forward. Other foreign jurisdictions
remain open to audits ranging from 1999 forward. With few excep-
tions, the corporation is no longer subject to state and local income
tax examinations by tax authorities for years before 2003. The tax
reserves for uncertain tax positions recorded in the financial state-
ments reflect the expected finalization of worldwide examinations.
The corporation regularly reviews its tax positions based on the
individual facts, circumstances, and technical merits of each tax
position. If the corporation determines it is more likely than not
that it is entitled to the economic benefits associated with a tax
position, it then considers the amounts and probabilities of the
outcomes that could be realized upon ultimate settlement with a
taxing authority, taking into consideration all available facts, circum-
stances, and information. The corporation believes that it has
sufficient cash resources to fund the settlement of these audits.
As a result of audit resolutions, expirations of statutes of
limitations, and changes in estimate on tax contingencies in 2010
and 2009, the corporation recognized tax benefits of $177 million
and $21 million, respectively. However, audit outcomes and the
timing of audit settlements are subject to significant uncertainty.
The corporation estimates reserves for uncertain tax positions, but
is not able to control or predict the extent to which tax authorities
will examine specific periods, the outcome of examinations, or the
time period in which examinations will be conducted and finalized.
Favorable or unfavorable past audit experience in any particular tax
jurisdiction is not indicative of the outcome of future examinations
by those tax authorities. Based on the nature of uncertain tax posi-
tions and the examination process, management is not able to predict
the potential outcome with respect to tax periods that have not yet
been examined or the impact of any potential reserve adjustments
on the corporation’s tax rate or net earnings trends. As of the end
of 2010, the corporation believes that it is reasonably possible that
the liability for unrecognized tax benefits will decrease by approxi-
mately $0 to $25 million over the next 12 months.
•Facts and circumstances may change that cause the corporation
to revise the conclusions on its ability to realize certain net operating
losses and other deferred tax attributes. The corporation regularly
reviews whether it will realize its deferred tax assets. Its review
consists of determining whether sufficient taxable income of the
appropriate character exists within the carryback and carryforward
period available under respective tax statutes. The corporation con-
siders all available evidence of recoverability when evaluating its
deferred tax assets; however, the corporation’s most sensitive and
critical factor in determining recoverability of deferred tax assets is
the existence of historical and projected profitability in a particular
jurisdiction. As a result, changes in actual and projected results of
the corporation’s various legal entities can create variability, as well
as changes in the level of the corporation’s gross deferred tax assets,
which could result in increases or decreases in the corporation’s
deferred tax asset valuation allowance.
As a multinational company, the corporation cannot predict with
reasonable certainty or likelihood future results considering the
complexity and sensitivity of the assumptions above.
Note 18 to the Consolidated Financial Statements, titled
“Income Taxes,” sets out the factors which caused the corporation’s
effective tax rate to vary from the statutory rate and certain of
these factors result from finalization of tax audits and review and
changes in estimates and assumptions regarding tax obligations
and benefits.
Sara Lee Corporation and Subsidiaries 47