Sara Lee 2010 Annual Report Download - page 86

Notes to financial statements
Note 18 – Income Taxes
The provisions for income taxes on continuing operations computed
by applying the U.S. statutory rate to income from continuing opera-
tions before taxes as reconciled to the actual provisions were:
2010 2009 2008
Income (loss) from continuing
operations before income taxes
United States 11.9% (65.6) % (357.8) %
Foreign 88.1 165.6 257.8
100.0% 100.0 % (100.0) %
Tax expense (benefit) at
U.S. statutory rate 35.0% 35.0 % (35.0) %
Tax on remittance of foreign earnings 19.5 12.2 68.0
Finalization of tax reviews and audits and
changes in estimate on tax contingencies (22.3) (5.9) (60.8)
Foreign taxes different than
U.S. statutory rate (7.5) (15.9) (8.3)
Valuation allowances (0.6) 2.4 (6.6)
Benefit of foreign tax credits – (4.5) (13.8)
Contingent sale proceeds (5.9) (14.7) (29.1)
Tax rate changes – (0.2) (0.1)
Goodwill impairment – 23.6 176.5
Tax provision adjustments 2.3 2.4 (12.8)
Sale of capital assets –––
Other, net (1.2) 2.9 (1.4)
Taxes at effective worldwide tax rates 19.3% 37.3 % 76.6 %
The tax expense related to continuing operations was $20 million
higher in 2010 than in 2009 primarily due to a $437 million increase
in income from continuing operations before income taxes and a
tax charge of $121 million related 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. Partially offsetting this was a benefit of $177 million
for the release of certain contingent tax obligations after statutes
in multiple jurisdictions lapsed and certain tax regulatory examina-
tions and reviews were resolved.
The tax expense related to continuing operations was $13 million
higher in 2009 than in 2008 despite a $514 million increase in
income from continuing operations before income taxes. The 2009 tax
expense was impacted by $242 million of non-deductible impairment
charges compared to $790 million in 2008, a reduction in costs
associated with the repatriation of earnings from certain foreign
subsidiaries, the reduction in certain contingent tax obligations after
statutes in multiple jurisdictions lapsed, the resolution of certain tax
regulatory examinations and reviews, and changes in estimate.
The corporation recognized income tax expense of $145 million
in 2010, $44 million in 2009 and $107 million in 2008 related to
certain earnings outside of the U.S. which were not deemed to be
indefinitely reinvested. The $145 million repatriation expense includes
the $121 charge explained above. Aside from the items mentioned
above, the corporation intends to continue to invest a portion of
its earnings outside of the U.S. and, therefore, has not recognized
U.S. tax expense on these earnings. U.S. federal income tax and
withholding tax on these foreign unremitted earnings would be
approximately $200 million to $225 million.
Current and deferred tax provisions (benefits) were:
In millions 2010 2009 2008
Current Deferred Current Deferred Current Deferred
U.S. $(176) $182 $÷77 $(65) $«282 $(237)
Foreign 176 (33) 130 (13) 98 (25)
State 4–4–(10) 12
$÷÷«4 $149 $211 $(78) $«370 $(250)
Cash payments for income taxes from continuing operations
were $305 million in 2010, $218 million in 2009 and $337 million
in 2008.
Sara Lee Corporation and eligible subsidiaries file a consolidated
U.S. federal income tax return. The company uses the asset-and-
liability method to provide income taxes on all transactions recorded
in the consolidated financial statements. This method requires
that income taxes reflect the expected future tax consequences
of temporary differences between the carrying amounts of assets
or liabilities for book and tax purposes. Accordingly, a deferred tax
liability or asset for each temporary difference is determined based
upon the tax rates that the company expects to be in effect when
the underlying items of income and expense are realized. The com-
pany’s expense for income taxes includes the current and deferred
portions of that expense. A valuation allowance is established to
reduce deferred tax assets to the amount the company expects
to realize.
84 Sara Lee Corporation and Subsidiaries