Sara Lee 2010 Annual Report Download - page 87

The deferred tax liabilities (assets) at the respective year-ends
were as follows:
In millions 2010 2009
Deferred tax (assets)
Pension liability $(194) $÷«(306)
Employee benefits (219) (19)
Unrealized foreign exchange (49) (158)
Nondeductible reserves (90) (74)
Net operating loss and other tax carryforwards (365) (334)
Other (82) (149)
Gross deferred tax (assets) (999) (1,040)
Less valuation allowances 219 207
Net deferred tax (assets) (780) (833)
Deferred tax liabilities
Property, plant and equipment $«131 $÷««176
Intangibles 218 245
Unrepatriated earnings 501 10
Deferred tax liabilities 850 431
Total net deferred tax (assets) liabilities $÷«70 $«÷(402)
Tax-effected net operating loss and other tax carryforwards expire
as follows: $12 million in 2011, $1 million in 2012, $1 million in
2013, $2 million in 2014, $1 million in 2015, $4 million in 2017,
$6 million in 2018, $3 million in 2019, and $27 million in 2021 and
beyond. There is no expiration date on $252 million of net operating
loss carryforwards. Separately, there are state net operating losses
of $56 million that begin to expire in 2011 through 2029.
Valuation allowances have been established on net operating
losses and other deferred tax assets in the United Kingdom, Belgium,
Russia, and other foreign and U.S. state jurisdictions as a result
of the corporation’s determination that there is less than a 50%
likelihood that these assets will be realized.
The corporation records tax reserves for uncertain tax positions
taken, or expected to be taken, on a tax return. For those tax benefits
to be recognized, a tax position must be more-likely-than-not to be
sustained upon examination by the tax authorities. The amount
recognized is measured as the largest amount of benefit that is
greater than 50% likely of being realized upon audit settlement.
Due to the inherent complexities arising from the nature of the
company’s businesses, and from conducting business and being
taxed in a substantial number of jurisdictions, significant judgments
and estimates are required to be made. Agreement of tax liabilities
between Sara Lee Corporation and the many tax jurisdictions in
which the company files tax returns may not be finalized for several
years. Thus, the company’s final tax-related assets and liabilities
may ultimately be different from those currently reported.
Our total unrecognized tax benefits that, if recognized, would
affect our effective tax rate were $279 million as of July 3, 2010.
This amount differs from the balance of unrecognized tax benefits
as of July 3, 2010 primarily due to uncertain tax positions that
created deferred tax assets in jurisdictions which have not been
realized due to a lack of profitability in the respective jurisdictions.
At this time, the corporation estimates that it is reasonably possible
that the liability for unrecognized tax benefits will decrease by approxi-
mately nil to $25 million in the next 12 months from a variety of
uncertain tax positions as a result of the completion of various
worldwide tax audits currently in process and the expiration of the
statute of limitations in several jurisdictions.
The company recognizes interest and penalties related to
unrecognized tax benefits in tax expense. During the years ended
July 3, 2010, June 27, 2009 and June 28, 2008, the corporation
recognized a benefit of $43 million, expense of $15 million and
expense of $2 million, respectively, of interest and penalties in tax
expense. The tax benefit in 2010 was the result of the finalization of
tax reviews and audits and changes in estimates of tax contingencies.
As of July 3, 2010, June 27, 2009 and June 28, 2008, the corpora-
tion had accrued interest and accrued penalties of approximately
$61 million, $111 million and $96 million, respectively.
The corporation’s tax returns are routinely audited by federal, state
and foreign tax authorities and these audits are at various stages of
completion at any given time. The Internal Revenue Service (IRS) has
completed examinations of the company’s U.S. income tax returns
through July 1, 2006. Fiscal years remaining open to examination in
the Netherlands include 2003 and forward. Other foreign jurisdictions
remain open to audits ranging from 1999 forward. With few excep-
tions, the company is no longer subject to state and local income
tax examinations by tax authorities for years before June 28, 2003.
Sara Lee Corporation and Subsidiaries 85