Sara Lee 2011 Annual Report Download - page 116

NOTES TO FINANCIAL STATEMENTS
to continue its appeal, the corporation was required to obtain a bank guarantee in May 2010 of €64 million as security against all
allegations. The corporation continues to dispute the challenge and will continue to have further proceedings with the Spanish tax authorities regarding this issue.
In June 2011 the Spanish tax administration’s local field
examination made similar challenges against tax positions for the years ending July 1, 2006 to June 27, 2009 taken by the corporation’s Spanish subsidiaries. The company has appealed the challenges of the local field examination to the Spanish tax administration and is awaiting a response. The corporation believes it is adequately reserved for the challenges made by the Spanish tax administra- tion’s local field examination.
The following table presents a reconciliation of the beginning
and ending amount of unrecognized tax benefits for the years ended July 2, 2011, July 3, 2010 and June 27, 2009.
July 2, July 3, June 27,
In millions Year ended 2011 2010 2009 Unrecognized tax benefits Beginning of year balance $367 $«547 $591 Increases based on current
period tax positions 122 34 28
Increases based on prior
period tax positions 93922
Decreases based on prior
period tax positions (9) (32) (30)
Decreases related to settlements
with tax authorities (13) (164) (10)
Decreases related to a lapse of
applicable statute of limitation (58) (25) (7)
Foreign currency translation adjustment 44 (32) (47) End of year balance $462 $«367 $547 Note 19 – Business Segment Information The following are the corporation’s four business segments and the types of products and services from which each reportable segment derives its revenues. • North American Retail sells a variety of packaged meat and frozen bakery products to retail customers in North America and includes the corporation’s U.S.
Senseo
retail coffee business.
• North American Foodservice sells a variety of meats, bakery, and beverage products to foodservice customers in North America such as broad-line foodservice distributors, restaurants, hospitals and other large institutions. • International Beverage sells coffee and tea products in major markets around the world, including Europe, Brazil and Australia. • International Bakery sells a variety of bakery and dough products to retail and foodservice customers in Europe and Australia.
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 $440 million as of July 2, 2011.
This amount differs from the balance of unrecognized tax benefits
as of July 2, 2011 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 possi-
ble that the liability for unrecognized tax benefits will decrease by
approximately $15 million to $40 million in the next 12 months
from a variety of uncertain tax positions as a result of the comple-
tion 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 unrec-
ognized tax benefits in tax expense. During the years ended July 2,
2011, July 3, 2010 and June 27, 2009, the corporation recognized
expense of $10 million, a benefit of $43 million and expense of
$15 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 2, 2011, July 3, 2010 and June 27, 2009, the corporation
had accrued interest and penalties of approximately $86 million,
$61 million and $111 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 exceptions, the company is no longer subject to
state and local income tax examinations by tax authorities for years
before July 2, 2005.
In October 2009, the Spanish tax administration upheld the
challenge made by its local field examination against tax positions
for the years ending June 28, 2003 to July 2, 2005 taken by the
corporation’s Spanish subsidiaries. In November 2009, the corpora-
tion filed an appeal against this claim with the Spanish Tax Court.
In April 2010, the Spanish Chief Inspector upheld a portion of the
claim raised by the Spanish tax authorities, which the corporation
will appeal. The corporation believes it is adequately reserved for
the claim upheld by the Spanish Chief Inspector. However, in order