Federal Express 2011 Annual Report Download - page 55

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net deferred tax liabilities as of May 31 have been classified in the
balance sheets as follows (in millions):
We have $484 million of net operating loss carryovers in various for-
eign jurisdictions and $524 million of state operating loss carryovers.
The valuation allowances primarily represent amounts reserved for
operating loss and tax credit carryforwards, which expire over varying
periods starting in 2012. As a result of this and other factors, we
believe that a substantial portion of these deferred tax assets may not
be realized.
Unremitted earnings of our foreign subsidiaries amounted to $640 mil-
lion at the end of 2011 and $325 million at the end of 2010. We have
not recognized deferred taxes for U.S. federal income tax purposes on
the unremitted earnings of our foreign subsidiaries that are perma-
nently reinvested. In 2011, our permanent reinvestment strategy with
respect to unremitted earnings of our foreign subsidiaries provided
a 1.3% benefit to our effective tax rate. Were the earnings to be
distributed, in the form of dividends or otherwise, these unremitted
earnings would be subject to U.S. federal income tax and non–U.S.
withholding taxes. Unrecognized foreign tax credits potentially would
be available to reduce a portion of the U.S. tax liability. Determination
of the amount of unrecognized deferred U.S. income tax liability is not
practicable due to uncertainties related to the timing and source of any
potential distribution of such funds, along with other important factors
such as the amount of associated foreign tax credits. As of May 31,
2011, we had $300 million of cash in offshore jurisdictions associated
with our permanent reinvestment strategy.
We file income tax returns in the U.S., various U.S. state and local
jurisdictions, and various foreign jurisdictions. The Internal Revenue
Service is currently auditing our consolidated U.S. income tax returns
for the 2007 through 2009 tax years. We are no longer subject to U.S.
federal income tax examination for years through 2006 except for
specific U.S. federal income tax positions that are in various stages of
appeal and/or litigation. No resolution date can be reasonably esti-
mated at this time for these appeals and litigation, but their resolution
is not expected to have a material effect on our consolidated financial
statements. We are also subject to ongoing audits in state, local and
foreign tax jurisdictions throughout the world.
A reconciliation of the beginning and ending amount of unrecognized
tax benefits is as follows (in millions):
Our liabilities recorded for uncertain tax positions include $56 million
at May 31, 2011 and $67 million at May 31, 2010 associated with
positions that if favorably resolved would provide a benefit to our
effective tax rate. We classify interest related to income tax liabilities
as interest expense, and if applicable, penalties are recognized as a
component of income tax expense. The balance of accrued interest
and penalties was $18 million on May 31, 2011 and $20 million on
May 31, 2010. Total interest and penalties included in our consoli-
dated statements of income are immaterial. Included in the 2011 and
2010 balances are $9 million of tax positions for which the ultimate
deductibility or income inclusion is certain but for which there may be
uncertainty about the timing of such deductibility or income inclusion.
It is difficult to predict the ultimate outcome or the timing of resolution
for tax positions. Changes may result from the conclusion of ongoing
audits, appeals or litigation in state, local, federal and foreign tax juris-
dictions, or from the resolution of various proceedings between the
U.S. and foreign tax authorities. Our liability for uncertain tax positions
includes no matters that are individually or collectively material to us.
It is reasonably possible that the amount of the benefit with respect
to certain of our unrecognized tax positions will increase or decrease
within the next 12 months, but an estimate of the range of the reason-
ably possible changes cannot be made. However, we do not expect that
the resolution of any of our uncertain tax positions will be material.
NOTE 12: RETIREMENT PLANS
We sponsor programs that provide retirement benefits to most of our
employees. These programs include defined benefit pension plans,
defined contribution plans and postretirement healthcare plans. The
accounting for pension and postretirement healthcare plans includes
numerous assumptions, such as: discount rates; expected long–term
investment returns on plan assets; future salary increases; employee
turnover; mortality; and retirement ages. These assumptions most
significantly impact our U.S. Pension Plans.
The accounting guidance related to postretirement benefits requires
recognition in the balance sheet of the funded status of defined benefit
pension and other postretirement benefit plans, and the recognition in
accumulated other comprehensive income (“AOCI”) of unrecognized
gains or losses and prior service costs or credits. The funded status is
measured as the difference between the fair value of the plan’s assets
2011 2010
Current deferred tax asset $ 610 $ 529
Noncurrent deferred tax liability (1,336) (891)
$ (726) $ (362)
2011 2010 2009
Balance at beginning of year $ 82 $ 72 $ 88
Increases for tax positions taken in
the current year 2 3 7
Increases for tax positions taken in
prior years 6 14 10
Decreases for tax positions taken in
prior years (10) (4) (30)
Settlements (11) (3) (3)
Balance at end of year $ 69 $ 82 $ 72