Income Taxes

For income tax purposes, the domestic and foreign components of income (loss) before taxes were as follows:



(In millions)	2011			2010			2009
Domestic	$	(15.2	)	$	(16.3	)	$	29.3
Foreign	310.5			316.0			207.8
Total	$	295.3		$	299.7		$	237.1

The domestic and foreign components of income (loss) before taxes for 2011 and 2010 reflect an adjustment as required under certain advanced pricing agreements.

The provision (benefit) for income taxes was as follows:



(In millions)	2011			2010			2009
Current:
Federal	$	4.2		$	(4.2	)	$	39.1
Foreign	79.4			85.8			66.3
State	1.2			0.5			1.1
	84.8			82.1			106.5
Deferred:
Federal	0.2			(9.2		)	(38.0		)
Foreign	(7.5		)	1.7			(6.2		)
State	(0.5		)	(0.5		)	(0.3		)
	(7.8		)	(8.0		)	(44.5		)
Total	$	77.0		$	74.1		$	62.0

The differences between the provision for income taxes and income taxes computed using the U.S. federal statutory rate were as follows:



(In millions)	2011			2010			2009
Amount computed using statutory rate	$	103.4		$	104.9		$	83.0
(Reduction) increase in taxes resulting from:
Net impact from repatriating foreign earnings and direct foreign tax credits	8.4			(8.8		)	(7.8		)
Foreign income taxes	(24.1		)	(21.7		)	(18.7		)
Impact of non-deductible intangible impairments	12.6			—			7.5
U.S. tax impact of foreign currency transactions	—			(0.2		)	(1.3		)
Impact of changes in Mexican legislation and revaluation of tax assets	(20.4		)	(3.2		)	4.5
Other changes in valuation allowances for deferred tax assets	(0.3		)	2.1			2.9
Foreign and domestic tax audit settlement and adjustments	(3.4		)	(1.8		)	(9.1		)
Other	0.8			2.8			1.0
Total	$	77.0		$	74.1		$	62.0

The effective tax rates are below the U.S. statutory rate, primarily reflecting the availability of excess foreign tax credits as well as lower foreign effective tax rates. As a result of tax law changes in Mexico, a tax election was made in 2011 that resulted in a reduction of $20.4 million of deferred tax liabilities. The Company also incurred in 2011 additional costs of $16.0 million associated with the repatriation of foreign earnings. Included in the 2010 net impact from repatriating foreign earnings and direct foreign tax credits are a $16.1 million tax benefit of repatriating high tax foreign earnings and direct foreign tax credits and $22.3 million of certain previously unrecognized foreign tax credit benefits, partially offset by the $29.6 million U.S. tax cost due to additional repatriation of low tax foreign earnings in 2010. Certain prior year components have been reclassified to conform to current year presentation.

Deferred tax (liabilities) assets were composed of the following:



(In millions)	2011			2010
Purchased intangibles	$	(44.2	)	$	(46.2	)
Other	(5.1		)	(29.6		)
Gross deferred tax liabilities	(49.3		)	(75.8		)
Credit and net operating loss carry forwards (net of unrecognized tax benefits)	262.7			343.1
Fixed assets basis differences	25.2			27.6
Employee benefits accruals	60.0			48.7
Postretirement benefits	14.0			13.5
Inventory	11.6			9.7
Accounts receivable	12.3			13.8
Depreciation	9.5			6.4
Deferred costs	79.8			25.0
Liabilities under interest rate swap contracts	3.8			8.5
Capitalized intangibles	24.4			20.6
Other accruals	30.2			40.7
Gross deferred tax assets	533.5			557.6
Valuation allowances	(96.0		)	(99.8		)
Net deferred tax assets	$	388.2		$	382.0

At December 31, 2011, the Company had domestic federal and state net operating loss carry forwards of $46.2 million, separate state net operating loss carry forwards of $108.4 million, and foreign net operating loss carry forwards of $459.1 million. Of the total foreign and domestic net operating loss carry forwards, $465.5 million expire at various dates from 2012 to 2031, while the remainder have unlimited lives. During 2011, the Company realized net cash benefits of $11.0 million related to foreign net operating loss carry forwards. At December 31, 2011 and December 25, 2010, the Company had estimated foreign tax credit carry forwards of $123.2 million and $176.1 million, respectively, most of which expire in the years 2017 through 2020 if not utilized. Deferred costs in 2011 include assets of $77.5 million related to advanced payment agreements entered into by the company with its foreign subsidiaries, which are expected to reverse over the next three years. At December 31, 2011 and December 25, 2010, the Company had valuation allowances against certain deferred tax assets totaling $96.0 million and $99.8 million, respectively. These valuation allowances relate to tax assets in jurisdictions where it is management's best estimate that there is not a greater than 50 percent probability that the benefit of the assets will be realized in the associated tax returns. The likelihood of realizing the benefit of deferred tax assets is assessed on an ongoing basis. Consequently, future material changes in the valuation allowance are possible. The credit and net operating loss carryforwards were impacted by a decrease to federal foreign tax credit carryforwards of $49.5 million, as well as a decrease in various foreign net operating losses. The increase in deferred costs of $54.8 million is due to additional advanced transaction agreements entered into during the year and related payments received from foreign affiliates. The change in the Other accruals caption above is impacted by the timing of realization of foreign exchange gains and losses in the United States as well as multiple other timing differences across various foreign jurisdictions.

The Company paid income taxes, net, in 2011, 2010 and 2009 of $95.4 million, $80.7 million and $85.2 million, respectively. The Company has a foreign subsidiary which receives a tax holiday that expires in 2020. The net benefit of this and other expired tax holidays was $3.6 million, $0.8 million and $0.7 million in 2011, 2010 and 2009, respectively.

As of December 31, 2011 and December 25, 2010, the Company's gross unrecognized tax benefit was $28.6 million and $27.3 million, respectively. The Company estimates that approximately $23.3 million of the unrecognized tax benefits, if recognized, would impact the effective tax rate. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



(In millions)	2011			2010			2009
Balance, beginning of year	$	27.3		$	53.1		$	46.9
Additions based on tax positions related to the current year	3.5			10.5			15.1
Additions for tax positions of prior year	4.6			2.8			0.7
Reduction for tax positions of prior years	(4.7		)	(27.2		)	(8.7		)
Settlements	(0.2		)	(11.3		)	(0.5		)
Reductions for lapse in statute of limitations	(1.3		)	(0.9		)	(2.1		)
Impact of foreign currency rate changes versus the U.S. dollar	(0.6		)	0.3			1.7
Balance, end of year	$	28.6		$	27.3		$	53.1

Interest and penalties related to uncertain tax positions in the Company's global operations are recorded as a component of the provision for income taxes. Accrued interest and penalties were $5.8 million and $5.1 million as of December 31, 2011 and December 25, 2010, respectively. Interest and penalties included in the provision for income taxes totaled $1.2 million and $0.8 million for 2011 and 2010, respectively. In 2009, the Company recorded a benefit of $1.0 million to the provision related to interest and penalties from the reversals of certain accruals made in previous years.

During the year ended December 31, 2011, the Company settled certain tax positions in various foreign countries which included a payment of $0.4 million of interest and taxes. As a result of the settlement, the Company's unrecognized tax benefit decreased by $3.2 million, and related accruals for interest and penalties decreased by $0.3 million. Also during 2011, the Company reduced its liability by $1.2 million upon entering into certain advance pricing agreements. During the year, the accrual for uncertain tax positions also increased for positions being taken in various tax filings. The accrual is also impacted by changes in foreign exchange rates.

In the year ended December 25, 2010, the Company recognized $22.3 million of previously unrecognized foreign tax credit benefits as a result of the issuance of clarifying tax guidance and favorable tax developments. In addition, the gross unrecognized tax benefit decreased by $1.9 million as a result of favorable audit settlements in several foreign jurisdictions. During 2010, the Company settled uncertain Mexican tax positions with a payment of $15.6 million ($9.2 million in tax and $6.4 million in interest), which was subject to indemnification by a third party. As a result, the Company's unrecognized tax benefit decreased by $4.2 million, and related accruals for interest and penalties decreased by $7.7 million.

The Company operates globally and files income tax returns in the United States federal, various state, and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The Company is no longer subject to income tax examination in the following major jurisdictions: for U.S. federal tax for years before 2002, Australia (2006), Brazil (2008), France (2006), Germany (2006), India (2001), Indonesia (2000), Italy (2005), Malaysia (2000), Mexico (2001), South Africa (2005) and South Korea (2010), with limited exceptions.

The Company estimates that it may settle one or more foreign audits in the next twelve months that may result in a decrease in the amount of accrual for uncertain tax positions of up to $2.2 million. For the remaining balance as of December 31, 2011, the Company is not able to reliably estimate the timing or ultimate settlement amount. While the Company does not currently expect material changes, it is possible that the amount of unrecognized benefit with respect to the uncertain tax positions will significantly increase or decrease related to audits in various foreign jurisdictions that may conclude during that period or new developments that could also, in turn, impact the Company's assessment relative to the establishment of valuation allowances against certain existing deferred tax assets. At this time, the Company is not able to make a reasonable estimate of the range of impact on the balance of unrecognized tax benefits or the impact on the effective tax rate related to these items.

As of December 31, 2011, the Company had foreign undistributed earnings of $947 million where it is the Company's intent that the earnings be reinvested indefinitely. Consequently, the Company has not provided for U.S. deferred income taxes on these undistributed earnings. The determination of the amount of unrecognized deferred U.S. income tax liability associated with these undistributed earnings is not practicable because of the complexities associated with the calculation.

The Company recognized $9.3 million, $7.3 million and $16.2 million of benefits for deductions associated with the exercise of employee stock options in 2011, 2010 and 2009, respectively. These benefits were added directly to paid-in capital, and were not reflected in the provision for income taxes.