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Income Taxes
6 Months Ended
Aug. 26, 2011
Income Taxes [Abstract]  
Income Taxes
Note 16 — Income Taxes
The Corporation’s provision for income taxes in interim periods is computed by applying its estimated annual effective tax rate against income before income tax expense for the period. In addition, non-recurring or discrete items are recorded during the period in which they occur. The magnitude of the impact that discrete items have on the Corporation’s quarterly effective tax rate is dependent on the level of income in the period. The effective tax rate was 42.0% and 37.9% for the three and six months ended August 26, 2011, respectively, and 49.9% and 42.1% for the three and six months ended August 27, 2010, respectively. The higher than statutory rate in the current period is due to an increase in estimated accruals and settlements associated with anticipated settlements related to open years which are currently under Internal Revenue Service examination. In the prior year, the higher than statutory rate was due primarily to the impact of unfavorable settlements of audits in foreign jurisdictions, the release of insurance reserves that generated taxable income and the recognition of the deferred tax effects of the reduced deductibility of the postretirements prescription drug coverage due to the enacted U.S. Patient Protection and Affordability Care Act.
At February 28, 2011, the Corporation had unrecognized tax benefits of $43.3 million that, if recognized, would have a favorable effect on the Corporation’s income tax expense of $32.8 million. There were no significant changes to this amount during the six months ended August 26, 2011. It is reasonably possible that the Corporation’s unrecognized tax positions as of February 28, 2011 could decrease approximately $9.5 million during 2012 due to anticipated settlements and resulting cash payments related to open years after 1996, which are currently under examination.
The Corporation recognizes interest and penalties accrued on unrecognized tax benefits and refundable income taxes as a component of income tax expense. During the six months ended August 26, 2011, the Corporation recognized net expense of $3.1 million for interest and penalties on unrecognized tax benefits and refundable income taxes. As of August 26, 2011, the total amount of gross accrued interest and penalties related to unrecognized tax benefits less refundable income taxes was a net payable of $20.0 million.
The Corporation is subject to examination by the U.S. Internal Revenue Service and various U.S. state and local jurisdictions for tax years 1996 to the present. The Corporation is also subject to tax examination in various international tax jurisdictions, including Canada, the United Kingdom, Australia, France, Italy, Mexico and New Zealand for tax years 2006 to the present.