INCOME TAXES

12 Months Ended

Dec. 30, 2012

Income Tax Expense (Benefit) [Abstract]

Income Tax Disclosure [Text Block]

13. INCOME TAXES

Income (loss) from continuing operations before income taxes by jurisdiction is as follows:

	2012		2011			2010
	(In thousands)
U.S.	$	62,332	$	(481,048	)	$	(7,594	)
Foreign		90,730		(6,078	)		74,082
Total	$	153,062	$	(487,126	)	$	66,488

The components of income tax expense (benefit) are set forth below:

	2012			2011			2010
	(In thousands)
Current:
Federal	$	(28,883	)	$	741		$	28,156
Foreign		9,279			13,132			25,815
State and other		(211	)		1,914			(8,549	)
Total current		(19,815	)		15,787			45,422
Deferred:
Federal		(293	)		(9,128	)		(27,823	)
Foreign		(835	)		1,033			(41,212	)
State and other		(37	)		872			(225	)
Total deferred		(1,165	)		(7,223	)		(69,260	)
	$	(20,980	)	$	8,564		$	(23,838	)

The effective tax rate for continuing operations for 2012 was (13.7)% compared to (1.8)% for 2011. The effective tax rate for 2012 differed from 2011 primarily as a result of decreases in the valuation allowance and reserves for unrecognized tax benefits during 2012 and increases in the valuation allowance and reserves for unrecognized tax benefits during 2011.

The effective tax rate for continuing operations for 2010 was (35.9)%. The effective tax rate for 2011 differed from 2010 primarily as a result of an increase in the valuation allowance during 2011 and the benefit in 2010 from the deconsolidation for tax purposes of the Mexico operations.

The following table reconciles the statutory U.S. federal income tax rate to the Company’s effective income tax rate:

	2012			2011			2010
Federal income tax rate	35.0		%	35.0		%	35.0		%
State tax rate, net	2.5			2.6			0.8
Permanent items	1.5			(0.8	)		13.6
Permanent items – reorganization costs	—			0.1			(14.1	)
Domestic production activity	—			(0.8	)		(7.3	)
Difference in U.S. statutory tax rate and foreign
country effective tax rate	(3.3	)		—			(7.8	)
Book income of consolidated entities
attributable to noncontrolling interests	—			—			(1.7	)
Tax credits	(2.3	)		1.8			(7.6	)
Change in reserve for unrecognized tax
benefits	(10.4	)		(2.5	)		13.9
Change in valuation allowance	(34.4	)		(35.3	)		(10.9	)
Change in tax legislation	—			0.9			(44.3	)
Other	(2.3	)		(2.8	)		(5.5	)
Total	(13.7	)	%	(1.8	)	%	(35.9	)	%

Significant components of the Company’s deferred tax liabilities and assets are as follows:

	December 30,			December 25,
	2012			2011
	(In thousands)
Deferred tax liabilities:
PP&E and identified intangible assets	$	124,921		$	125,310
Inventories		107,420			88,779
Insurance claims and losses		28,701			20,890
All other current		24,857			19,026
All other noncurrent		9,957			10,905
Total deferred tax liabilities		295,856			264,910
Deferred tax assets:
Net operating losses		244,151			251,328
Foreign net operating losses		19,113			37,932
Credit carry forwards		60,129			57,781
Allowance for doubtful accounts		5,583			6,039
Accrued liabilities		41,808			48,578
All other current		581			—
All other noncurrent		3,627			8,185
Derivatives		—			6
Workers compensation		45,320			36,318
Pension and other postretirement benefits		56,847			40,930
Total deferred tax assets		477,159			487,097
Valuation allowance		(188,354	)		(230,336	)
Net deferred tax assets		288,805			256,761
Net deferred tax liabilities	$	7,051		$	8,149

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carry back and carry forward periods), projected future taxable income and tax-planning strategies in making this assessment.

As of December 30, 2012, the Company does not believe it has sufficient positive evidence to conclude that realization of its federal and state net deferred tax assets is more likely than not to be realized. The decrease in valuation allowance of $42.0 million during 2012 was primarily due to a decrease in federal, state and foreign net operating losses. As of December 30, 2012, the Company’s valuation allowance is $188.4 million, of which $168.3 million relates to federal and state net operating losses and credit carry forwards and $20.1 million relates to Mexico operations.

As of December 30, 2012, the Company had U.S. federal net operating loss carry forwards of approximately $594.7 million that will begin to expire in 2026 and state net operating loss carry forwards of approximately $795.8 million that will begin to expire in 2013. The Company also had Mexico net operating loss carry forwards at December 30, 2012 of approximately $63.7 million that will begin to expire in 2013.

As of December 30, 2012, the Company had approximately $56.5 million of federal tax credit carry forwards that will begin to expire in 2024 and $3.6 million of state tax credit carry forwards that will begin to expire in 2013.

On November 6, 2009, H.R. 3548 was signed into law and included a provision that allowed most business taxpayers an increased carry back period for net operating losses incurred in 2008 or 2009. As a result, during 2009 the Company utilized $547.7 million of its U.S. federal net operating losses under the expanded carry back provisions of H.R. 3548 and filed a claim for refund of $169.7 million. The Company received $122.6 million in refunds from the Internal Revenue Service (“IRS”) from the carry back claims during 2010. The Company anticipates receipt of the remainder of its claim pending resolution of its litigation with the IRS. See “Note 17. Commitments and Contingencies” for additional information.

Section 382 of the Internal Revenue Code of 1986, as amended, imposes an annual limit on the ability of a corporation that undergoes an “ownership change” to use its U.S. net operating losses and tax credits to reduce its tax liability. The Company experienced an ownership change in December 2009, but believes that utilization of the U.S. net operating losses and tax credits will not be hindered by the Section 382 limitation.

The Company has not provided any deferred income taxes on the undistributed earnings of its Mexico subsidiaries as of December 30, 2012 based upon the determination that such earnings will be indefinitely reinvested. It is not practicable to determine the amount of incremental taxes that might arise if these earnings were to be remitted. For activity after fiscal year ended September 2008, the Company is not permanently reinvesting its earnings in Puerto Rico. Therefore, the earnings generated in Puerto Rico have U.S. taxes provided on the earnings as if the earnings were distributed.

During 2011, the Company completed its deconsolidation of its Mexico operations from a tax perspective to help minimize the impact of the Mexico tax reform that became effective January 1, 2010. As a result, all of the Mexico subsidiaries started filing separate returns in 2011. The deconsolidation reduced the accrued taxes that had been previously recognized under the consolidated filing status as it eliminated recapturing certain taxes required under the new consolidation laws. As a result of the deconsolidation, the Company recognized a benefit of $4.3 million and $29.5 million during 2011 and 2010, respectively, which reduced the additional taxes that had been previously accrued as of December 27, 2009, resulting in a total net benefit of $18.4 million.

The Company follows the provisions of ASC 740-10-25 that clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax benefit is required to meet before being recognized in the financial statements.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

	December 30,			December 25,
	2012			2011
	(In thousands)
Unrecognized tax benefits, beginning of year	$	64,808		$	66,674
Increase as a result of tax positions taken during the current year		926			6,368
Increase as a result of tax positions taken during prior years		119			13,964
Decrease as a result of tax positions taken during prior years		(27,619	)		(22,198	)
Decrease for lapse in statute of limitations		(13,670	)		—
Decrease relating to settlements with taxing authorities		(7,921	)		—
Unrecognized tax benefits, end of year	$	16,643		$	64,808

Included in unrecognized tax benefits of $16.6 million at December 30, 2012, was $10.9 million of tax benefits that, if recognized, would reduce the Company’s effective tax rate. It is not practicable at this time to estimate the amount of unrecognized tax benefits that will change in the next twelve months.

The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. As of December 30, 2012, the Company had recorded a liability of $9.9 million for interest and penalties. During 2012, accrued interest and penalty amounts related to uncertain tax positions decreased by $14.0 million.

The Company operates in the U.S. (including multiple state jurisdictions), Puerto Rico and Mexico. With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations for years prior to 2008 and is no longer subject to Mexico income tax examinations by taxing authorities for years prior to 2007.

The Company is currently working with the IRS through the normal processes and procedures that are available to all taxpayers outside of bankruptcy to resolve the IRS’ proof of claim. In connection, the Company has filed various petitions in the United States Tax Court (“Tax Court”) in response to the Notices of Deficiency that were issued to the Company. On December 12, 2012, the Company entered into two Stipulation of Settled Issues (“Stipulation” or “Stipulations”) with the IRS that resolved a portion of the IRS’ proof of claim. The Company is still working with the IRS to resolve the portion of the IRS’ amended proof of claim relating to Gold Kist’s tax year ended June 20, 2004. See “Note 17. Commitments and Contingencies” for additional information.