NOTE 12 – INCOME TAXES

Income (loss) before income taxes consisted of the following:


		2013		2012		2011
Domestic	$	331,482	$	265,681	$	(109,281	)
Foreign		92,313		151,543		6,127
Total Income (Loss) Before Income Taxes	$	423,795	$	417,224	$	(103,154	)

Significant components of the provision for income taxes are as follows:


		2013			2012			2011
Current
Federal	$	101,169		$	66,957		$	39,274
State		14,084			7,696			6,803
Foreign		32,027			37,753			25,276
Total Current		147,280			112,406			71,353
Deferred
Federal		(6,160	)		15,927			(19,681	)
State		(6,921	)		2,230			(3,822	)
Foreign		341			(5,836	)		(12,403	)
Total Deferred		(12,740	)		12,321			(35,906	)
Total Income Taxes	$	134,540		$	124,727		$	35,447

Significant components of our deferred tax assets and liabilities are as follows:


		2013			2012			2011
Deferred tax assets
Insurance reserves	$	8,689		$	11,030		$	8,781
Compensation		40,442			39,099			36,294
Deferred revenue		11,077			10,273			10,400
Pension		2,288			13,882			15,001
Accrued expenses		32,750			27,582			30,237
Tax credits and carryforwards		29,191			28,550			30,608
Other		9,009			9,624			10,090
		133,446			140,040			141,411
Less: Valuation Allowance		(23,075	)		(15,377	)		(15,475	)
Total Deferred Tax Assets		110,371			124,663			125,936
Deferred tax liabilities
Tax in excess of book depreciation		(45,066	)		(47,963	)		(55,126	)
LIFO		(11,796	)		(15,257	)		(4,975	)
Intangible assets		(242,465	)		(223,300	)		(223,108	)
Other		(5,262	)		(8,656	)		(6,970	)
Total Deferred Tax Liabilities		(304,589	)		(295,176	)		(290,179	)
Net Deferred Tax Liabilities	$	(194,218	)	$	(170,513	)	$	(164,243	)

We recognize a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. The valuation allowances of $23,075, $15,377 and $15,475 at the end of fiscal years 2013, 2012, and 2011, respectively, primarily relates to foreign net operating losses.

Cumulative foreign tax loss carryforwards at the end of fiscal year 2013 were $75,665. Of this amount, $38,114 will be subject to expiration between fiscal year 2014 and fiscal year 2026. The remaining losses of $37,551 are not subject to expiration. Cumulative foreign tax credits on our US tax return at the end of fiscal year 2013 were $10,300. The majority of these foreign tax credits will be subject to expiration between fiscal year 2017 and fiscal year 2023.

A reconciliation of income tax computed at the U.S. federal statutory tax rate to the effective income tax rate is as follows:


	2013		2012		2011
Tax (benefit) at U.S. statutory rate	35.0	%	35.0	%	(35.0	%)
State income taxes, net of federal benefit	2.0	%	1.3	%	5.7	%
Domestic manufacturing activities	(2.0	%)	(1.3	%)	(3.8	%)
Non-U.S. taxes	(1.8	%)	(5.1	%)	(17.5	%)
Valuation allowance	1.8	%	—		(0.5	%)
Non-deductible impairment charges	—		—		94.2	%
Other	(3.3	%)	—		(8.7	%)
Total Effective Income Tax Rate	31.7	%	29.9	%	34.4	%

The tax rate for fiscal 2011 reflects the impact of goodwill and intangible asset impairment charges, the majority of which are nondeductible for income tax purposes. Excluding the impact of the impairment charges, our fiscal 2011 effective tax rate was 26.7%.

No provision has been made for U.S. federal income taxes on certain undistributed earnings of foreign subsidiaries that we intend to permanently invest or that may be remitted substantially tax-free. The total of undistributed earnings that would be subject to federal income tax if remitted under existing law is approximately $398,793 at October 25, 2013. Determination of the unrecognized deferred tax liability related to these earnings is not practicable because of the complexities with its hypothetical calculation. Upon distribution of these earnings, we will be subject to U.S. taxes and withholding taxes payable to various foreign governments. A credit for foreign taxes already paid would be available to reduce the U.S. tax liability.

Income taxes paid during 2013, 2012, and 2011 were $124,530, $110,124, and $83,051, respectively.

Our income tax returns, like those of most companies, are periodically audited by domestic and foreign tax authorities. These audits include questions regarding our tax filing positions, including the timing and amount of deductions and the allocation of income among various tax jurisdictions. At any one time, multiple tax years are subject to audit by the various tax authorities. We record an accrual for uncertain tax positions after evaluating the positions associated with our various income tax filings. A number of years may elapse before a particular matter for which we have established an accrual is audited and fully resolved or clarified. We adjust our tax contingencies accrual and income tax provision in the period in which matters are effectively settled with tax authorities at amounts different from our established accrual, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available.

A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalties) for fiscal year 2010 through 2013 is as follows:


Unrecognized tax benefits at October 29, 2010	$	17,817
Increases in tax positions for prior years		323
Decreases in tax positions for prior years		(505	)
Increases in tax positions for current year		2,164
Settlements		(171	)
Lapse in statute of limitations		(6,680	)
Unrecognized tax benefits at October 28, 2011	$	12,948
Increases in tax positions for prior years		159
Decreases in tax positions for prior years		(447	)
Increases in tax positions for current year		2,165
Settlements		(2,957	)
Lapse in statute of limitations		(1,903	)
Unrecognized tax benefits at October 26, 2012	$	9,965
Increases in tax positions for prior years		5,265
Decreases in tax positions for prior years		(864	)
Increases in tax positions for current year		2,719
Settlements		—
Lapse in statute of limitations		(1,722	)
Unrecognized tax benefits at October 25, 2013	$	15,363

We recognize interest and penalties related to unrecognized tax benefits in income tax expense. We had recognized accrued interest and penalties relating to unrecognized tax benefits of $4,461, $2,582, and $4,620 as of October 25, 2013, October 26, 2012, and October 28, 2011, respectively. The gross amount of interest expense/(income) and penalties included in tax expense for the year ended October 25, 2013, October 26, 2012, and October 28, 2011 was $(422), $(2,038), and $(1,287), respectively.

The total amount of unrecognized tax benefits that would affect our effective tax rate if recognized was $14,485, $8,718, and $12,203 as of October 25, 2013, October 26, 2012, and October 28, 2011, respectively.

The company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and numerous state and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2008. The Internal Revenue Service (IRS) concluded its examination of our U.S. federal tax returns for the fiscal years ended 2009 and 2010 in October 2012. There were no material adjustments to our income tax expense or balance of unrecognized tax benefits as a result of the IRS examination. We are currently under audit in several state and foreign jurisdictions. We also expect various statutes of limitation to expire during the next 12 months. Due to the uncertain response of taxing authorities, a range of outcomes cannot be reasonably estimated at this time.