13. TAXES ON EARNINGS

The Company accounts for income taxes under an asset and liability approach where deferred income taxes are based upon enacted tax laws and rates applicable to the periods in which the taxes become payable.

Taxes on earnings from continuing operations were as follows:

	Fiscal Years Ended
(In millions)	2013			2012			2011
Current provision:
Federal	$	110.1		$	99.3		$	80.4
State and local		13.4			8.5			11.7
Foreign		54.3			63.5			52.7
Total current		177.8			171.3			144.8
Deferred provision (benefit):
Federal		(3.9	)		(4.5	)		32.9
State and local		(0.2	)		0.1			6.0
Foreign		0.1			2.0			(3.6	)
Total deferred		(4.0	)		(2.4	)		35.3
Taxes on earnings	$	173.8		$	168.9		$	180.1

Earnings from continuing operations before taxes are generated from the following geographic areas:

	Fiscal Years Ended
(In millions)	2013		2012		2011
United States	$	308.0	$	271.4	$	299.3
Foreign		304.1		324.5		289.4
	$	612.1	$	595.9	$	588.7

The effective tax rate differs from the U.S. federal statutory tax rate as a result of the following:

	Fiscal Years Ended
	2013				2012				2011
Federal statutory income tax rate		35.0		%		35.0		%		35.0		%
State and local taxes, net of federal tax benefit		1.3				1.3				2.5
Non-U.S. income taxed at different rates, net		(5.6	)			(5.9	)			(3.3	)
Resolution of tax contingencies due to lapses of statutes of limitations		(1.2	)			(1.8	)			(2.8	)
Other		(1.1	)			(0.3	)			(0.8	)
Effective tax rate		28.4		%		28.3		%		30.6		%

During fiscal years 2013, 2012 and 2011, the Company’s effective tax rate was lower than the U.S. federal statutory rate primarily because the Company’s foreign earnings are taxed at rates that, on average, are lower than the U.S. federal rate. This reduction is partly offset by the fact that the Company’s domestic earnings are also subject to state income taxes. During fiscal years 2013 and 2012, and 2011, the benefit of the release of liabilities for uncertain tax positions as a result of the expiration of the statutes of limitation in various jurisdictions also contributed to the Company’s effective tax rate being lower than the U.S. federal statutory rate.

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

(In millions)	September 27, 2013			September 28, 2012
Deferred Tax Assets:
Deferred revenues	$	26.8		$	26.8
Deferred compensation		34.9			32.7
Product warranty		13.9			13.7
Inventory adjustments		18.3			17.0
Equity-based compensation		33.3			41.8
Environmental reserve		5.7			5.9
Net operating loss carryforwards		78.6			54.2
Other		37.8			45.4
		249.3			237.5
Valuation allowance		(60.7	)		(45.8	)
Total deferred tax assets		188.6			191.7
Deferred Tax Liabilities:
Tax-deductible goodwill		(27.3	)		(27.4	)
Fixed assets		(17.7	)		(22.3	)
Other		(30.4	)		(28.8	)
Total deferred tax liabilities		(75.4	)		(78.5	)
Net deferred tax assets	$	113.2		$	113.2
Reported As:
Net current deferred tax assets	$	122.3		$	115.8
Net long-term deferred tax assets (included in “Other Assets”)		10.5			13.8
Net current deferred tax liabilities (included in “Accrued Expenses”)		(7.6	)		(2.9	)
Net long-term deferred tax liabilities (included in “Other long-term liabilities”)		(12.0	)		(13.5	)
Net deferred tax assets	$	113.2		$	113.2

The Company has not provided for U.S. federal income and foreign withholding taxes on $1,412.2 million of cumulative undistributed earnings of non-U.S. subsidiaries. Such earnings are intended to be reinvested in the non-U.S. subsidiaries for an indefinite period of time. If such earnings were not considered to be reinvested indefinitely, additional deferred taxes of approximately $358.4 million would be provided.

The Company has federal net operating loss carryforwards of approximately $14.7 million expiring between 2018 and 2031. The federal net operating loss carryforwards are subject to an annual limitation of approximately $1.3 million per year. The Company has state net operating loss carryforwards of $31.1 million expiring between 2018 and 2032. The Company has foreign net operating loss carryforwards of $218.9 million with an indefinite life. Of this amount, $24.1 million is unavailable to the Company under local loss utilization rules.

Our valuation allowance relates primarily to net operating losses in certain foreign jurisdictions where, based on the weight of available evidence, it is more likely than not that the tax benefit of the net operating losses will not be realized. The valuation allowance increased by $14.9 million during fiscal year 2013, decreased by $1.1 million during fiscal year 2012, and increased by $8.4 million in fiscal year 2011.

Income taxes paid were as follows:

	Fiscal Years Ended
(In millions)	2013		2012		2011
Federal income taxes paid, net	$	119.1	$	77.6	$	70.0
State income taxes paid, net		14.9		9.3		11.9
Foreign income taxes paid, net		69.4		47.7		57.5
Total	$	203.4	$	134.6	$	139.4

The Company accounts for uncertainty in income taxes following a two-step approach for recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining whether the weight of available evidence indicates that it is more likely than not that, based on the technical merits, the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.

Changes in the Company’s unrecognized tax benefits were as follows:

	Fiscal Years Ended
(In millions)	2013				2012				2011
Unrecognized tax benefits balance–beginning of fiscal year	$	38.8		$		37.1		$		46.4
Additions based on tax positions related to a prior year		2.5				3.8				1.0
Reductions based on tax positions related to a prior year		(0.7	)			(0.9	)			(0.4	)
Additions based on tax positions related to the current year		6.6				6.8				8.6
Settlements		(4.2	)			(0.4	)			(5.1	)
Reductions resulting from the expiration of the applicable statute of limitations		(6.0	)			(7.6	)			(13.4	)
Unrecognized tax benefits balance–end of fiscal year	$	37.0		$		38.8		$		37.1

As of September 27, 2013, the total amount of gross unrecognized tax benefits was $37.0 million. Of this amount, $32.8 million would affect the effective tax rate if recognized. The difference would be offset by changes to deferred tax assets and liabilities.

The Company includes interest and penalties related to income taxes within “Taxes on earnings” on the Consolidated Statements of Earnings. As of September 27, 2013, the Company had accrued $6.7 million for the payment of interest and penalties related to unrecognized tax benefits. A net expense of $1.2 million related to interest and penalties was included in “Taxes on earnings.” As of September 28, 2012, the Company had accrued $5.5 million for the payment of interest and penalties related to unrecognized tax benefits. A net benefit of $2.2 million related to interest and penalties was included in “Taxes on earnings.”

The Company files U.S. federal, U.S. state, and foreign tax returns. The Company’s U.S. federal tax returns are generally no longer subject to tax examinations for years prior to 2010. The Company has significant operations in Switzerland. The Company’s Swiss tax returns are generally no longer subject to tax examinations for years prior to 2009. For U.S. states and other foreign tax returns, the Company is generally no longer subject to tax examinations for years prior to 2007.