NOTE 9: Income Taxes

Income tax expense from continuing operations for each of the fiscal years consisted of:


In Thousands	2013			2012			2011

Current
U.S. Federal		$ 27,364			$ 33,790			$ 14,817
State		4,147			356			2,994
Foreign		22,993			21,222			19,472

		54,504			55,368			37,283

Deferred
U.S. Federal		(5,027	)		(4,578	)		8,332
State		(1,592	)		793			205
Foreign		(17,800	)		(21,625	)		(20,882	)

		(24,419	)		(25,410	)		(12,345	)

Income tax expense		$ 30,085			$ 29,958			$ 24,938

U.S. and foreign components of earnings from continuing operations before income taxes for each of the fiscal years were:


In Thousands	2013		2012		2011

U.S.		$ 96,105		$ 108,436		$ 110,798
Foreign		101,744		35,097		47,684

Earnings from continuing operations, before income taxes		$ 197,849		$ 143,533		$ 158,482

Primary components of the Company’s deferred tax assets (liabilities) at the end of the fiscal years resulted from temporary tax differences associated with the following:


In Thousands	2013			2012

Reserves and liabilities		$ 60,397			$ 58,510
NOL carryforwards		879			725
Tax credit carryforwards		29,862			26,687
Employee benefits		14,974			17,524
Retirement benefits		2,759			25,379
Non-qualified stock options		12,618			13,220
Other		650			600

Total deferred tax assets		122,139			142,645

Depreciation and amortization		(18,969	)		(18,024	)
Intangibles and amortization		(173,524	)		(182,921	)
Deferred costs		(4,535	)		(5,981	)
Hedging activities		(22	)		(111	)
Other		(1,398	)		(1,979	)

Total deferred tax liabilities		(198,448	)		(209,016	)

Net deferred tax liabilities		$ (76,309	)		$ (66,371	)

The tax credit carryforwards can be carried forward indefinitely.

The Company operates in numerous taxing jurisdictions and is subject to regular examinations by various U.S. federal, state and foreign jurisdictions for various tax periods. Additionally, the Company has retained tax liabilities and the rights to tax refunds in connection with various acquisitions and divestitures of businesses in prior years. The Company’s income tax positions are based on research and interpretations of income tax laws and rulings in each of the jurisdictions in which the Company does business. Due to the subjectivity and complexity of the interpretations of the tax laws and rulings in each jurisdiction, the differences and interplay in the tax laws between those jurisdictions as well as the inherent uncertainty in estimating the final resolution of complex tax audit matters, the Company’s estimates of income tax liabilities and assets may differ from actual payments, assessments or refunds.

Management believes that it is more likely than not that the Company will realize the current and long-term deferred tax assets as a result of future taxable income. Significant factors management considered in determining the probability of the realization of the deferred tax assets include expected future earnings, the Company’s historical operating results and the reversal of deferred tax liabilities. Accordingly, no valuation allowance has been recorded on the deferred tax assets.

The U.S. and various state and foreign income tax returns are open to examination, and presently there are foreign income tax returns under examination. Such examinations could result in challenges to tax positions taken, and accordingly, the Company may record adjustments to provisions based on the outcomes of such matters. However, the Company believes that the resolution of these matters, after considering amounts accrued, will not have a material adverse effect on its consolidated financial statements.

The incremental tax benefit received by the Company upon exercise of non-qualified employee stock options was $3.0 million, $0.4 million, and $1.8 million in fiscal 2013, 2012, and 2011, respectively.

A reconciliation of the U.S. federal statutory income tax rate to the effective income tax rate for each of the fiscal years was as follows:


	2013			2012			2011

U.S. statutory income tax rate		35.0	%		35.0	%		35.0	%
State income taxes		0.7			0.7			1.4
Foreign taxes		(11.3	)		(14.8	)		(10.6	)
Goodwill impairment		0.6			12.7			0.0
Penalties		1.8			0.0			0.0
Difference in foreign tax rates		(1.1	)		(2.3	)		(0.2	)
Domestic manufacturing deduction		(1.4	)		(2.3	)		(1.3	)
Research & development credits		(3.7	)		(3.4	)		(5.5	)
Net change in tax reserves		(3.0	)		0.5			(2.4	)
Valuation allowance		0.0			(1.0	)		(3.0	)
Change in foreign tax rates and laws		(1.7	)		(3.6	)		(2.2	)
Acquisition and organizational restructuring		0.0			0.0			3.0
Other, net		(0.7	)		(0.6	)		1.5

Effective income tax rate		15.2	%		20.9	%		15.7	%

No provision for federal income taxes has been made on accumulated earnings of foreign subsidiaries, since such earnings are considered indefinitely reinvested. The amount of undistributed foreign earnings which are considered to be indefinitely reinvested at October 25, 2013, is approximately $571.0 million. Furthermore, the Company determined it was not practical to estimate the deferred taxes on these earnings. The amount of deferred income taxes is not practical to compute due to the complexity of the Company’s international holding company structure, layers of regulatory requirements that have to be evaluated to determine the amount of allowable dividends, numerous potential repatriation scenarios that could be created to facilitate the repatriation of earnings to the U.S., and the complexity of computing foreign tax credits.

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


In Thousands	Total

Unrecognized tax benefits as of October 26, 2012	$	14,979
Unrecognized gross benefit change:
Gross increases due to prior-period adjustments		538
Gross (decrease) due to prior-period adjustments		(1,287	)
Gross increases due to current-period adjustment		4,260
Gross (decrease) due to current-period adjustment		0
Gross (decrease) due to settlements with taxing authorities		(888	)
Gross (decrease) due to a lapse with taxing authorities		(5,594	)

Total change in unrecognized gross benefit		(2,971	)

Unrecognized tax benefits as of October 25, 2013	$	12,008


Unrecognized tax benefits that, if recognized, would impact the effective tax rate	$	12,008

Statement of operations:
Total amount of interest income (expense) included in income tax expense	$	1,154

Recognized in the statement of financial position:
Total amount of accrued interest included in income taxes payable	$	876

During the next 12 months, it is reasonably possible that approximately $1.6 million of previously unrecognized tax benefits related to operating losses and tax credits could decrease as a result of settlement of examinations and/or the expiration of statutes of limitations. The Company recognizes interest related to unrecognized tax benefits in income tax expense.

The Company is no longer subject to income tax examinations by tax authorities in its major tax jurisdictions as follows:


Tax Jurisdiction		Years No Longer Subject to Audit
U.S. Federal		2007 and prior
Canada		2005 and prior
France		2009 and prior
United Kingdom		2010 and prior