Note 8: Income Taxes

Income from continuing operations before income taxes and income from equity method investments	2015		2014		2013
United States	$	97,094	$	55,567	$	81,788
Non-U.S.		41,251		23,745		45,756
Total	$	138,345	$	79,312	$	127,544

Components of the provision for income tax expense (benefit)	2015			2014			2013
Current:
U.S. federal	$	24,180		$	8,771		$	16,999
State		2,955			1,290			1,372
Non-U.S.		22,075			20,133			11,930
		49,210			30,194			30,301
Deferred:
U.S. federal		8,096			8,106			8,101
State		1,269			1,069			2,244
Non-U.S.		(2,720	)		(5,021	)		(697	)
		6,645			4,154			9,648
Total	$	55,855		$	34,348		$	39,949

Reconciliation of effective income tax	2015			2014			2013
Statutory U.S. federal income tax rate	$	48,421		$	27,759		$	44,641
State income taxes, net of federal benefit		3,281			1,534			2,351
Foreign dividend repatriation		388			760			467
Foreign operations		1,547			(8,287	)		(12,598	)
Impact of option valuation		1,211			-			-
Interest income not taxable in the U.S.		(1,243	)		(1,649	)		(1,789	)
Change in valuation allowance		480			3,317			1,819
Tax impact of special charges, net		1,678			11,773			5,998
Other		92			(859	)		(940	)
Total	$	55,855		$	34,348		$	39,949

Deferred income tax balances at each year-end related to:	2015			2014
Depreciation and amortization	$	(61,992	)	$	(47,152	)
Employee benefit costs		50,679			45,920
Foreign tax credit carryforward		11,621			12,355
Tax loss carryforwards		21,090			21,851
Other		24,373			24,234
		45,771			57,208
Valuation allowance		(14,393	)		(16,364	)
Net deferred tax assets	$	31,378		$	40,844

The difference between the change in the deferred tax assets in the balance sheet and the deferred tax provision is primarily due to the defined benefit pension plan adjustment recorded in accumulated other comprehensive income (loss).

In November 2015, the FASB issued ASU No. 2015-17,

Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes

, which amends the guidance requiring companies to separate deferred income tax liabilities and assets into current and non-current amounts in a classified statement of financial position. This accounting guidance simplifies the presentation of deferred income taxes, such that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. This accounting guidance is effective for us beginning in the first quarter of 2018, but we have elected to adopt this guidance prospectively as of November 28, 2015. As a result we have classified all deferred tax liabilities and assets as non-current in the Consolidated Balance Sheet at November 28, 2015.

Valuation allowances principally relate to foreign net operating loss carryforwards where the future potential benefits do not meet the more-likely-than-not realization test. The decrease in the valuation allowance of $1,971 during 2015 is primarily due to foreign currency changes which impact the value of the deferred tax assets upon which the valuation allowance is recorded.

Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those deferred tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more-likely-than-not to be realized. We believe it is more-likely-than-not that carryback potential, reversal of deferred tax liabilities and forecasted income, will be sufficient to fully recover the net deferred tax assets not already offset by a valuation allowance. In the event that all or part of the gross deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination is made.

U.S. income taxes have not been provided on approximately $403,573 undistributed earnings of non-U.S. subsidiaries. We intend to indefinitely reinvest these undistributed earnings. Cash available in the United States has historically been sufficient and we expect it will continue to be sufficient to fund U.S. Cash flow requirements. In the event these earnings are later distributed to the U.S., such distributions would likely result in additional U.S. tax that may be offset, at least in part by associated foreign tax credits.

While non-U.S. operations have been profitable overall, there are cumulative tax losses of $95,473 in various countries. These tax losses can be carried forward to offset the income tax liabilities on future income in these countries. Cumulative tax losses of $48,864 can be carried forward indefinitely, while the remaining $46,609 of tax losses must be utilized during 2016 to 2025.

The U.S. has a foreign tax credit carryforward of $11,621 which will expire in 2022 and 2023. Projected foreign source income in future years is sufficient to utilize these credits in the carryforward period.

The table below sets forth the changes to our gross unrecognized tax benefit as a result of uncertain tax positions, excluding accrued interest, for the fiscal years ended November 28, 2015 and November 29, 2014. We do not anticipate that the total unrecognized tax benefits will change significantly within the next twelve months.

	2015			2014
Balance at beginning of year	$	4,787		$	5,151
Tax positions related to the current year:
Additions		877			600

Tax positions related to prior years:
Additions		439			178
Reductions		(557	)		(177	)
Settlements		-			(13	)
Lapses in applicable statutes of limitation		(676	)		(952	)
Balance at end of year	$	4,870		$	4,787

Included in the balance of unrecognized tax benefits as of November 28, 2015, are potential benefits of $4,388 that, if recognized, would affect the effective tax rate.

We report accrued interest and penalties related to unrecognized tax benefits in income tax expense. For the year ended November 28, 2015, we recognized a net benefit for interest and penalties of $179 relating to unrecognized tax benefits and had net accumulated accrued interest and penalties of $631 as of November 28, 2015. For the year ended November 29, 2014, we recognized a net benefit for interest and penalties of $139 relating to unrecognized tax benefits and had net accumulated accrued interest and penalties of $452 as of November 29, 2014.

We are subject to U.S. federal income tax as well as income tax in numerous state and foreign jurisdictions. We are no longer subject to U.S. federal tax examination for years prior to 2011 or Swiss income tax examination for years prior to 2009. During 2015, the U.S. tax authorities opened an audit for the years ended December 1, 2012 and November 30, 2013. During the first quarter of 2015, the Swiss tax authorities opened an audit for the years ended December 3, 2011 and December 1, 2012. The Swiss audit was closed in the second quarter of 2015 with no assessment. We are in various stages of examination and appeal in several states and other foreign jurisdictions. Although the final outcomes of these examinations cannot currently be determined, we believe that we have recorded adequate liabilities with respect to these examinations.