
	Income Taxes

The reconciliation of income tax computed at the U.S. federal statutory rates to income tax expense is as follows:



	2012			2011			2010
U.S. federal statutory tax rate	35.0		%	35.0		%	35.0		%
Income tax provision reconciliation:
Tax at statutory rate:	$	284,737		$	371,506		$	315,583
Irish income subject to lower tax rate	(117,693		)	(144,845		)	(131,823		)
State income taxes, net of federal benefit	610			1,162			2,622
Valuation allowance	(599		)	(6,700		)	—
Research and development tax credits	(964		)	(14,681		)	(1,045		)
Change in uncertain tax positions	(5,184		)	(9,897		)	2,082
Net foreign tax in excess of U.S. federal statutory tax rate	14			338			1,315
Other, net	1,376			3,670			1,706
Total income tax provision	$	162,297		$	200,553		$	190,440

For financial reporting purposes, income before income taxes includes the following components:



	2012		2011		2010
Pretax income:
Domestic	$	233,478	$	355,819	$	289,748
Foreign	580,055		705,628		611,917
Income from continuing operations before income taxes	$	813,533	$	1,061,447	$	901,665

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



	2012			2011			2010
Current:
Federal tax	$	90,303		$	92,103		$	117,097
Foreign	80,825			104,959			79,055
State	970			1,787			4,154
Total current	$	172,098		$	198,849		$	200,306
Deferred (prepaid):
Federal	$	(9,948	)	$	9,399		$	(6,159	)
State	(551		)	(5,762		)	(173		)
Foreign	698			(1,933		)	(3,534		)
Total (prepaid) deferred	$	(9,801	)	$	1,704		$	(9,866	)

The Company continues to intend to reinvest certain of its foreign earnings indefinitely. Accordingly, no U.S. income taxes have been provided for approximately $3,221 million of unremitted earnings of international subsidiaries. As of November 3, 2012, the amount of unrecognized deferred tax liability on these earnings was $848 million.

The significant components of the Company’s deferred tax assets and liabilities for the fiscal years ended November 3, 2012 and October 29, 2011 are as follows:



	2012			2011
Deferred tax assets:
Inventory reserves	$	23,496		$	23,503
Deferred income on shipments to distributors	33,236			34,061
Reserves for compensation and benefits	26,046			21,164
Tax credit carryovers	44,550			41,468
Stock-based compensation	96,140			91,417
Depreciation	4,386			4,781
Other	8,712			(592		)
Total gross deferred tax assets	236,566			215,802
Valuation allowance	(37,350		)	(34,768		)
Total deferred tax assets	199,216			181,034
Deferred tax liabilities:
Depreciation	(40,634		)	(36,624		)
Undistributed earnings of foreign subsidiaries	(19,928		)	(24,025		)
Other	(5,918		)	(1,829		)
Total gross deferred tax liabilities	(66,480		)	(62,478		)
Net deferred tax assets	$	132,736		$	118,556

The valuation allowances of $37.4 million and $34.8 million at November 3, 2012 and October 29, 2011, respectively, are valuation allowances for the Company’s state credit carryovers that began expiring in 2008.

The Company has provided for potential tax liabilities due in the various jurisdictions in which the Company operates. Judgment is required in determining the worldwide income tax expense provision. In the ordinary course of global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of cost reimbursement arrangements among related entities. Although the Company believes its estimates are reasonable, no assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in the historical income tax provisions and accruals. Such differences could have a material impact on the Company’s income tax provision and operating results in the period in which such determination is made.

As of November 3, 2012 and October 29, 2011, the Company had a liability of $7.1 million and $9.7 million, respectively, for gross unrealized tax benefits, all of which, if settled in the Company’s favor, would lower the Company’s effective tax rate in the period recorded. In addition, as of November 3, 2012 and October 29, 2011, the Company had a liability of approximately $3.0 million and $11.1 million, respectively, for interest and penalties. The Company includes interest and penalties related to unrecognized tax benefits within the provision for taxes in the consolidated statements of income. The total liability as of November 3, 2012 and October 29, 2011 of $10.1 million and $20.8 million, respectively, for uncertain tax positions is classified as non-current, and is included in other non-current liabilities, because the Company believes that the ultimate payment or settlement of these liabilities may not occur within the next twelve months. The consolidated statements of income for fiscal years 2012, 2011 and 2010 include $(7.1) million, $0.9 million and $1.8 million, respectively, of interest and penalties related to these uncertain tax positions. Over the next fiscal year, the Company anticipates the liability to be reduced by $3.6 million for a tax settlement payment and the possible expiration of an income tax statute of limitations.

The following table summarizes the changes in the total amounts of unrealized tax benefits for fiscal 2010 through fiscal 2012.



Balance, October 31, 2009	$	18,161
Additions for tax positions of 2010	286
Balance, October 30, 2010	$	18,447
Additions for tax positions related to prior years	9,265
Reductions for tax positions related to prior years	(17,677		)
Settlements with taxing authorities	(370		)
Balance, October 29, 2011	$	9,665
Reductions for tax positions related to prior years	(6,168		)
Additions for tax positions related to prior years	2,212
Additions for tax positions related to current year	1,394
Balance, November 3, 2012	$	7,103

The Company has filed a petition with the Tax Court for one open matter for fiscal years 2006 and 2007 that pertains to Section 965 of the Internal Revenue Code related to the beneficial tax treatment of dividends paid from foreign owned companies under The American Jobs Creation Act. The potential liability for this adjustment is $36.5 million. The Company has concluded, based on discussions with its tax advisors, that this item is not likely to result in any additional tax liability. Therefore, the Company has not recorded any additional tax liability for this issue.

All of the Company's U.S. federal tax returns prior to fiscal year 2009 are no longer subject to examination.

All of the Company's Ireland tax returns prior to fiscal year 2008 are no longer subject to examination.