
	Income Taxes

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



	2013			2012			2011
U.S. federal statutory tax rate	35.0		%	35.0		%	35.0		%
Income tax provision reconciliation:
Tax at statutory rate:	$	285,363		$	284,737		$	371,506
Net foreign income subject to lower tax rate	(162,286		)	(117,679		)	(144,507		)
State income taxes, net of federal benefit	(2,098		)	(2,472		)	1,162
Valuation allowance	3,113			3,908			(6,700		)
Federal research and development tax credits	(12,914		)	(964		)	(14,681		)
Change in uncertain tax positions	37,226			(5,184		)	(9,897		)
Other, net	(6,568		)	(49		)	3,670
Total income tax provision	$	141,836		$	162,297		$	200,553

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



	2013		2012		2011
Pretax income:
Domestic	$	124,737	$	233,478	$	355,819
Foreign	690,586		580,055		705,628
Income from continuing operations before income taxes	$	815,323	$	813,533	$	1,061,447

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



	2013			2012			2011
Current:
Federal tax	$	88,431		$	90,303		$	92,103
Foreign	70,656			80,825			104,959
State	448			970			1,787
Total current	$	159,535		$	172,098		$	198,849
Deferred (prepaid):
Federal	$	(18,182	)	$	(9,948	)	$	9,399
State	1,982			(551		)	(5,762		)
Foreign	(1,499		)	698			(1,933		)
Total (prepaid) deferred	$	(17,699	)	$	(9,801	)	$	1,704

The Company continues to intend to reinvest certain of its foreign earnings indefinitely. Accordingly, no U.S. income taxes have been provided for approximately $3,761.6 million of unremitted earnings of international subsidiaries. As of November 2, 2013, the amount of unrecognized deferred tax liability on these earnings was $1,018.4 million.

The significant components of the Company’s deferred tax assets and liabilities for the fiscal years ended November 2, 2013 and November 3, 2012 are as follows:



	2013			2012
Deferred tax assets:
Inventory reserves	$	23,238		$	23,496
Deferred income on shipments to distributors	34,882			33,236
Reserves for compensation and benefits	32,473			26,046
Tax credit carryovers	48,920			44,550
Stock-based compensation	89,944			96,140
Depreciation	4,507			4,386
Sale of business assets	22,564			—
Other	24,803			8,712
Total gross deferred tax assets	281,331			236,566
Valuation allowance	(43,502		)	(37,350		)
Total deferred tax assets	237,829			199,216
Deferred tax liabilities:
Depreciation	(46,636		)	(40,634		)
Undistributed earnings of foreign subsidiaries	(26,325		)	(19,928		)
Other	(8,380		)	(5,918		)
Total gross deferred tax liabilities	(81,341		)	(66,480		)
Net deferred tax assets	$	156,488		$	132,736

The valuation allowances of $43.5 million and $37.4 million at November 2, 2013 and November 3, 2012, 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 2, 2013 and November 3, 2012, the Company had a liability of $62.3 million and $7.1 million, respectively, for 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 2, 2013 and November 3, 2012, the Company had a liability of approximately $10.1 million and $4.6 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 2, 2013 and November 3, 2012 of $71.3 million and $10.1 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 2013, 2012 and 2011 include $7.1 million, ($7.1) million and $0.9 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 $1.3 million for 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 2011 through fiscal 2013.



	Unrealized Tax Benefits
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
Additions for tax positions related to current year	22,762
Additions for tax positions related to prior years	41,945
Reductions for tax positions related to prior years	(2,176		)
Reductions due to lapse of applicable statute of limitations	(1,495		)
Balance, November 2, 2013	$	68,139

The Company has filed a petition with the U.S. 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. On September 18, 2013, in a matter not involving the Company, the U.S. Tax Court held that accounts receivable created under Rev. Proc. 99-32 may constitute indebtedness for purposes of Section 965 (b)(3) of the Internal Revenue Code and that the IRS was not precluded from reducing the beneficial dividend received deduction because of the increase in related-party indebtedness (BMC Software Inc. v Commissioner, 141 T.C. No. 5 2013). After analyzing the Tax Court’s decision, the Company has determined that its tax position with respect to the Section 965(b)(3) no longer meets the more likely than not standard of recognition for accounting purposes. Accordingly, the Company recorded a $36.5 million reserve for this matter in the fourth quarter of 2013.

All of the Company's U.S. federal tax returns prior to fiscal year 2010 are no longer subject to examination.

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