
	Income Taxes

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



	2015			2014			2013
U.S. federal statutory tax rate	35.0		%	35.0		%	35.0		%
Income tax provision reconciliation:
Tax at statutory rate:	$	283,540		$	255,271		$	285,363
Net foreign income subject to lower tax rate	(198,061		)	(179,329		)	(162,286		)
State income taxes, net of federal benefit	(4,425		)	(6,361		)	(2,098		)
Valuation allowance	4,875			2,846			3,113
Federal research and development tax credits	(8,232		)	(1,165		)	(12,914		)
Change in uncertain tax positions	2,449			719			37,226
Amortization of purchased intangibles	38,973			8,126			—
Acquisitions	—			15,656			—
Other, net	(5,883		)	4,262			(6,568		)
Total income tax provision	$	113,236		$	100,025		$	141,836

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



	2015		2014		2013
Pretax income:
Domestic	$	110,710	$	127,084	$	124,737
Foreign	699,404		602,261		690,586
Income before income taxes	$	810,114	$	729,345	$	815,323

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



	2015			2014			2013
Current:
Federal tax	$	65,942		$	128,591		$	88,431
Foreign	98,813			48,829			70,656
State	695			316			448
Total current	$	165,450		$	177,736		$	159,535
Deferred (prepaid):
Federal	$	(27,933	)	$	(74,263	)	$	(18,182	)
State	541			(1,113		)	1,982
Foreign	(24,822		)	(2,335		)	(1,499		)
Total (prepaid) deferred	$	(52,214	)	$	(77,711	)	$	(17,699	)

The Company continues to intend to reinvest certain of its foreign earnings indefinitely. Accordingly, no U.S. income taxes have been provided for approximately $4.4 billion of unremitted earnings of international subsidiaries. As of October 31, 2015, the amount of unrecognized deferred tax liability on these earnings was $1.2 billion.

The significant components of the Company’s deferred tax assets and liabilities for the fiscal years ended October 31, 2015 and November 1, 2014 are as follows:



	2015			2014
Deferred tax assets:
Inventory reserves	$	24,009		$	25,236
Deferred income on shipments to distributors	40,842			38,025
Reserves for compensation and benefits	45,515			50,895
Tax credit carryovers	64,838			59,909
Stock-based compensation	68,530			74,487
Depreciation	1,840			3,490
Capital loss carryover	—			4,266
Acquisition-related intangibles	6,327			7,030
Other	36,711			22,165
Total gross deferred tax assets	288,612			285,503
Valuation allowance	(52,675		)	(52,064		)
Total deferred tax assets	235,937			233,439
Deferred tax liabilities:
Depreciation	(50,389		)	(43,337		)
Undistributed earnings of foreign subsidiaries	(29,471		)	(31,904		)
Acquisition-related intangibles	(217,961		)	(235,569		)
Other	(2,971		)	(2,236		)
Total gross deferred tax liabilities	(300,792		)	(313,046		)
Net deferred tax liabilities	$	(64,855	)	$	(79,607	)

The valuation allowances of $52.7 million and $52.1 million at October 31, 2015 and November 1, 2014, respectively, are valuation allowances primarily for the Company’s state credit carryover. The state credit carryover of $64.8 million will begin to expire in 2016.

As of October 31, 2015, the Company has foreign tax credit carryforwards of $3.1 million to offset future passive income. If not used, these carryforwards will expire between 2019 and 2023.

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 October 31, 2015 and November 1, 2014, the Company had a liability of $75.3 million and $63.0 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 October 31, 2015 and November 1, 2014, the Company had a liability of approximately $16.1 million and $12.0 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 October 31, 2015 and November 1, 2014 of $81.0 million and $70.6 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 year 2015, fiscal 2014 and fiscal 2013 include $4.1 million, $1.9 million and $7.1 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 2013 through fiscal 2015:



	Unrealized Tax Benefits
Balance, November 2, 2013	$	68,139
Additions for tax positions related to current year	214
Reductions for tax positions related to prior years	(1,321		)
Reductions due to lapse of applicable statute of limitations	(1,568		)
Balance, November 1, 2014	$	65,464
Additions for tax positions related to current year	524
Additions for tax positions related to prior years	9,799
Reductions for tax positions related to prior years	(2,745		)
Reductions due to lapse of applicable statute of limitations	(1,260		)
Balance, October 31, 2015	$	71,782

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 2012 are no longer subject to examination.

All of the Company's Ireland tax returns prior to fiscal 2011 are no longer subject to examination.