Income Taxes

The reconciliation of the provision for income taxes to the amount computed by applying the U.S. federal statutory tax rate to earnings before income taxes is as follows:



	2012			2011			2010
Earnings before income taxes:
Domestic	$	120,158		$	89,409		$	82,654
Foreign	86,506			96,801			66,955
Eliminations	2,177			(2,425		)	(173		)
Total	$	208,841		$	183,785		$	149,436
Computed expected tax expense	$	73,094		$	64,325		$	52,303
Increase (decrease) in income taxes resulting from:
Foreign and R&D tax credits	(1,029		)	(7,578		)	(3,185		)
Foreign tax rates	(11,126		)	(6,704		)	(9,711		)
Export and manufacturing incentives	(2,275		)	(1,680		)	(840		)
State taxes, net of federal benefit	3,346			2,396			2,274
Change in valuation allowance for deferred taxes	(4,030		)	(3,100		)	634
Change in enacted tax rates	(1,303		)	(277		)	—
Other	(298		)	382			(133		)
Income taxes	$	56,379		$	47,764		$	41,342
Effective income tax rate	27.0		%	26.0		%	27.7		%

At September 29, 2012, various subsidiaries had tax benefit carryforwards totaling $37,285. These tax benefit carryforwards generally do not expire and can be used to reduce current taxes otherwise due on future earnings of those subsidiaries. The change in the valuation allowance relates to tax benefit carryforwards reflecting recent and projected financial performance, tax planning strategies and statutory tax carryforward periods.

No provision has been made for U.S. federal or foreign taxes on that portion of certain foreign subsidiaries’ undistributed earnings ($598,280 at September 29, 2012) considered to be permanently reinvested. It is not practicable to determine the amount of tax that would be payable if these amounts were repatriated to the U.S.

The components of income taxes are as follows:



	2012			2011			2010
Current:
Federal	$	34,361		$	14,307		$	10,642
Foreign	20,646			27,746			17,362
State	5,485			2,788			2,024
Total current	60,492			44,841			30,028
Deferred:
Federal	1,239			7,449			12,744
Foreign	(5,014		)	(5,424		)	(2,905		)
State	(338		)	898			1,475
Total deferred	(4,113		)	2,923			11,314
Income taxes	$	56,379		$	47,764		$	41,342

Realization of deferred tax assets is dependent, in part, upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making its assessment of the recoverability of deferred tax assets.

The tax effects of temporary differences that generated deferred tax assets and liabilities are as follows:



	September 29, 2012			October 1, 2011
Deferred tax assets:
Benefit accruals	$	219,396		$	188,473
Inventory reserves	30,953			29,449
Tax benefit carryforwards	14,928			11,789
Contract loss reserves not currently deductible	12,124			14,231
Other accrued expenses	14,563			13,303
Total gross deferred tax assets	291,964			257,245
Less valuation allowance	(1,746		)	(4,106		)
Total net deferred tax assets	290,218			253,139
Deferred tax liabilities:
Differences in bases and depreciation of property, plant and equipment	172,253			166,039
Pension	49,293			50,061
Foreign currency	1,963			1,492
Other	415			—
Total gross deferred tax liabilities	223,924			217,592
Net deferred tax assets	$	66,294		$	35,547

Net deferred tax assets and liabilities are included in the balance sheet as follows:



	September 29, 2012			October 1, 2011
Current assets	$	87,780		$	82,513
Other assets	16,280			10,826
Other accrued liabilities	(1,311		)	(1,063		)
Long-term liabilities	(36,455		)	(56,729		)
Net deferred tax assets	$	66,294		$	35,547

We have unrecognized tax benefits which, if ultimately recognized, will reduce our annual effective tax rate. A reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties, is as follows:



	September 29, 2012			October 1, 2011
Balance at beginning of year	$	6,696		$	9,836
Decreases as a result of tax positions for prior years	(151		)	(41		)
Increases as a result of tax positions for current year	—			160
Reductions as a result of lapse of statute of limitations	(2,622		)	(1,527		)
Settlement of tax positions	—			(1,732		)
Balance at end of year	$	3,923		$	6,696

We are subject to income taxes in the U.S. and in various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require the application of significant judgment. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2009. The statute of limitations in several jurisdictions will expire in the next twelve months and we have unrecognized tax benefits of $2,173, which would be recognized if the statute of limitations expires without the relevant taxing authority examining the applicable returns.

We record interest and penalties related to unrecognized tax benefits in income tax expense. We had accrued interest and penalties of $1,473 and $1,634 at September 29, 2012 and October 1, 2011, respectively. We expensed interest of $368 and $585 for 2012 and 2011, respectively.