Income Taxes

The provision for income taxes for continuing operations included in the Consolidated Statements of Income consists of the following:



In thousands	October 25, 2013			October 26, 2012			October 28, 2011
Current provision
Federal	$	127,069		$	159,294		$	94,024
State	6,621			16,410			7,357
Foreign	69,564			105,073			86,647
Total current provision	203,254			280,777			188,028
Deferred provision (benefit)
Federal	23,892			74,966			75,663
State	(1,331		)	399			5,567
Foreign	4,404			(18,272		)	(4,427		)
Total deferred provision	26,965			57,093			76,803
Total provision for income taxes	$	230,219		$	337,870		$	264,831

The Federal deferred provision includes $10.0 million and $16.0 million of net operating losses used in fiscal 2012 and 2011, respectively. The Federal deferred provision also includes $4.9 million of general business credits in fiscal 2012 and $3.3 million and $1.1 million of alternative minimum tax carryforwards used in fiscal 2013 and 2012, respectively. The foreign deferred provision includes $0.1 million and $0.8 million of net operating losses used in fiscal 2012 and 2011, respectively. The Federal deferred provision also includes $14.2 million of foreign tax credit carryovers utilized in fiscal 2012. During fiscal 2013, 2012 and 2011, we recognized $0.3 million, $0.8 million and $1.8 million, respectively, of current tax benefit relating to a tax holiday in China. The tax holiday expired in fiscal 2013.

The domestic and foreign components of income from continuing operations before income taxes are as follows:



In thousands	October 25, 2013		October 26, 2012		October 28, 2011
Domestic income from continuing operations	$	444,667	$	724,132	$	531,888
Foreign income from continuing operations	319,490		380,999		363,945
Pre-tax income from continuing operations	$	764,157	$	1,105,131	$	895,833

The reconciliation between the income tax provision recognized in our Consolidated Statements of Income and the income tax provision computed by applying the statutory federal income tax rate to the income from continuing operations are as follows:



In thousands	October 25, 2013		October 26, 2012		October 28, 2011
Income tax computed at federal statutory tax rate	35.0	%	35.0	%	35.0	%
Sub-part F income and foreign dividends, net of foreign tax credits	0.2		0.3		(0.9	)
Differences in foreign and U.S. tax rates	(5.3	)	(4.2	)	(4.3	)
State income taxes, net of federal tax impact	0.5		1.0		0.7
Resolution of prior years’ tax matters	—		—		0.9
Valuation allowance	1.1		0.1		0.1
IRC 199 manufacturing deduction	(2.0	)	(1.7	)	(1.4	)
Other items, net	0.6		0.1		(0.5	)
Effective income tax rate	30.1	%	30.6	%	29.6	%

The components of the net deferred tax asset are as follows:



In thousands	October 25, 2013			October 26, 2012
Deferred tax assets:
Employee benefit related items	$	101,200		$	156,034
Tax credit carryforwards	2,622			5,665
Tax loss carryforwards	128,357			122,895
Inventories	32,464			29,952
Other deferred tax assets, net	32,378			63,266
Valuation allowance, current assets	(11,009		)	(5,281		)
Valuation allowance, non-current assets	(119,556		)	(117,354		)
Total deferred tax assets	166,456			255,177
Deferred tax liabilities:
Depreciation and amortization in excess of book expense	59,651			56,218
Intangibles	48,388			109,788
Total deferred tax liabilities	108,039			166,006
Net deferred tax asset	$	58,417		$	89,171

The net deferred tax assets are reflected in the Consolidated Balance Sheets as follows:



In thousands	October 25, 2013			October 26, 2012
Current deferred tax assets, included in Other current assets	$	69,352		$	90,510
Long-term deferred tax asset, included in Deferred income taxes	41,532			67,101
Current deferred tax liability, included in Other accrued liabilities	(2,087		)	(2,247		)
Long-term deferred tax liability, included in Other liabilities	(50,380		)	(66,193		)
Net deferred tax asset	$	58,417		$	89,171

The following table summarizes the components of our loss and credit carryforward:



Loss and Credit Carryforward Summary
	Amount
Description - In millions	Gross		Benefit		Valuation Allowance		Expiration Date(s)
Foreign capital losses	$	62.1	$	12.5	$	12.5	None
U.S. state operating losses	1,967.0		101.4		98.4		Various
Foreign losses	55.8		14.4		14.2		$5.4 - None $9.0 - 2014 to 2018
State tax credits	N/A		0.7		0.7		Various
Foreign tax credits	N/A		1.5		—		$1.4 - 2016 to 2018 $0.1 - 2021
Various international tax credits	N/A		0.4		0.3		None

At least annually, we reassess our need for valuation allowances and adjust the allowance balances where it is appropriate based on past, current and projected profitability in the various geographic locations in which we conduct business and the available tax strategies. Additionally, the U.S. carryforwards were reduced upon emergence from bankruptcy due to the rules and regulations in the Internal Revenue Code related to cancellation of indebtedness income that is excluded from taxable income. These adjustments are included in the net operating loss values detailed above.

Valuation allowances currently recorded that arose in pre-emergence years require us to apply fresh start accounting. As of October 25, 2013, there were $63.3 million of valuation reserves against pre-emergence net operating loss carryforwards.

As of October 25, 2013, U.S. income taxes, net of foreign taxes paid or payable, have not been provided on the undistributed profits of foreign subsidiaries, as all undistributed profits of foreign subsidiaries are deemed to be permanently reinvested outside of the U.S. It is not practical to determine the United States federal income tax liability, if any, which would be payable if such earnings were not permanently reinvested. Such unremitted earnings of subsidiaries, which have been or are intended to be permanently reinvested, were $822.8 million as of October 25, 2013.

Unrecognized tax benefits are as follows:



In thousands	October 25, 2013			October 26, 2012
Balance, beginning of year	$	33,471		$	10,370
Interest included in the beginning balance	—			(1,271		)
Additions for current year tax positions and acquisition	36			25,735
Additions for prior year tax positions	60,604			167
Reductions for prior year tax positions	(16,693		)	(1,530		)
Balance, end of year	$	77,418		$	33,471

As of October 25, 2013, $76.6 million of the net unrecognized tax benefit would affect the effective tax rate if recognized. As of October 25, 2013 and October 26, 2012, total interest of approximately $10.3 million and $2.8 million, respectively, are classified in the Consolidated Balance Sheets as Other liabilities, while penalties of approximately $42.3 million and $1.0 million are included in the ending net unrecognized tax benefit above. It is expected that the total amount of unrecognized tax benefit will decrease by $4.9 million within the next twelve months relating to audits that will be effectively settled during fiscal 2014.

With respect to tax years subject to examination by the domestic taxing authorities, the Company’s tax years prior to 2009 have been audited by the Internal Revenue Service and are closed. Additionally, due to the existence of tax loss carryforwards, the same relative periods exist for U.S. state purposes, although some earlier years also remain open. From a non-domestic perspective, the major locations in which we conduct business are as follows: United Kingdom – 2011 forward are open for examination; South Africa – 2008 forward are open for examination; Australia – 2009 forward are open for examination; Chile – 2009 forward are open for examination; China – 2008 forward are open for examination; and Canada – 2008 forward are open for examination (2008 through 2010 are currently under audit). There are a number of smaller entities in other countries that generally have open tax years ranging from 3 to 5 years.