INCOME TAXES

Income before income taxes by jurisdiction is as follows:



	2014		2013		2012
	(In thousands)
U.S.	$	953,027	$	469,395	$	62,332
Foreign	149,364		104,545		90,730
Total	$	1,102,391	$	573,940	$	153,062

The components of income tax expense (benefit) are set forth below:



	2014		2013			2012
	(In thousands)
Current:
Federal	$	262,403	$	(427	)	$	(28,883	)
Foreign	22,867		26,206			9,279
State and other	24,056		3,512			(211		)
Total current	309,326		29,291			(19,815		)
Deferred:
Federal	29,737		22,923			(293		)
Foreign	31,332		(3,648		)	(835		)
State and other	20,558		(24,339		)	(37		)
Total deferred	81,627		(5,064		)	(1,165		)
	$	390,953	$	24,227		$	(20,980	)

The effective tax rate for 2014 was 35.5% compared to 4.2% for 2013. The effective tax rate for 2014 differed from 2013 as a result of decreases in the valuation allowance and reserves for unrecognized tax benefits during 2013 that did not occur during 2014.

The effective tax rate for 2012 was (13.7)%. The effective tax rate for 2013 differed from 2012 primarily as a result of decreases in the valuation allowance and reserves for unrecognized tax benefits during 2013 and increases in the valuation allowance and reserves for unrecognized tax benefits during 2012.

The following table reconciles the statutory U.S. federal income tax rate to the Company’s effective income tax rate:



	2014			2013			2012
Federal income tax rate	35.0		%	35.0		%	35.0		%
State tax rate, net	2.6			2.3			2.5
Permanent items	0.4			1.4			1.5
Domestic production activity	(2.4	)		(1.2	)		—
Difference in U.S. statutory tax rate and foreign country effective tax rate	(1.0	)		(1.0	)		(3.3	)
Tax credits	—			(3.0	)		(2.3	)
Change in reserve for unrecognized tax benefits	—			—			(10.4	)
Change in valuation allowance	—			(31.0	)		(34.4	)
Other	0.9			1.7			(2.3	)
Total	35.5		%	4.2		%	(13.7	)	%

Significant components of the Company’s deferred tax liabilities and assets are as follows:



	December 28, 2014			December 29, 2013
	(In thousands)
Deferred tax liabilities:
PP&E and identified intangible assets	$	126,536		$	125,197
Inventories	48,365			74,287
Insurance claims and losses	36,953			33,625
All other current	18,696			9,453
All other noncurrent	8,105			9,031
Total deferred tax liabilities	238,655			251,593
Deferred tax assets:
Net operating losses	5,842			20,907
Foreign net operating losses	7,873			15,437
Credit carry forwards	2,916			79,555
Allowance for doubtful accounts	4,261			4,510
Accrued liabilities	52,772			47,384
All other current	9,755			12,282
All other noncurrent	20,857			10,292
Workers compensation	43,309			42,951
Pension and other postretirement benefits	26,049			20,364
Total deferred tax assets	173,634			253,682
Valuation allowance	(9,150		)	(10,400		)
Net deferred tax assets	164,484			243,282
Net deferred tax liabilities	$	74,171		$	8,311

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carry back and carry forward periods), projected future taxable income and tax-planning strategies in making this assessment.

As of December 28, 2014, the Company believes it has sufficient positive evidence to conclude that realization of its federal and state net deferred tax assets is more likely than not to be realized. The decrease in valuation allowance of $1.3 million during 2014 was primarily due to a decrease in state and foreign net operating losses. As of December 28, 2014, the Company's valuation allowance is $9.2 million, of which $1.3 million relates to capital loss carry forwards and state net operating losses and $7.8 million relates to its Mexico operations.

As of December 28, 2014, the Company had state net operating loss carry forwards of approximately $177.8 million that will begin to expire in 2015. The Company also had Mexico net operating loss carry forwards at December 28, 2014 of approximately $25.9 million that begin to expire in 2015.

As of December 28, 2014, the Company had approximately $2.9 million of state tax credit carry forwards that begin to expire in 2015.

On November 6, 2009, H.R. 3548 was signed into law and included a provision that allowed most business taxpayers an increased carry back period for net operating losses incurred in 2008 or 2009. As a result, during 2009 the Company utilized $547.7 million of its U.S. federal net operating losses under the expanded carry back provisions of H.R. 3548 and filed a claim for refund of $169.7 million. The Company received $122.6 million in refunds from the Internal Revenue Service (“IRS”) from the carry back claims during 2010. The Company anticipates receipt of the remainder of its claim pending resolution of its litigation with the IRS. See “Note 16. Commitments and Contingencies” for additional information.

The Company has not provided any deferred income taxes on the undistributed earnings of its Mexico subsidiaries as of December 28, 2014 based upon the determination that such earnings will be indefinitely reinvested. It is not practicable to determine the amount of incremental taxes that might arise if these earnings were to be remitted. For activity after 2008, the Company is not permanently reinvesting its earnings in Puerto Rico. Therefore, the earnings generated in Puerto Rico have U.S. taxes provided on the earnings as if the earnings were distributed.

During 2011, the Company completed its deconsolidation of its Mexico operations from a tax perspective to help minimize the impact of the Mexico tax reform that became effective January 1, 2010. As a result, all of the Mexico subsidiaries started filing separate returns in 2011. The deconsolidation reduced the accrued taxes that had been previously recognized under the consolidated filing status as it eliminated recapturing certain taxes required under the new consolidation laws. As a result of the deconsolidation, the Company recognized a benefit of $4.3 million during 2012, which reduced the additional taxes that had been previously accrued as of December 27, 2009, resulting in a total net benefit of $18.4 million.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:



	December 28, 2014			December 29, 2013
	(In thousands)
Unrecognized tax benefits, beginning of year	$	17,117		$	16,643
Increase as a result of tax positions taken during the current year	999			978
Increase as a result of tax positions taken during prior years	—			232
Decrease as a result of tax positions taken during prior years	(101		)	—
Decrease for lapse in statute of limitations	(619		)	(736		)
Unrecognized tax benefits, end of year	$	17,396		$	17,117

Included in unrecognized tax benefits of $17.4 million at December 28, 2014, was $9.8 million of tax benefits that, if recognized, would reduce the Company's effective tax rate. It is not practicable at this time to estimate the amount of unrecognized tax benefits that will change in the next twelve months.

The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. As of December 28, 2014, the Company had recorded a liability of $10.2 million for interest and penalties. During 2014, accrued interest and penalty amounts related to uncertain tax positions remained unchanged from 2013.

The Company operates in the U.S. (including multiple state jurisdictions), Puerto Rico and Mexico. With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations for years prior to 2009 and is no longer subject to Mexico income tax examinations by taxing authorities for years prior to 2009.

The Company is challenging the IRS' proof of claim relating to the tax year ended June 26, 2004 for Gold Kist Inc. (“Gold Kist”). See “Note 16. Commitments and Contingencies” for additional information.

On September 13, 2013, the IRS issued the final, revised Tangible Property Repair Regulations for IRC Sections 162(a) and 263(a) which modify and supersede the Temporary Regulations that were issued on December 23, 2011. In addition, the IRS also released new proposed regulations for dispositions of tangible property under IRC Section 168. These final and proposed regulations are effective for tax years beginning January 1, 2014. The Company assessed the applicability of the regulations and concluded there was no significant impact to the Company’s tax fixed assets.

The Company entered into a tax sharing agreement during 2014 with JBS USA effective for tax years starting 2010. The net tax receivable for tax years 2010 through 2014 was accrued in 2014.