

		2016		2015			2014
Current:	Federal	$	123	$	268		$	239
	Foreign	161		131			173
	State	13		28			2
		$	297	$	427		414

Deferred:	Federal	$	18	$	(117	)	(34		)
	Foreign	3		15			(13		)
	State	6		—			1
		$	27	$	(102	)	$	(46	)
		$	324	$	325		$	368



	2016					2015					2014
U.S. federal statutory rate	$	461		35.0	%	$	441		35.0	%	$	481		35.0	%
State income tax, net of federal tax benefit	15			1.1		12			0.9		8			0.6
Statutory rate differential attributable to foreign operations	(136		)	(10.3	)	(180		)	(14.3	)	(147		)	(10.7	)
Adjustments to reserves and prior years	(11		)	(0.9	)	13			1.0		2			0.1
Change in valuation allowances	(3		)	(0.2	)	41			3.3		22			1.6
Other, net	(2		)	(0.1	)	(2		)	(0.1	)	2			0.1
Effective income tax rate	$	324		24.6	%	$	325		25.8	%	$	368		26.7	%

Statutory rate differential attributable to foreign operations. This item includes local taxes, withholding taxes, and shareholder-level taxes, net of foreign tax credits. The favorable impact is primarily attributable to a majority of our income being earned outside of the U.S. where tax rates are generally lower than the U.S. rate.

In 2015, this benefit was positively impacted by the repatriation of current year foreign earnings as we recognized excess foreign tax credits, resulting from the related effective foreign tax rate being higher than the U.S. federal statutory rate.

Adjustments to reserves and prior years. This item includes: (1) changes in tax reserves, including interest thereon, established for potential exposure we may incur if a taxing authority takes a position on a matter contrary to our position; and (2) the effects of reconciling income tax amounts recorded in our Consolidated Statements of Income to amounts reflected on our tax returns, including any adjustments to the Consolidated Balance Sheets. The impact of certain effects or changes may offset items reflected in the 'Statutory rate differential attributable to foreign operations' line.

Change in valuation allowances. This item relates to changes for deferred tax assets generated or utilized during the current year and changes in our judgment regarding the likelihood of using deferred tax assets that existed at the beginning of the year. The impact of certain changes may offset items reflected in the 'Statutory rate differential attributable to foreign operations' line.

In 2016, $3 million of net tax benefit was driven by $14 million in net tax expense for valuation allowances recorded against deferred tax assets generated in the current year and $17 million in net tax benefit for valuation allowances resulting from a change in judgment regarding the future use of certain deferred tax assets that existed at the beginning of the year.

In 2015, $41 million of net tax expense was driven by $17 million for valuation allowances recorded against deferred tax assets generated in the current year and $24 million in net tax expense resulting from a change in judgment regarding the future use of certain deferred tax assets that existed at the beginning of the year.

In 2014, $22 million of net tax expense was driven by $28 million for valuation allowances recorded against deferred tax assets generated during the current year, partially offset by $6 million in net tax benefit resulting from a change in judgment regarding the future use of certain deferred tax assets that existed at the beginning of the year.

Other. This item primarily includes the impact of permanent differences related to current year earnings as well as U.S. tax credits and deductions.



	2016			2015
Operating losses	$	172		$	157
Capital losses	184			41
Tax credit carryforwards	284			282
Employee benefits	185			152
Share-based compensation	100			121
Self-insured casualty claims	32			35
Lease-related liabilities	65			69
Various liabilities	56			64
Property, plant and equipment	37			33
Deferred income and other	32			51
Gross deferred tax assets	1,147			1,005
Deferred tax asset valuation allowances	(195		)	(205		)
Net deferred tax assets	$	952		$	800
Intangible assets, including goodwill	$	(107	)	$	(111	)
Property, plant and equipment	(46		)	(46		)
Other	(31		)	(60		)
Gross deferred tax liabilities	$	(184	)	$	(217	)
Net deferred tax assets (liabilities)	$	768		$	583



Reported in Consolidated Balance Sheets as:
Deferred income taxes	$	774		$	591
Other liabilities and deferred credits	(6		)	(8		)
	$	768		$	583

We have investments in foreign subsidiaries where the carrying values for financial reporting exceed the tax basis. We have not provided deferred tax on the portion of the excess that we believe is indefinitely reinvested, as we have the ability and intent to indefinitely postpone these basis differences from reversing with a tax consequence. We estimate that our total temporary difference upon which we have not provided deferred tax is approximately $2.1 billion at December 31, 2016. A determination of the deferred tax liability on this amount is not practicable.

At December 31, 2016, the Company has foreign operating and capital loss carryforwards of $0.5 billion and U.S. state operating loss, capital loss and tax credit carryforwards of $1.0 billion and U.S. federal capital loss and tax credit carryforwards of $0.7 billion. These losses are being carried forward in jurisdictions where we are permitted to use tax losses from prior periods to reduce future taxable income and will expire as follows:



	Year of Expiration
	2017		2018-2021		2022-2035		Indefinitely		Total
Foreign	$	20	$	53	$	93	$	321	$	487
U.S. state	7		97		908		—		1,012
U.S. federal	—		524		220		—		744
	$	27	$	674	$	1,221	$	321	$	2,243

We recognize the benefit of positions taken or expected to be taken in tax returns in the financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities. A recognized tax position is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon settlement.

The Company had $91 million and $98 million of unrecognized tax benefits at December 31, 2016 and December 26, 2015, respectively, $87 million and $89 million of which are temporary in nature and if recognized, would not impact the effective income tax rate. A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:



	2016			2015
Beginning of Year	$	98		$	115
Additions on tax positions - current year	—			—
Additions for tax positions - prior years	1			5
Reductions for tax positions - prior years	(5		)	(13		)
Reductions for settlements	(1		)	(7		)
Reductions due to statute expiration	(2		)	(2		)
Foreign currency translation adjustment	—			—
End of Year	$	91		$	98

The Company’s income tax returns are subject to examination in the U.S. federal jurisdiction and numerous U.S. state and foreign jurisdictions.

The Company has settled audits with the IRS through fiscal year 2010. Our operations in certain foreign jurisdictions remain subject to examination for tax years as far back as 2006, some of which years are currently under audit by local tax authorities.

During 2016, 2015 and 2014, a net benefit of $4 million, and net expense of $5 million and $11 million, respectively, for interest and penalties was recognized in our Consolidated Statements of Income as components of its Income tax provision.