Income Taxes

The following table presents the components of our consolidated income tax expense for each of the last three fiscal years (in thousands):



	2015			2014		2013
Current income tax expense:
Federal	$	72,840		$	102,450	$	121,302
State	16,248			18,698		23,246
Foreign	43,344			38,107		74,107
Total current tax expense	132,432			159,255		218,655
Deferred income tax expense (benefit):
Federal	13,337			7,561		(4,718		)
State	2,295			2,789		(582		)
Foreign	(46,809		)	20,449		8,011
Total deferred income tax expense (benefit)	(31,177		)	30,799		2,711
Consolidated income tax expense	$	101,255		$	190,054	$	221,366

Deferred taxes reflect the tax effects of the temporary differences between the amounts recorded as assets and liabilities for financial reporting purposes and the comparable amounts recorded for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The following table presents the components of our net deferred tax assets at October 2, 2015, and September 26, 2014 (in thousands):



	2015			2014
Deferred tax assets:
Obligations relating to:
Defined benefit pension plans	$	64,644		$	67,822
Other employee benefit plans	186,701			215,863
Net Operating Losses	134,467			64,063
Contract revenues and costs	25,579			39,734
Deferred Rent	9,428			6,008
Other	13,565			1,703
Valuation Allowance	(60,320		)	(54,651		)
Gross deferred tax assets	374,064			340,542
Deferred tax liabilities:
Depreciation and amortization	(187,099		)	(193,726		)
Other, net	(3,994		)	(1,372		)
Gross deferred tax liabilities	(191,093		)	(195,098		)
Net deferred tax assets	$	182,971		$	145,444

A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized based on an assessment of positive and negative evidence, including estimates of future taxable income necessary to realize future deductible amounts. The valuation allowance at October 2, 2015 and September 26, 2014 was $60.3 million and $54.7 million, respectively.

Net operating loss carry forwards of foreign subsidiaries at October 2, 2015 and September 26, 2014 totaled $455.1 million and $205.8 million, respectively. If unused, foreign net operating losses of $127.8 million will expire between 2017 and 2035. Net operating losses of $327.3 million can be carried forward indefinitely.

The following table presents the income tax benefits realized from the exercise of nonqualified stock options and disqualifying dispositions of stock sold under our employee stock purchase plans during each of the last three fiscal years (in millions):



2015		2014		2013
$	0.2	$	3.4	$	7.3

The following table reconciles total income tax expense using the statutory U.S. federal income tax rate to the consolidated income tax expense shown in the accompanying Consolidated Statements of Earnings for each of the last three fiscal years (dollars in thousands):



	2015			2014			2013
Statutory amount	$	141,479		$	189,758		$	231,542
State taxes, net of the federal benefit	12,857			12,750			14,892
Tax differential on foreign earnings	(60,151		)	(8,811		)	(20,253		)
Uncertain tax positions	2,281			(9,847		)	1,553
Other, net	4,789			6,204			(6,368		)
Consolidated income tax expense	$	101,255		$	190,054		$	221,366
Rates used to compute statutory amount	35.0		%	35.0		%	35.0		%
Consolidated effective income tax rate	23.5		%	35.1		%	33.5		%

The Company’s consolidated effective income tax rate was 23.5% for fiscal 2015, compared to 35.1% in fiscal 2014. Contributing to the decrease as compared to the prior year’s periods were the effects of a foreign currency loss and deductible costs associated with the 2015 Restructuring. Also contributing to the lower effective tax rate was the reduction of certain tax reserves due to statute expiration.

The following table presents income tax payments made during each of the last three fiscal years (in millions):



2015		2014		2013
$	156.5	$	173.6	$	235.8

The following table presents the components of our consolidated earnings before taxes for each of the last three fiscal years (in thousands):



	2015		2014		2013
United States earnings	$	283,504	$	288,800	$	352,404
Foreign earnings	146,633		253,366		309,144
	$	430,137	$	542,166	$	661,548

United States income taxes, net of applicable credits, have been provided on the undistributed earnings of the Company’s foreign subsidiaries, except in those instances where the earnings have been permanently reinvested. At October 2, 2015, approximately $26.1 million of such undistributed earnings of certain foreign subsidiaries have been permanently reinvested. Should these earnings be repatriated, approximately $4.9 million of income taxes would be payable.

The Company accounts for unrecognized tax benefits in accordance with ASC Topic 740, Income Taxes. It accounts for interest and penalties on unrecognized tax benefits as interest and penalties (i.e., not as part of income tax expense). The Company’s liability for gross unrecognized tax benefits was $42.7 million and $41.9 million at October 2, 2015 and September 26, 2014, respectively, all of which, if recognized, would affect the Company’s consolidated effective income tax rate. The Company had $42.1 million and $39.2 million in accrued interest and penalties at October 2, 2015, and September 26, 2014, respectively. The Company estimates that, within 12 months, $4.7 million of gross, primarily non-U.S. unrecognized tax benefits will reverse due to the anticipated expiration of time to assess tax. As of October 2, 2015, the Company’s U.S. federal income tax returns for tax years 2012 through 2015 remain subject to examination.

The following table presents the reconciliation of the beginning and ending amount of unrecognized tax benefits for the years presented (in thousands):



	2015			2014			2013
Balance, beginning of year	$	41,923		$	51,770		$	53,637
Additions based on tax positions related to the current year	6,440			6,528			5,447
Reductions for tax positions of prior years	(5,697		)	(16,375		)	(6,354		)
Settlement	—			—			(960		)
Balance, end of year	$	42,666		$	41,923		$	51,770