Note 15 — Income Taxes

The provision for income taxes from continuing operations for the years ended September 30 consisted of:


	2013			2012			2011
Current:
Federal	$	206		$	164		$	168
State and local, including Puerto Rico		(1	)		10			21
Foreign		179			241			211

	$	384		$	415		$	400

Deferred:
Domestic	$	(152	)	$	(29	)	$	(15	)
Foreign		3			(23	)		32

		(149	)		(52	)		17

	$	236		$	363		$	417

The components of Income From Continuing Operations Before Income Taxes for the years ended September 30 consisted of:


	2013		2012		2011
Domestic, including Puerto Rico	$	288	$	605	$	843
Foreign		877		868		775

	$	1,165	$	1,472	$	1,618

Deferred tax assets and liabilities are netted on the balance sheet by separate tax jurisdictions. At September 30, 2013 and 2012, net current deferred tax assets of $343 million and $178 million, respectively, were included in Prepaid expenses, deferred taxes and other. Net non-current deferred tax assets of $73 million and $127 million, respectively, were included in Other Assets. Net current deferred tax liabilities of $8 million and $4 million, respectively, were included in Current Liabilities — Income taxes. Net non-current deferred tax liabilities of $203 million and $72 million, respectively, were included in Deferred Income Taxes and Other. Deferred taxes are not provided on undistributed earnings of foreign subsidiaries that are indefinitely reinvested. At September 30, 2013, the cumulative amount of such undistributed earnings indefinitely reinvested outside the United States was $4.4 billion. Determining the tax liability that would arise if these earnings were remitted is not practicable. Deferred taxes are provided for earnings outside the United States when those earnings are not considered indefinitely reinvested.

The table below summarizes the gross amounts of unrecognized tax benefits without regard to reduction in tax liabilities or additions to deferred tax assets and liabilities if such unrecognized tax benefits were settled. The Company expects no significant increases or decreases in the amount of the unrecognized tax benefits to occur within the next twelve months.


	2013			2012			2011
Balance at October 1	$	143		$	126		$	82
Increase due to current year tax positions		64			37			38
Increase due to prior year tax positions		25			2			11
Decreases due to prior year tax positions		(12	)		(3	)		(2	)
Decrease due to settlements and lapse of statute of limitations		(87	)		(19	)		(3	)

Balance at September 30	$	134		$	143		$	126

The total amount of unrecognized tax benefits, if recognized, would favorably impact the effective tax rate. Accrued interest and penalties of $8 million, $10 million and $9 million at September 30, 2013, 2012 and 2011, respectively, are not included in the table above. During the fiscal years ended September 30, 2013, 2012 and 2011, the Company reported interest and penalties associated with unrecognized tax benefits of $2 million, $1 million and $1 million on the Consolidated Statements of Income as a component of Income tax provision.

The Company conducts business and files tax returns in numerous countries and currently has tax audits in progress in a number of tax jurisdictions. The IRS has completed its audit for the tax years through 2011. For the Company’s other major tax jurisdictions where it conducts business, the Company’s tax years are generally open after 2007.

Deferred income taxes at September 30 consisted of:


	2013					2012
	Assets			Liabilities		Assets			Liabilities
Compensation and benefits	$	478		$	—	$	606		$	—
Property and equipment		—			468		—			446
Loss and credit carryforwards		308			—		181			—
Other		399			229		266			219

		1,185			697		1,053			665
Valuation allowance		(284	)		—		(159	)		—

	$	901		$	697	$	894		$	665

Generally, deferred tax assets have been established as a result of net operating losses and credit carryforwards with expiration dates from 2014 to an unlimited expiration date. Valuation allowances have been established as a result of an evaluation of the uncertainty associated with the realization of certain deferred tax assets on these losses and credit carryforwards. The change in the valuation allowance for 2013 is primarily the result of foreign losses due to the Company’s global re-organization of its foreign entities and these generally have no expiration date. Valuation allowances are also maintained with respect to deferred tax assets for certain federal and state carryforwards that may not be realized and that principally expire between 2014 and 2018.

A reconciliation of the federal statutory tax rate to the Company’s effective tax rate was as follows:


	2013			2012			2011
Federal statutory tax rate		35.0	%		35.0	%		35.0	%
State and local income taxes, net of federal tax benefit		(1.2	)		0.2			1.2
Effect of foreign and Puerto Rico earnings and foreign tax credits		(9.7	)		(8.2	)		(7.5	)
Effect of Research Credits and Domestic Production Activities,		(3.8	)		(1.7	)		(2.7	)
Other, net		(0.1	)		(0.7	)		(0.2	)

		20.2	%		24.6	%		25.8	%

The approximate amounts of tax reductions related to tax holidays in various countries in which the Company does business were $95 million, $83 million and $60 million, in 2013, 2012 and 2011, respectively. The tax holidays expire at various dates through 2026.

The Company made income tax payments, net of refunds, of $454 million in 2013, $218 million in 2012 and $512 million in 2011.