Taxes on Earnings

The provision for income taxes on earnings from continuing operations consists of the following:



	2013			2012			2011
Income taxes:
Currently payable:
Federal	$	268		$	221		$	218
State	24			29			29
Non-U.S.	47			43			64
	339			293			311
Deferred:
Federal	(58		)	31			44
State	(6		)	2			(2		)
Non-U.S.	—			(1		)	(2		)
	(64		)	32			40
	$	275		$	325		$	351

Earnings from continuing operations before income taxes:
United States	$	815		$	918		$	941
Non-U.S.	140			131			159
	$	955		$	1,049		$	1,100

The following is a reconciliation of the effective income tax rate on continuing operations to the U.S. federal statutory income tax rate:



	2013		2012		2011
Federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes (net of federal tax benefit)	1.1		2.0		1.6
Tax effect of international items	(2.6	)	(3.8	)	(1.7	)
Settlement of tax contingencies	(0.1	)	(0.1	)	(0.4	)
Federal manufacturing deduction	(2.7	)	(1.9	)	(1.9	)
Other	(1.9	)	(0.2	)	(0.7	)
Effective income tax rate	28.8	%	31.0	%	31.9	%

Deferred tax liabilities and assets are comprised of the following:



	2013			2012
Depreciation	$	302		$	279
Amortization	484			474
Other	66			20
Deferred tax liabilities	852			773
Benefits and compensation	316			311
Pension benefits	61			194
Tax loss carryforwards	95			69
Capital loss carryforwards	104			117
Other	73			79
Gross deferred tax assets	649			770
Deferred tax asset valuation allowance	(148		)	(142		)
Net deferred tax assets	501			628
Net deferred tax liability	$	351		$	145

At July 28, 2013, U.S. and non-U.S. subsidiaries of the company had tax loss carryforwards of approximately $423. Of these carryforwards, $183 expire between 2014 and 2033, and $240 may be carried forward indefinitely. The current statutory tax rates in these countries range from 15% to 35%. At July 28, 2013, deferred tax asset valuation allowances have been established to offset $145 of these tax loss carryforwards. Additionally, at July 28, 2013, non-U.S. subsidiaries of the company had capital loss carryforwards of approximately $342, which were fully offset by valuation allowances. U.S. subsidiaries of the company had a capital loss carryforward of $1 which expires in 2017 for which no valuation allowance had been established.

The net change in the deferred tax asset valuation allowance in 2013 was an increase of $6. The increase was primarily due to the impact of currency and recognition of additional valuation allowances on foreign loss carryforwards. The net change in the valuation allowance in 2012 was a decrease of $14. The decrease was primarily due to the discontinuation of the company's Russian operations as well as the impact of currency and the recognition of additional valuation allowances on foreign loss carryforwards.

As of July 28, 2013, other deferred tax assets included $7 of foreign tax credit carryforwards that expire in 2023, and $10 of state tax credit carryforwards related to various states that expire between 2014 and 2022. As of July 28, 2012, other deferred tax assets included $3 of foreign tax credit carryforwards that expire in 2022, and $3 of state tax credit carryforwards that expire between 2014 and 2021 and are related to various states. No valuation allowances have been established related to these deferred tax assets.

As of July 28, 2013, U.S. income taxes have not been provided on approximately $714 of undistributed earnings of non-U.S. subsidiaries, which are deemed to be permanently reinvested. It is not practical to estimate the tax liability that might be incurred if such earnings were remitted to the U.S.

A reconciliation of the activity related to unrecognized tax benefits follows:



	2013			2012			2011
Balance at beginning of year	$	48		$	43		$	36
Increases related to prior-year tax positions	28			2			6
Decreases related to prior-year tax positions	(7		)	(1		)	(4		)
Increases related to current-year tax positions	9			9			9
Settlements	(15		)	—			—
Lapse of statute	(2		)	(5		)	(4		)
Balance at end of year	$	61		$	48		$	43

The increase in 2013 for prior-year tax positions was primarily due to the acquisitions of Bolthouse Farms and Plum.

As of July 28, 2013, July 29, 2012, and July 31, 2011, there were $23, $18, and $16, respectively, of unrecognized tax benefits that if recognized would affect the annual effective tax rate. The total amount of unrecognized tax benefits can change due to audit settlements, tax examination activities, statute expirations and the recognition and measurement criteria under accounting for uncertainty in income taxes. The company is unable to estimate what this change could be within the next 12 months, but does not believe it would be material to the financial statements. As of July 29, 2012, there was approximately $6 of unrecognized tax benefit liabilities, including interest and penalties, reported as accrued taxes payable in the Consolidated Balance Sheets. Approximately $2 of unrecognized tax benefits, including interest and penalties, were reported as accounts receivable in the Consolidated Balance Sheets as of July 28, 2013.

The company’s accounting policy with respect to interest and penalties attributable to income taxes is to reflect any expense or benefit as a component of its income tax provision. The total amount of interest and penalties recognized in the Consolidated Statements of Earnings was not material in 2013, 2012 and 2011. The total amount of interest and penalties recognized in the Consolidated Balance Sheets was $2 as of July 28, 2013, and $8 as of July 29, 2012.

The company does business internationally and, as a result, files income tax returns in the U.S. federal jurisdiction and various state and non-U.S. jurisdictions. In the normal course of business, the company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as the U.S., Australia, Canada, Belgium, France and Germany. The 2013 tax year is currently under audit by the IRS. In addition, several state income tax examinations are in progress for fiscal years 2006 to 2012.

With limited exceptions, the company has been audited for income tax purposes in Germany through fiscal year 2007, and in Canada, France, Belgium and Australia through fiscal year 2009.