Note 7 — Income Taxes

Income tax expense (benefit) from continuing operations was as follows:


	2012			2011			2010
	(In thousands)
Current
Federal, state and local	$	313		$	1,293		$	1,809
Foreign		10,688			13,693			7,533

		11,001			14,986			9,342

Deferred
Federal, state and local		17,378			(39,985	)		4,450
Foreign		(1,912	)		(784	)		1,797

		15,466			(40,769	)		6,247

Non-current income tax expense (benefit)		(15,712	)		23,713			(9,589	)

	$	10,755		$	(2,070	)	$	6,000

Pretax income (loss) attributable to foreign operations including earnings from discontinued operations, equity method investments and noncontrolling interests were $30.6 million, $106.4 million and ($18.7) million for the years ended December 29, 2012, December 31, 2011 and January 1, 2011, respectively. Dole has not provided for U.S. federal income and foreign withholding taxes on approximately $2.2 billion of the excess of the amount for financial reporting over the tax basis of investments that are essentially permanent in duration. Of this amount, $414 million relates to the Dole Asia non-U.S. operations. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. It is currently not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.

Dole’s reported income tax expense (benefit) on continuing operations differed from the expense calculated using the U.S. federal statutory tax rate for the following reasons:


	2012			2011			2010
	(In thousands)
Expense computed at U.S. federal statutory income tax rate of 35%	$	2,064		$	33,292		$	27,115
Foreign income taxed at different rates*		12,799			(24,765	)		(11,849	)
State and local income tax, net of federal income taxes		1,053			(25,659	)		95
Valuation allowances		797			(9,888	)		(2,833	)
Changes in liabilities for uncertain tax positions, net of tax benefits		(14,474	)		24,000			(6,526	)
Compensation arrangements and ITOCHU transaction related expenses		7,128			—			—
Permanent items and other		1,388			950			(2	)

Income tax expense (benefit)	$	10,755		$	(2,070	)	$	6,000

*	Included in foreign income taxed at different rates in 2011, above, are certain immaterial corrections of prior year items related to foreign locations.

Deferred tax assets (liabilities) comprised the following:


	December 29, 2012			December 31, 2011
	(In thousands)
Intangibles	$	(278,931	)	$	(276,172	)
Property, plant and equipment		(124,852	)		(128,312	)
Investment and other asset basis differences		(81,083	)		4,156
Postretirement benefits		72,635			84,104
Operating accruals		44,035			56,135
Tax credit carryforwards		7,699			10,491
Net operating loss and other carryforwards		193,197			210,138
Valuation allowances		(112,517	)		(167,842	)
Other, net		58,314			61,628

	$	(221,503	)	$	(145,674	)

Dole has gross federal, state and foreign net operating loss carryforwards of $265.9 million, $781 million and $220 million, respectively, at December 29, 2012. Dole has recorded deferred tax assets of $93.1 million for federal net operating loss carryforwards, which, if unused, will expire between 2025 and 2031. Dole has recorded deferred tax assets of $38.6 million for state operating loss carryforwards with varying expiration rules, which, if unused, approximately $14.6 million will expire between 2013 and 2022. Dole has recorded deferred tax assets of $0.4 million for state capital loss carryforwards primarily relating to the sale of its fresh-cut flowers operations, which if unused expires in 2014. Dole has recorded deferred tax assets of $61.1 million for foreign net operating loss carryforwards which are subject to varying expiration rules. Tax credit carryforwards of $7.7 million include U.S. general business credit carryforwards of $0.8 million which will expire between 2023 and 2031, $0.5 million of alternative minimum tax credit carryforwards which can be carried forward indefinitely, state tax credit carryforwards of $6.4 million of which $1.2 million expires in 2026 and $5.2 million can be carried forward indefinitely. Dole has recorded a U.S. deferred tax asset of $44.8 million for disallowed interest expense which, although subject to certain limitations, can be carried forward indefinitely.

A valuation allowance has been established to offset certain state net operating loss carryforwards, state capital loss carryforwards, certain state tax credits and certain other state deferred tax assets, certain foreign net operating loss carryforwards, and certain other deferred tax assets in foreign jurisdictions. Dole has deemed it more likely than not that future taxable income in the relevant taxing jurisdictions will be insufficient to realize all of the related income tax benefits for these assets. The decrease in valuation allowances in 2012 for equity related items was $0.1 million.

Total deferred tax assets and deferred tax liabilities were as follows:


	December 29, 2012			December 31, 2011
	(In thousands)
Deferred tax assets	$	378,427		$	618,126
Deferred tax asset valuation allowance		(112,517	)		(167,842	)

		265,910			450,284
Deferred tax liabilities		(487,413	)		(595,958	)

Net deferred tax liabilities	$	(221,503	)	$	(145,674	)

Total net current deferred tax assets consist of:
Net current deferred tax assets	$	5,959		$	26,184
Net current deferred tax liabilities*		(103,836	)		(21,539	)

Total net current deferred tax assets		(97,877	)		4,645
Total net non-current deferred tax liabilities consist of:
Net non-current deferred tax assets*		5,301			31,358
Net non-current deferred tax liabilities		(128,927	)		(181,677	)

Total net non-current deferred tax liabilities		(123,626	)		(150,319	)

Total net deferred tax liabilities	$	(221,503	)	$	(145,674	)

*	Net current deferred tax liabilities are included in accrued liabilities in the consolidated balance sheet and the net non-current deferred tax assets are classified in other assets, net in the consolidated balance sheet.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits was as follows:


	December 29, 2012			December 31, 2011			January 1, 2011
	(In thousands)
Unrecognized tax benefits — opening balance	$	97,427		$	106,420		$	109,308
Gross increases — tax positions in prior period		11,597			29,275			4,807
Gross decreases — tax positions in prior period		(12,058	)		(6,184	)		(1,746	)
Gross increases — tax positions in current period		5,441			9,660			1,774
Settlements*		—			(41,155	)		—
Lapse of statute of limitations		(17,610	)		(589	)		(7,723	)

Unrecognized tax benefits — ending balance	$	84,797		$	97,427		$	106,420

*	2011 activity represents a $41 million reduction in gross unrecognized tax benefits due to the settlement of the federal income tax audit for the years 2002 – 2005 of which $20 million represents a cash payment.

The total for unrecognized tax benefits, including interest and penalties, was $92 million and $108 million at December 29, 2012 and December 31, 2011, respectively. If recognized, approximately $90 million, net of federal and state tax benefits, would be recorded as a component of income tax expense and accordingly impact the effective tax rate. At this time, Dole believes that it is reasonably possible that the total amount of unrecognized tax benefits could decrease in 2013 by cash payments of approximately $20 million relating to non-U.S. audit settlements.

Dole recognizes accrued interest and penalties related to its unrecognized tax benefits as a component of income taxes in the accompanying consolidated statements of operations. Accrued interest and penalties before tax benefits were $7.4 million and $10.6 million at December 29, 2012 and December 31, 2011, respectively. Of the total $7.4 million, $2.8 million is included in accrued liabilities. The remaining balance is included as a component of other long-term liabilities in the consolidated balance sheets. Interest and penalties recorded in Dole’s consolidated statements of operations for 2012, 2011 and 2010 were ($2.8) million, ($3.9) million, and ($3) million, respectively.

Dole Food Company, Inc. or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, Dole is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2006.

Income Tax Audits: Dole believes its tax positions comply with the applicable tax laws and that it has adequately provided for all tax related matters. Matters raised upon audit may involve substantial amounts and could result in material cash payments if resolved unfavorably. Management considers it unlikely that the resolution of these matters will have a material adverse effect on Dole’s results of operations.

Internal Revenue Service Audit: On September 4, 2012, the IRS completed its examination of Dole’s U.S. federal income tax returns for the years 2006-2008 and issued a Revenue Agent’s report (“RAR”) that includes various proposed adjustments, including with respect to whether certain transactions with foreign affiliates or certain third party borrowings by Dole or its foreign affiliates created or are deemed to have created investments in U.S. property. The net tax deficiency associated with the RAR is $132 million, after net operating loss utilization, plus interest. On November 9, 2012, Dole filed a protest letter challenging the proposed adjustments contained in the RAR and will pursue resolution of these issues with the Appeals Division of the IRS. Dole believes, based in part upon the advice of its tax advisors, that its tax treatment of such transactions was appropriate. Although the timing and ultimate resolution of any issues arising from the IRS examination are highly uncertain, at this time Dole does not anticipate that the total unrecognized tax benefits will significantly change within the next twelve months nor does Dole believe that any material tax payments will be made related to these matters within the next twelve months.