13. Income Taxes

Income before income taxes and the provision for income taxes for fiscal years 2014, 2013 and 2012, consist of the following (in thousands):

	Fiscal 2014			Fiscal 2013			Fiscal 2012
Income before income taxes:
Domestic	$	856,240		$	675,438		$	486,258
Foreign		68,133			65,436			89,883

Total income before income taxes	$	924,373		$	740,874		$	576,141


Income tax expense:
United States federal:
Current	$	288,757		$	202,006		$	75,932
Deferred		(41,589	)		(8,654	)		74,042

		247,168			193,352			149,974
State and local:
Current		61,839			47,930			40,270
Deferred		(811	)		(1,695	)		(712	)

		61,028			46,235			39,558

Total United States		308,196			239,587			189,532

Foreign:
Current		36,903			29,901			26,860
Deferred		(18,140	)		(12,717	)		(3,751	)

Total foreign		18,763			17,184			23,109

Total income tax expense	$	326,959		$	256,771		$	212,641

Net deferred tax liabilities consist of the following (in thousands) as of:

	September 27, 2014			September 28, 2013
Deferred tax assets:
Section 263A capitalized expenses	$	9,011		$	1,876
Deferred hedging gains		—			4,774
Deferred compensation		17,053			13,632
Capital loss carryforward		1,568			1,418
Valuation allowance—capital loss carryforward		(1,568	)		(1,418	)
Warranty, obsolete inventory and bad debt allowance		42,903			32,692
Tax credit carryforwards		2,085			3,651
Other reserves and temporary differences		10,053			15,558

Gross deferred tax assets		81,105			72,183
Deferred tax liabilities:
Prepaid expenses		(6,190	)		(2,994	)
Deferred hedging losses		(6,059	)		—
Depreciation		(97,977	)		(125,504	)
Intangible assets		(115,812	)		(138,262	)
Other reserves and temporary differences		(174	)		(237	)

Gross deferred tax liabilities		(226,212	)		(266,997	)

Net deferred tax liabilities	$	(145,107	)	$	(194,814	)

A reconciliation for continuing operations between the amount of reported income tax expense and the amount computed using the U.S. Federal Statutory rate of 35% is as follows (in thousands):

	Fiscal 2014			Fiscal 2013			Fiscal 2012
Tax at U.S. Federal Statutory rate	$	323,530		$	259,306		$	201,692
Increase (decrease) in rates resulting from:
Foreign tax rate differential		(13,614	)		(13,087	)		(18,072	)
Non-deductible stock compensation expense		1,562			2,700			1,024
State taxes, net of federal benefit		47,195			31,869			27,114
Provincial taxes		8,080			7,878			10,591
Domestic production activities deduction		(32,568	)		(23,558	)		(9,245	)
Federal tax credits		(336	)		(4,506	)		(282	)
Release of capital loss valuation allowance		—			—			(3,071	)
Other		(6,890	)		(3,831	)		2,890

Tax at effective rates	$	326,959		$	256,771		$	212,641

As of September 27, 2014, the Company had a $17.7 million state capital loss carryforward and a state net operating loss carryforward of $11.5 million available to be utilized against future taxable income for years through fiscal 2015 and 2029, respectively, subject to annual limitation pertaining to change in ownership rules under the Internal Revenue Code of 1986, as amended (the "Code"). Based upon earnings history, the Company concluded that it is more likely than not that the net operating loss carryforward will be utilized prior to its expiration but that the capital loss carryforward will not. The Company has recorded a valuation allowance against the entire deferred tax asset balance for the capital loss carryforward.

The total amount of unrecognized tax benefits as of September 27, 2014 and September 28, 2013 was $14.8 million and $23.3 million, respectively. The amount of unrecognized tax benefits at September 27, 2014 that would impact the effective tax rate if resolved in favor of the Company is $14.8 million. As a result of prior acquisitions, the Company is indemnified for up to $9.2 million of the total reserve balance, and the indemnification is capped at CDN $30.0 million. If these unrecognized tax benefits are resolved in favor of the Company, the associated indemnification receivable, recorded in other long-term assets would be reduced accordingly. As of September 27, 2014 and September 28, 2013, accrued interest and penalties of $2.4 million and $2.0 million, respectively, were included in the Consolidated Balance Sheets. The Company recognizes interest and penalties in income tax expense. The Company released $0.2 million of unrecognized tax benefits in the fourth quarter of fiscal 2014 due to the expiration of the statute of limitations. Income tax expense included $0.4 million, $0.4 million and $0.2 million of interest and penalties for fiscal 2014, 2013, and 2012, respectively.

A reconciliation of increases and decreases in unrecognized tax benefits, including interest and penalties, is as follows (in thousands):

	Fiscal 2014			Fiscal 2013			Fiscal 2012
Gross tax contingencies—balance, beginning of year	$	23,283		$	23,956		$	24,419
Increases from positions taken during prior periods		—			438			2,864
Decreases from positions taken during prior periods		—			—			(4,093	)
Increases from positions taken during current periods		504			2,709			906
Decreases resulting from the lapse of the applicable statute of limitations		(8,948	)		(3,820	)		(140	)

Gross tax contingencies—balance, end of year	$	14,839		$	23,283		$	23,956

The Company expects to release $5.0 million of unrecognized tax benefits during fiscal 2015 due to the expiration of the statute of limitations.

As of September 27, 2014, the Company had approximately $200.9 million of undistributed international earnings, most of which are Canadian-sourced. With the exception of the repayment of intercompany debt, all earnings of the Company's foreign subsidiaries are considered indefinitely reinvested and no U.S. deferred taxes have been provided on those earnings. If these amounts were distributed to the U.S. in the form of dividends or otherwise, the Company would be subject to additional U.S. income taxes, which could be material. Determination of the amount of any unrecognized deferred income tax on these earnings is not practicable because such liability, if any, is dependent on circumstances existing if and when remittance occurs.

In the normal course of business, the Company is subject to tax examinations by taxing authorities both inside and outside the United States. With some exceptions, the Company is no longer subject to examinations with respect to returns filed for fiscal years prior to 2010.