INCOME TAXES

The Company's income tax expense was $94.5 million, $54.9 million and $67.7 million for the years 2013, 2012 and 2011, respectively. The Company's effective income tax rate was 29.3%, 28.0%, and 33.4% for 2013, 2012 and 2011, respectively.

The increase in income tax expense in 2013 as compared to 2012 is primarily due to an increase in pre-tax income. The effective tax rate in 2013 reflects a $15.2 million discrete tax benefit attributable to the finalization in July 2013 of the U.S. federal tax audit of tax years 2003 – 2008, and a beneficial change in the impact of foreign operations as compared to 2012.

The decrease in income tax expense and effective tax rate in 2012 as compared to 2011 is primarily due to a net tax benefit of $27.0 million recognized in 2012, resulting from a definitive agreement with the State of California on state tax refund claims involving tax years 1986 – 2004.

The Company's income tax expense differed from the amount computed by applying the U.S. federal statutory income tax rate of 35% to income before income taxes as follows:



	Year Ended
	November 24, 2013					November 25, 2012					November 27, 2011
	(Dollars in thousands)
Income tax expense at U.S. federal statutory rate	$	112,914		35.0	%	$	68,558		35.0	%	$	70,990		35.0	%
State income taxes, net of U.S. federal impact	3,994			1.2	%	892			0.5	%	1,535			0.8	%
Change in valuation allowance	5,169			1.6	%	(1,329		)	(0.7	)%	(2,421		)	(1.2	)%
Impact of foreign operations	(17,160		)	(5.3	)%	7,313			3.7	%	(2,148		)	(1.1	)%
Reassessment of tax liabilities	(15,215		)	(4.7	)%	(29,500		)	(15.1	)%	(51		)	—
Write-off of deferred tax assets	4,289			1.3	%	9,061			4.6	%	—			—
Other, including non-deductible expenses	486			0.2	%	(73		)	—		(190		)	(0.1	)%
Total	$	94,477		29.3	%	$	54,922		28.0	%	$	67,715		33.4	%

Impact of foreign operations. The $17.2 million benefit in 2013 is primarily due to an increase in the proportion of 2013 earnings in foreign jurisdictions where the Company is subject to lower tax rates, as well as a reduction, as a percentage of pre-tax profits, in the proportion of losses in jurisdictions where the Company cannot record a tax benefit.

Reassessment of tax liabilities. In 2013, the $15.2 million tax benefit primarily relates to the finalization of the U.S. federal tax audit for tax years 2003 – 2008. In 2012, the $29.5 million tax benefit was primarily attributable to the net tax benefit recognized in 2012 resulting from a definitive agreement with the State of California on the state tax refund claims involving tax years 1986 – 2004.

The U.S. and foreign components of income before income taxes were as follows:



	Year Ended
	November 24, 2013		November 25, 2012		November 27, 2011
	(Dollars in thousands)
Domestic	$	86,167	$	82,764	$	114,236
Foreign	236,446		113,117		88,591
Total Income before Income Taxes	$	322,613	$	195,881	$	202,827

Income tax expense (benefit) consisted of the following:



	Year Ended
	November 24, 2013		November 25, 2012			November 27, 2011
	(Dollars in thousands)
U.S. Federal
Current	$	11,294	$	15,334		$	19,992
Deferred	20,597		29,537			40,435
	$	31,891	$	44,871		$	60,427
U.S. State
Current	$	3,732	$	(34,603	)	$	(10	)
Deferred	3,607		(2,956		)	(617		)
	$	7,339	$	(37,559	)	$	(627	)
Foreign
Current	$	41,931	$	54,338		$	31,580
Deferred	13,316		(6,728		)	(23,665		)
	$	55,247	$	47,610		$	7,915
Consolidated
Current	$	56,957	$	35,069		$	51,562
Deferred	37,520		19,853			16,153
Total Income Tax Expense	$	94,477	$	54,922		$	67,715

Deferred Tax Assets and Liabilities

The Company's deferred tax assets and deferred tax liabilities were as follows:



	November 24, 2013			November 25, 2012
	(Dollars in thousands)
Deferred tax assets
Foreign tax credit carryforwards	$	176,222		$	180,890
State net operating loss carryforwards	15,587			13,030
Foreign net operating loss carryforwards	95,542			82,748
Employee compensation and benefit plans	240,198			300,796
Advance royalties	55,581			82,799
Restructuring and special charges	21,474			29,031
Sales returns and allowances	31,706			33,372
Inventory	16,469			14,261
Property, plant and equipment	21,426			18,504
Unrealized gains/losses on investments	7,971			9,720
Other	51,645			38,445
Total gross deferred tax assets	733,821			803,596
Less: Valuation allowance	(96,026		)	(74,456		)
Deferred tax assets, net of valuation allowance	637,795			729,140
Deferred tax liabilities
Unremitted earnings of certain foreign subsidiaries	(3,690		)	—
Total deferred tax liabilities	(3,690		)	—
Total net deferred tax assets	$	634,105		$	729,140

Current
Net deferred tax assets	$	196,581		$	125,804
Valuation allowance	(9,503		)	(9,580		)
Total current net deferred tax assets	$	187,078		$	116,224

Long-term
Net deferred tax assets	$	533,550		$	677,792
Valuation allowance	(86,523		)	(64,876		)
Total long-term net deferred tax assets	$	447,027		$	612,916

Foreign tax credit carryforwards. The foreign tax credit carryforwards at November 24, 2013, are subject to expiration through 2023 if not utilized, including $11.8 million in 2014.

Foreign net operating loss carryforwards. As of November 24, 2013, the Company had a deferred tax asset of $95.5 million for foreign net operating loss carryforwards of $327.1 million. Approximately $141.9 million of these operating losses are subject to expiration through 2032 if not utilized, including $2.8 million in 2014. The remaining $185.2 million are available as indefinite carryforwards under applicable tax law.

Valuation Allowance. The following table details the changes in valuation allowance during the year ended November 24, 2013:



		Valuation Allowance at November 25, 2012		Changes in Related Gross Deferred Tax Asset		Charge		Valuation Allowance at November 24, 2013
	(Dollars in thousands)
U.S. state net operating loss carryforwards		$	—	$	—	$	3,824	$	3,824
Foreign net operating loss carryforwards and other foreign deferred tax assets		74,456		16,401		1,345		92,202
		$	74,456	$	16,401	$	5,169	$	96,026

At November 24, 2013, the Company's valuation allowance primarily related to its gross deferred tax assets for state and foreign net operating loss carryforwards, to reduce the assets to the amount that will more likely than not be realized.

Unremitted earnings of certain foreign subsidiaries. As of November 24, 2013, the Company had a $3.7 million deferred tax liability for foreign earnings which the Company does not currently intend to be indefinitely reinvested outside of the United States.

Uncertain Income Tax Positions

As of November 24, 2013, the Company’s total gross amount of unrecognized tax benefits was $37.8 million, of which $19.2 million could impact the effective tax rate, if recognized, as compared to November 25, 2012, when the Company’s total gross amount of unrecognized tax benefits was $63.6 million, of which $38.5 million could have impacted the effective tax rate, if recognized. The reduction in gross unrecognized tax benefits was primarily due the finalization of the U.S. federal tax audit of tax years 2003 – 2008 and the lapse of statute of limitations of various foreign jurisdictions. The following table reflects the changes to the Company's unrecognized tax benefits for the year ended November 24, 2013, and November 25, 2012:



	November 24, 2013			November 25, 2012
	(Dollars in thousands)

Unrecognized tax benefits beginning balance	$	63,626		$	143,397
Increases related to current year tax positions	2,839			5,216
Increases related to tax positions from prior years	1,650			3,018
Decreases related to tax positions from prior years	—			(97		)
Settlement with tax authorities	(23,380		)	(83,852		)
Lapses of statutes of limitation	(7,026		)	(3,126		)
Other, including foreign currency translation	127			(930		)
Unrecognized tax benefits ending balance	$	37,836		$	63,626

The Company believes that it is reasonably possible that unrecognized tax benefits could decrease within the next twelve months by as much as $3.9 million due to anticipated settlement of audits in various jurisdictions.

As of November 24, 2013, and November 25, 2012, accrued interest and penalties primarily relating to non-U.S. jurisdictions were $11.8 million and $15.6 million, respectively.

The Company's income tax returns are subject to examination in the U.S. federal and state jurisdictions and numerous foreign jurisdictions. The following table summarizes the tax years that are either currently under audit or remain open and subject to examination by the tax authorities in the major jurisdictions in which the Company operates:



	Jurisdiction	Open Tax Years
	U.S. federal	2007 – 2013
	California	2003 – 2013
	Belgium	2010 – 2013
	United Kingdom	2008 – 2013
	Spain	2008 – 2013
	Mexico	2007 – 2013
	Canada	2004 – 2013
	Hong Kong	2007 – 2013
	Italy	2008 – 2013
	France	2010 – 2012
	Turkey	2008 – 2013