Hormel Foods 2014 Annual Report Download - page 54

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operations, it is more likely than not the net deferred tax
assets of $62.9 million will be realized on future tax returns,
primarily from the generation of future taxable income.
Significant components of the deferred income tax liabilities
and assets are as follows:
October 26, October 27,
(in thousands) 2014 2013
Deferred tax liabilities:
Goodwill and intangible assets $ (168,167) $ (80,131)
Tax over book depreciation and
basis differences (85,623) (95,902)
Other, net (30,252) (31,261)
Deferred tax assets:
Pension and post-retirement benefits 152,392 132,342
Employee compensation
related liabilities 101,706 97,513
Marketing and promotional accruals 28,703 26,920
Other accruals not currently deductible 13,010 3,704
Other, net 51,082 45,444
Net deferred tax assets $ 62,851 $ 98,629
Reconciliation of the statutory federal income tax rate to the
Company’s effective tax rate is as follows:
2014 2013 2012
U.S. statutory rate 35.0% 35.0% 35.0%
State taxes on income,
net of federal tax benefit 2.8 2.7 2.5
Domestic production
activities deduction (2.7) (2.4) (2.6)
All other, net (0.8) (1.7) (1.5)
Effective tax rate 34.3% 33.6% 33.4%
No provision has been made for U.S. federal income taxes on
certain undistributed earnings of foreign subsidiaries and joint
ventures that we intend to permanently invest or that may
be remitted substantially tax-free. The total of undistributed
earnings that would be subject to federal income tax if remit-
ted under existing law is approximately $88.3 million as of
October 26, 2014. Determination of the unrecognized deferred
tax liability related to these earnings is not practicable
because of the complexities with its hypothetical calculation.
Upon distribution of these earnings, we will be subject to
U.S. taxes and withholding taxes payable to various foreign
governments. A credit for foreign taxes already paid would be
available to reduce the U.S. tax liability.
Total income taxes paid during fiscal 2014, 2013, and 2012 were
$285.8 million, $226.2 million, and $226.7 million, respectively.
A reconciliation of the beginning and ending balance of the
investments measured at fair value using significant unob-
servable inputs (Level 3) is as follows:
(in thousands) 2014 2013
Beginning Balance $ 45,783 $ 33,668
Purchases, issuances, and
settlements (net) 3,050 7,288
Unrealized gains 4,479 2,718
Realized gains 4,260 1,471
Interest and dividend income 1,151 638
Ending Balance $ 58,723 $ 45,783
The Company has commitments totaling $85.0 million for the
private equity investments within the pension plans, of which
$30.3 million and $42.1 million remain unfunded at fiscal year
end 2014 and 2013, respectively. These commitments include
$17.7 million and $12.6 million for domestic and foreign equity
investments, respectively, for fiscal year end 2014 compared
to the $27.1 million and $15.0 million for domestic and foreign
equity investments, respectively, for fiscal year end 2013.
Funding for future private equity capital calls will come from
existing pension plan asset investments and not from addi-
tional cash contributions into the Company’s pension plans.
Note J
Income Taxes
The components of the provision for income taxes are as follows:
(in thousands) 2014 2013 2012
Current:
U.S. Federal $ 264,533 $ 231,359 $ 216,620
State 34,034 30,671 26,303
Foreign 7,759 5,334 5,783
Total current 306,326 267,364 248,706
Deferred:
U.S. Federal 8,756 1,080 4,443
State 873 (194) 225
Foreign 171 181 –
Total deferred 9,800 1,067 4,668
Total provision for
income taxes $ 316,126 $ 268,431 $ 253,374
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. The Company believes that,
based upon its lengthy and consistent history of profitable