Income Taxes

Income from continuing operations before income taxes included income from domestic operations of $221.4 million for 2014, $176.7 million for 2013 and $195.1 million for 2012. Income before taxes included income from foreign operations of $60.7 million for 2014, $47.3 million for 2013 and $33.1 million for 2012.

Provision (benefit) for income taxes from continuing operations was as follows (in millions):



	2014			2013			2012
Current
Federal	$	57.4		$	21.6		$	44.2
State	(1.1		)	3.5			4.8
Foreign	9.3			0.2			7.4
Total current	65.6			25.3			56.4
Deferred
Federal	(0.2		)	18.2			11.8
State	1.0			(2.3		)	4.4
Foreign	0.1			(1.7		)	(7.2		)
Total deferred	0.9			14.2			9.0
Provision for income taxes	$	66.5		$	39.5		$	65.4

The following is a reconciliation of the statutory federal income tax rate to the actual effective income tax rate:



	2014		2013		2012
U.S. federal statutory tax rate	35.0	%	35.0	%	35.0	%
State and local taxes, net of federal benefit	2.5		1.9		3.2
Research and development tax credits	(3.3	)	(4.5	)	(2.4	)
Investment tax credits	(1.9	)	(2.4	)	(3.4	)
Qualified production activity deduction	(2.0	)	(1.7	)	(1.9	)
Foreign rate differential	(3.7	)	(3.4	)	(2.6	)
Net accruals (reversals) for unrecognized tax benefits	(1.4	)	(5.4	)	0.7
Other	(1.6	)	(1.8	)	0.1
Effective income tax rate	23.6	%	17.7	%	28.7	%

Deferred income taxes result from temporary differences in the recognition of income and expense for financial and income tax reporting purposes, and differences between the fair value of assets acquired in business combinations accounted for as purchases for financial reporting purposes and their corresponding tax bases. Deferred income taxes represent future tax benefits or costs to be recognized when those temporary differences reverse.

The categories of assets and liabilities that have resulted in differences in the timing of the recognition of income and expense were as follows (in millions):



	2014			2013
Deferred income tax assets:
Current:
Accrued liabilities	$	20.3		$	14.6
Inventory valuation	14.3			11.2
Accrued vacation	11.4			11.3
Deferred compensation and other benefits plans	0.9			1.0
Intangible amortization	0.6			0.7
Other	0.9			0.3
Valuation allowance	(2.9		)	(5.8		)
Long-term:
Postretirement benefits other than pensions	5.9			5.3
Accrued liabilities	12.5			13.0
Deferred compensation and other benefit plans	11.4			—
Tax credit and NOL carryforward amounts	53.5			64.5
Other	—			1.2
Valuation allowance	(20.3		)	(20.2		)
Total deferred income tax assets	108.5			97.1
Deferred income tax liabilities:
Current:
Other items	2.7			1.4
Long-term:
Property, plant and equipment differences	28.8			28.8
Deferred compensation and other benefit plans	—			48.2
Intangible amortization	111.5			98.8
Other	—			0.3
Total deferred income tax liabilities	143.0			177.5
Net deferred income tax liabilities	$	(34.5	)	$	(80.4	)

In assessing the need for a valuation allowance, we consider all positive and negative evidence, including recent financial performance, scheduled reversals of temporary differences, projected future taxable income, availability of taxable income in carryback periods and tax planning strategies. Based on a review of such information, management believes that it is possible that some portion of deferred tax assets will not be realized as a future benefit and therefore has recorded a valuation allowance. The valuation allowance for deferred tax assets decreased by $2.8 million in 2014, primarily related to the utilization of foreign tax credit carryforwards.

At December 28, 2014, the Company had approximately $63.7 million of net operating loss carryforward from foreign entities primarily from the Company's Canadian and Danish entities, of which $59.4 million has no expiration date, and $4.3 million of Canadian federal net operating loss carryforward have expiration dates ranging from 2030 through 2034. The Company had capital loss carryfoward in the amount of $5.6 million which has no expiration date. Also the Company had aggregate Canadian federal and provincial investment tax credits of $29.8 million, which have expiration dates of 2027 to 2034. In addition, the Company had domestic federal and state net operating loss carryfoward of $4.6 million and $130.0 million, respectively. Generally, federal net operating loss carryforward amounts are limited in their use by earnings of certain acquired subsidiaries, and have expiration dates ranging from 2025 to 2033 and the state net operating loss carryforward amounts have expiration dates ranging from 2016 to 2034. Finally, the Company had federal research and development credit carryforward in the amount of $0.8 million which will expire between 2033 and 2034 and state tax credits of $7.8 million, of which $5.9 million have no expiration date and $1.9 million have expiration dates ranging from 2016 to 2027. The Company also had a foreign tax credit carryforward in the amount of $3.9 million with expiration dates ranging from 2015 to 2022.

The following presents a rollforward of our unrecognized tax benefits (in millions):



	2014			2013			2012
Beginning of year	$	35.4		$	42.6		$	25.8
Increase in prior year tax positions (a)	4.3			3.5			18.1
Increase for tax positions taken during the current period	0.9			0.9			1.5
Reduction related to settlements with taxing authorities	(2.8		)	(4.8		)	—
Reduction related to lapse of the statute of limitations	(4.8		)	(6.2		)	(2.9		)
Impact of exchange rate changes	(0.7		)	(0.6		)	0.1
End of year	$	32.3		$	35.4		$	42.6
a) Includes the impact of acquisitions in all years.

We recognized tax benefits for interest and penalties related to unrecognized tax benefits of $0.2 million within the provision for income taxes in our statements of operations for 2014 compared with benefits of $2.2 million for 2013. Interest and penalties in the amount of $2.9 million and $3.4 million were recognized in the 2014 and 2013 statement of financial position, respectively. As of December 28, 2014, we estimated that $31.0 million of unrecognized tax benefits, if resolved in our favor, would positively impact the effective tax rate and, therefore, be recognized as additional tax benefits in our income statement. Of the $32.3 million of unrecognized tax benefits, $1.3 million would be offset by deferred tax assets.

We file income tax returns in the United States federal jurisdiction and in various states and foreign jurisdictions. The Company has substantially concluded on all U.S. federal income tax matters for all years through 2010, California income tax matters for all years through 2009 and Canadian income tax matters for all years through 2006. The Company does not believe that the resolution of any of the audits will have a material adverse effect on the Company’s results of operations. An appeal filed with a state tax authority for the 2011 tax year, if resolved favorably, could have up to a $1.0 million reduction in income tax expense. Substantially all other material state, local and foreign income tax matters have been concluded for years through 2009.

The Company anticipates the total unrecognized tax benefit for various federal and state tax items may be reduced by $8.7 million due to the expiration of statutes of limitation and settlements with tax authorities for various federal, state and Canadian tax issues in the next 12 months.

We consider the earnings of material non-U.S. subsidiaries to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash requirements. At December 28, 2014, the amount of undistributed foreign earnings was $170.4 million. We have not recorded a deferred tax liability of approximately $43.1 million related to the $170.4 million in undistributed foreign earnings. Should we decide to repatriate the foreign earnings, we would need to adjust our income tax provision in the period we determined that the earnings will no longer be indefinitely invested outside in the United States.