INCOME TAXES



(in millions)	2014			2013			2012
U.S. income before income taxes	$	255.3		$	201.1		$	203.7
Non-U.S. income before income taxes	108.4			88.6			37.5
Income from continuing operations before income taxes	$	363.7		$	289.7		$	241.2

Income tax expense consists of the following components:
Current tax expense:
U.S. federal	$	82.6		$	59.7		$	51.3
Foreign	31.2			30.9			27.4
State and local	11.3			5.9			4.9
Total current tax expense	125.1			96.5			83.6
Deferred tax (benefit) expense :
U.S. federal	1.0			13.9			16.9
Foreign	(0.7		)	(14.8		)	(10.7		)
State and local	(0.8		)	1.6			2.5
Total deferred tax (benefit) expense	(0.5		)	0.7			8.7
Total income tax expense	$	124.6		$	97.2		$	92.3

The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are presented below.



(in millions)	2014			2013
Deferred Tax Assets:
Accounts receivable, principally due to allowances for returns and doubtful accounts	$	5.5		$	9.0
Inventories, principally due to additional costs inventoried for tax purposes	24.1			30.8
Employee compensation and benefits accrued for financial reporting purposes	88.1			51.6
Foreign net operating losses	22.8			26.8
Foreign tax credits	25.0			17.0
Other	13.4			16.8
Total deferred tax assets	178.9			152.0
Less valuation allowance	(47.9		)	(42.1		)
Total deferred tax assets, after valuation allowance	$	131.0		$	109.9

(in millions)	2014			2013
Deferred Tax Liabilities:
Plant and equipment, principally due to differences in depreciation, capitalized interest, and capitalized overhead	$	116.9		$	124.4
Goodwill and intangible assets, principally due to differences in amortization	172.1			175.3
Total deferred tax liabilities	289.0			299.7

Deferred tax liabilities, net	$	158.0		$	189.8

The net deferred tax liabilities are reflected in the balance sheet as follows:



(in millions)	2014		2013
Deferred tax assets (included in prepaid expense and other current assets)	$	65.4	$	80.0
Deferred tax liabilities	223.4		269.8
Net deferred tax liabilities	$	158.0	$	189.8

The Company’s effective tax rate differs from the federal statutory rate due to the following items:



	2014					2013					2012
(dollars in millions)	Amount			% of Income Before Tax		Amount			% of Income Before Tax		Amount			% of Income Before Tax
Computed “expected” tax expense on income before taxes at federal statutory rate	$	127.3		35.0	%	$	101.4		35.0	%	$	84.4		35.0	%
Increase (decrease) in taxes resulting from:
State and local income taxes net of federal income tax benefit	6.8			1.9		4.9			1.7		4.8			2.0
Foreign tax rate differential	(7.4		)	(2.0	)	(4.2		)	(1.4	)	3.6			1.5
Manufacturing tax benefits	(7.5		)	(2.1	)	(5.8		)	(2.0	)	(4.4		)	(1.8	)
Other	5.4			1.5		0.9			0.3		3.9			1.6
Actual income tax expense	$	124.6		34.3	%	$	97.2		33.6	%	$	92.3		38.3	%

In 2014 various foreign subsidiaries paid $170.0 million of dividends to the U.S. parent. These dividends, in addition to the divestiture of the Pressure Sensitive Materials business, resulted in an increase in the foreign tax credit carryover of $8.0 million. The Company placed a full valuation allowance against these credits.

In 2013 a Brazilian subsidiary paid $21.3 million of dividends out of current earnings to the U.S. parent. This resulted in $8.9 million of additional tax and an increase in the foreign tax credit of $8.0 million. The Company placed a full valuation allowance against these credits. The net increase in tax due to the dividends was largely offset by the release of various foreign valuation allowances and foreign deferred tax liabilities.

As of December 31, 2014, the Company had foreign net operating loss carryovers of approximately $72.1 million that are available to offset future taxable income. Approximately $28.5 million of the carryover expires over the period 2015-2033. The remaining balance has no expiration. In addition, the Company had $25.0 million of foreign tax credit carryover that is available to offset future tax. This carryover expires over the period 2018-2024.

Current authoritative guidance issued by the Financial Accounting Standards Board ("FASB") requires that a valuation allowance be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. The Company has, and continues to generate, both net operating losses and deferred tax assets in certain jurisdictions for which a valuation allowance is required. The Company’s management determined that a valuation allowance of $47.9 million and $42.1 million against deferred tax assets primarily associated with the foreign net operating loss carryover and the foreign tax credit carryover was necessary at December 31, 2014 and 2013, respectively.

Provision has not been made for U.S. or additional foreign taxes on $203.7 million of undistributed earnings of foreign subsidiaries because those earnings are considered to be indefinitely reinvested in the operations of those subsidiaries. It is not practical to estimate the amount of tax that might be payable on the eventual remittance of such earnings.

The Company had total unrecognized tax benefits of $24.1 million and $21.4 million for the years ended December 31, 2014 and 2013, respectively. The approximate amount of unrecognized tax benefits that would impact the effective income tax rate if recognized in any future periods was $24.1 million and $21.4 million for the years ended December 31, 2014 and 2013, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, in millions, is as follows:



	2014			2013
Balance at beginning of year	$	21.4		$	25.6
Additions based on tax positions related to the current year	2.3			3.6
Additions for tax positions of prior years	3.2			5.1
Reductions for tax positions of prior years	(0.6		)	(9.9		)
Reductions due to a lapse of the statute of limitations	(1.7		)	(2.9		)
Settlements	(0.5		)	(0.1		)
Balance at end of year	$	24.1		$	21.4

The Company recognizes interest and penalties related to unrecognized tax benefits as components of income tax expense. The Company recognized $0.4 million of net tax benefit, $1.0 million of net tax benefit, and $0.6 million of net tax expense related to interest and penalties during the years ended December 31, 2014, 2013, and 2012, respectively. The Company had approximately $6.1 million and $6.5 million accrued for interest and penalties, net of tax benefits, at December 31, 2014 and 2013, respectively.

During the next 12 months it is reasonably possible that a reduction of gross unrecognized tax benefits will occur in an amount of up to $7.0 million as a result of the resolution of positions taken on previously filed returns.

The Company and its subsidiaries are subject to U.S. federal and state income tax as well as income tax in multiple international jurisdictions. The Company's U.S. federal income tax returns prior to 2012 have been audited and settled. With few exceptions, the Company is no longer subject to examinations by tax authorities for years prior to 2009 in the significant jurisdictions in which it operates.