INCOME TAXES

Income/(loss) before income taxes consisted of:



(In millions)	2012		2011		2010

Domestic	$	53.2	$	29.2	$	4.3
Foreign	62.8		57.9		50.7
	$	116.0	$	87.1	$	55.0

The income tax provision/(benefit) from continuing operations consisted of the following:



(In millions)	2012		2011		2010

Current:
Federal	$	13.9	$	7.3	$	(4.5	)
Foreign	7.9		11.3		9.5
State	1.9		0.9		0.5
Total current	23.7		19.5		5.5
Deferred:
Federal	4.6		2.1		2.4
Foreign	3.3		1.8		5.0
State	0.7		—		2.2
Total deferred	$	8.6	$	3.9	$	9.6
	$	32.3	$	23.4	$	15.1

A reconciliation of the tax provision for continuing operations at the U.S. statutory rate to the effective income tax expense rate as reported is as follows:



	2012		2011		2010

U.S. Federal statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	0.9		0.8		0.5
Foreign operations	(7.6	)	(8.5	)	(5.9	)
R&D tax credits	—		(0.5	)	(0.8	)
Uncertain tax position adjustments	2.8		(0.3	)	(5.4	)
Deferred tax adjustments, state rate and other	(4.7	)	—		(2.9	)
Valuation allowance on state deferred tax	0.8		(0.1	)	6.1
Other items	0.6		0.5		0.8
Effective tax rate	27.8	%	26.9	%	27.4	%

Significant components of the Company's deferred tax assets and liabilities were as follows:



(In millions)	2012			2011

Deferred tax assets:
Accrued expenses and reserves	$	10.5		$	9.1
Compensation and employee benefits	38.0			33.3
Other items	4.4			11.7
Valuation allowance on state deferred tax	(4.4		)	(3.6		)
Total deferred tax assets	48.5			50.5
Deferred tax liabilities:
Accelerated depreciation on fixed assets	9.7			12.6
Amortization of intangibles	61.9			27.4
Other items	7.8			14.0
Total deferred tax liabilities	79.4			54.0
Net deferred tax liabilities	$	(30.9	)	$	(3.5	)

The effective tax rate continues to be lower than the statutory rate primarily due to the indefinite reinvestment of foreign earnings taxed at rates below the U.S. statutory rate as well as recognition of foreign tax credits. The Company has the ability to indefinitely reinvest these foreign earnings based on the earnings and cash projections of its other operations as well as cash on hand and available credit.

The operations realignment to foreign jurisdictions, which generates foreign tax benefits, also reduces the domestic taxable income in some of the Company’s U.S. state jurisdictions. The Company is not likely to realize the benefit of a portion of the recorded deferred tax asset relating to state taxes in the foreseeable future. As such, a valuation allowance was recorded as of December 29, 2012 of $4.4 million, and $3.6 million as of December 31, 2011.

The Company identifies the accumulated earnings for the affiliates that were not indefinitely reinvested and computes the tax associated with the subsequent repatriation. This computation considers the impact of applicable withholding taxes and the availability of U.S. foreign tax credits. The Company has calculated the repatriation of all the accumulated earnings that are not indefinitely reinvested which resulted in a net tax liability of $4.2 million recorded by the Company as of December 29, 2012.

The Company does not provide for deferred taxes on the excess of the financial reporting over the tax basis in our investments in foreign subsidiaries that are essentially permanent in duration. That excess is approximately $146.6 million as of December 29, 2012. The determination of the additional deferred taxes that have not been provided is not practicable.

As of the beginning of fiscal year 2012, the Company had gross unrecognized tax benefits of $5.6 million, excluding accrued interest and penalties. The unrecognized tax benefits decreased by $0.8 million for state income tax liabilities, while increasing $2.1 million for federal tax liabilities based on evaluations made during 2012. The Company had gross unrecognized tax benefits, excluding accrued interest and penalties, of $6.9 million as of December 29, 2012.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for 2012, 2011, and 2010 (excluding interest and penalties) is as follows:



(In millions)	2012			2011			2010
Beginning balance	$	5.6		$	3.6		$	6.8
Additions based on tax positions related to the current year	—			—			0.1
Additions for tax positions of prior years	3.6			2.8			0.3
Reductions for tax positions of prior years	(1.7		)	(0.8		)	(3.6		)
Settlements	(0.6		)	—			—
Ending balance	$	6.9		$	5.6		$	3.6

If recognized, each annual effective tax rate would be affected by the net unrecognized tax benefits of $6.8 million, $5.3 million, and $3.2 million as of December 29, 2012, December 31, 2011, and January 1, 2011, respectively.

Of the unrecognized tax benefits at December 29, 2012, $2.6 million are related to acquisitions for which indemnification was provided for in the respective purchase agreements. The stock purchase agreements related to these acquisitions provide the Company rights to recover tax liabilities related to pre-acquisition tax years from the sellers. Other amounts are associated with domestic state tax issues, such as nexus, as well as other federal and state uncertain tax positions.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense, the impact of which is immaterial. The Company has accrued interest and penalties as of December 29, 2012, December 31, 2011, and January 1, 2011 of approximately $1.1 million, $0.5 million, and $0.4 million, respectively.

The Company is subject to taxation in the United States and various state and foreign jurisdictions. With few exceptions, as of December 29, 2012, the Company is no longer subject to U.S. federal, state, or foreign income tax examinations by tax authorities for years before 2009.

It is reasonably possible that the amounts of unrecognized tax benefits could change in the next twelve months as a result of an audit or due to the expiration of a statute of limitation. Based on the current audits in process and pending statute expirations, the payment of taxes as a result could be up to $2.2 million.