INCOME TAXES

Income before income taxes consisted of the following:



(In millions)	2014		2013		2012
Domestic	$	42.2	$	53.5	$	53.2
Foreign	47.5		58.0		62.8
	$	89.7	$	111.5	$	116.0

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



(In millions)	2014			2013			2012
Current:
Federal	$	7.4		$	10.8		$	13.9
Foreign	12.2			14.3			7.9
State	1.7			2.1			1.9
Total current	21.3			27.2			23.7
Deferred:
Federal	3.3			4.3			4.6
Foreign	(3.8		)	(1.3		)	3.3
State	(1.9		)	(1.3		)	0.7
Total deferred	$	(2.4	)	$	1.7		$	8.6
	$	18.9		$	28.9		$	32.3

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:



	2014		2013		2012
U.S. Federal statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	1.0		1.2		0.9
Foreign operations	(9.2	)	(6.2	)	(7.6	)
R&D tax credits	(0.6	)	(1.1	)	—
Uncertain tax position adjustments	(1.6	)	(1.9	)	2.8
Deferred tax adjustments, rate and other	(3.9	)	—		(4.7	)
Valuation allowance on state deferred tax	(0.3	)	(0.8	)	0.8
Other items	0.6		(0.3	)	0.6
Effective tax rate	21.0	%	25.9	%	27.8	%

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



(In millions)	2014			2013
Deferred tax assets:
Accrued expenses and reserves	$	12.2		$	11.0
Compensation and employee benefits	32.6			25.1
Other items	7.3			5.1
Valuation allowance on state deferred tax	(3.9		)	(3.5		)
Total deferred tax assets	48.2			37.7
Deferred tax liabilities:
Accelerated depreciation on fixed assets	14.0			10.3
Amortization of intangibles	62.1			61.0
Other items	6.0			9.2
Total deferred tax liabilities	82.1			80.5
Net deferred tax liabilities	$	(33.9	)	$	(42.8	)

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 tax rate declined in 2014 from the tax rate in 2013 primarily due to a reversal of deferred tax liabilities associated with earnings of certain foreign subsidiaries which have been realigned within the Company’s organization. The realignment of certain foreign entities results in their unremitted earnings being indefinitely reinvested. 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 Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss for state income tax purposes incurred over the three-year period ended January 3, 2015. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.

On the basis of this evaluation, as of January 3, 2015, a valuation allowance of $3.9 million has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized.

The Company has foreign income tax net operating loss ("NOL") carryforwards of $3.1 million and state income tax NOL and credit carryforwards of $3.2 million, which will expire on various dates as follows:



(In millions)
2015-2019	$	0.3
2020-2024	1.0
2025-2029	0.2
2030-2034	1.9
Unlimited	2.9
	$	6.3

The Company believes that it is more likely than not that the benefit from certain state NOL and credit carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance of $3.2 million on the deferred tax assets related to these state NOL and credit carryforwards.

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 deferred tax liability of $0.6 million recorded by the Company as of January 3, 2015.

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 $265.8 million as of January 3, 2015. The determination of the additional deferred taxes that have not been provided is not practicable.

As of the beginning of fiscal year 2014, the Company had gross unrecognized tax benefits of $5.1 million, excluding accrued interest and penalties. The unrecognized tax benefits decreased $0.8 million for federal tax liabilities and increased $0.1 million for state income tax liabilities based on evaluations made during 2014 primarily due to statute expirations and offset by uncertain tax positions identified in the current year. The Company had gross unrecognized tax benefits, excluding accrued interest and penalties, of $4.4 million as of January 3, 2015.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for 2014, 2013, and 2012 (excluding interest and penalties) is as follows:



(In millions)	2014			2013				2012
Beginning balance	$	5.1		$	6.9			$	5.6
Additions for tax positions of the current year	0.1			—				—
Additions for tax positions of prior years	1.7			1.7				3.6
Reductions for tax positions of prior years	(1.1		)	(3.5		)		(1.7		)
Statute expirations	(1.4		)	—			—	—
Settlements	—			—				(0.6		)
Ending balance	$	4.4		$	5.1			$	6.9

If recognized, each annual effective tax rate would be affected by the net unrecognized tax benefits of $4.3 million, $5.0 million, and $6.8 million as of January 3, 2015, December 28, 2013, and December 29, 2012, respectively.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. In 2014, interest and penalties increased $2.3 million, for prior year tax positions. The Company has accrued interest and penalties as of January 3, 2015, December 28, 2013, and December 29, 2012 of approximately $2.5 million, $0.2 million, and $1.1 million, respectively.

Of the unrecognized tax benefits at January 3, 2015, $1.8 million is related to acquisitions for which indemnification was provided for in the respective purchase agreement. 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.

The Company is subject to taxation in the United States and various state and foreign jurisdictions. With few exceptions, as of January 3, 2015, the Company is no longer subject to U.S. federal income tax examinations by authorities for years before 2011 and is no longer subject to 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 $1.7 million.