INCOME TAXES

Income before income taxes consisted of the following:



(In millions)	2016		2015		2014
Domestic	$	45.4	$	23.6	$	42.2
Foreign	58.7		62.7		47.5
	$	104.1	$	86.3	$	89.7

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



(In millions)	2016			2015			2014
Current:
Federal	$	9.6		$	1.2		$	7.4
Foreign	11.4			17.4			12.2
State	0.8			0.8			1.7
Total current	21.8			19.4			21.3
Deferred:
Federal	2.9			(1.8		)	3.3
Foreign	(1.0		)	(4.0		)	(3.8		)
State	1.1			(1.0		)	(1.9		)
Total deferred	$	3.0		$	(6.8	)	$	(2.4	)
	$	24.8		$	12.6		$	18.9

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:



	2016		2015		2014
U.S. Federal statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	(0.3	)	(0.3	)	1.0
Foreign operations	(8.4	)	(13.1	)	(9.2	)
R&D tax credits	(0.6	)	(1.0	)	(0.6	)
Uncertain tax position adjustments	(2.5	)	(1.5	)	(1.6	)
Deferred tax adjustments - restructuring and rate adjustments	0.3		1.1		(3.9	)
Valuation allowance on state and foreign deferred tax	2.4		4.1		(0.3	)
Purchase of noncontrolling interest	—		(9.4	)	—
Share-based compensation	(1.1	)	—		—
Other items	(1.0	)	(0.3	)	0.6
Effective tax rate	23.8	%	14.6	%	21.0	%

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



(In millions)	2016			2015
Deferred tax assets:
Accrued expenses and reserves	$	10.0		$	12.8
Compensation and employee benefits	24.2			25.7
Other items	10.9			9.6
Valuation allowance on state and foreign deferred tax	(9.8		)	(7.2		)
Total deferred tax assets	35.3			40.9
Deferred tax liabilities:
Accelerated depreciation on fixed assets	13.8			14.0
Amortization of intangibles	56.5			56.6
Other items	0.9			0.2
Total deferred tax liabilities	71.2			70.8
Net deferred tax liabilities	$	(35.9	)	$	(29.9	)

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.

In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This standard simplifies several aspects of the accounting for employee share-based payment transactions including the recognition of excess tax benefits and deficiencies, the classification of those excess tax benefits on the statement of cash flows, an accounting policy election for forfeitures, the amount an employer can withhold to cover income taxes and still qualify for equity classification, and the classification of those taxes paid on the statement of cash flows. This ASU is effective for annual and interim periods beginning after December 15, 2016 with early adoption permitted. The Company early adopted ASU 2016-09 during the second quarter ended July 2, 2016.

The Company settled the liability for the noncontrolling interest of a subsidiary during the first quarter of 2015. This transaction created additional accretive benefits for the Company from the reversal of a deferred tax liability created in 2012 when the Company acquired the controlling interest in the Pioneer subsidiary and realized a gain on the then equity investment in Pioneer. The Company also realized a gain on the mandatorily redeemable noncontrolling interest liability during the first quarter of 2015.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. This ASU requires an entity to classify deferred tax assets and liabilities as noncurrent within a classified balance sheet. The ASU is effective for interim and annual periods beginning after December 15, 2016, and early adoption is permitted. Entities can elect either prospective or retrospective adoption of the standard. The Company adopted the new standard on a prospective basis as of the fiscal year-ended January 2, 2016. Accordingly, classification of prior period deferred tax amounts were not retrospectively adjusted.

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 certain state and foreign income tax purposes incurred over the three-year period ended December 31, 2016. 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 December 31, 2016, a valuation allowance of $9.8 million has been recorded to recognize only the portion of the deferred tax assets that are more likely than not to be realized. The Company has foreign income tax net operating loss ("NOL") carryforwards of $4.7 million and state income tax NOL and credit carryforwards of $6.1 million, which will expire on various dates as follows:



(In millions)
2017-2019	$	0.7
2020-2024	2.4
2025-2029	0.6
2030-2034	2.1
2035-2039	0.7
Unlimited	4.3
	$	10.8

The Company believes that it is more likely than not that the benefit from certain foreign NOL carryforwards as well as certain state NOL and state credit carryforwards will not be realized. In recognition of this risk, the Company has provided a valuation allowance of $3.8 million on the deferred tax assets related to these foreign NOL carryforwards and a valuation allowance of $6.0 million on the deferred tax assets related to these state NOL and credit carryforwards.

The Company considers undistributed earnings from its foreign subsidiaries to be indefinitely reinvested with respect to the U.S. It is the Company’s policy to reinvest earnings as needed for operations, capital and acquisition spending. 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 totaled approximately $440.0 million as of December 31, 2016. The determination of the additional deferred taxes that have not been provided is not practicable.

As of the beginning of fiscal year 2016, the Company had gross unrecognized tax benefits of $2.4 million, excluding accrued interest and penalties. The unrecognized tax benefits decreased $1.1 million for federal tax liabilities and remained the same for state income tax liabilities based on evaluations made during 2016 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 $1.3 million as of December 31, 2016.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for 2016, 2015, and 2014 (excluding interest and penalties) is as follows:



(In millions)	2016			2015			2014
Beginning balance	$	2.4		$	4.4		$	5.1
Additions for tax positions of the current year	0.1			0.2			0.1
Additions for tax positions of prior years	0.1			0.2			1.7
Reductions for tax positions of prior years	(0.2		)	(0.8		)	(1.1		)
Statute expirations	(1.1		)	(1.6		)	(1.4		)
Settlements	—			—			—
Ending balance	$	1.3		$	2.4		$	4.4

If recognized, each annual effective tax rate would be affected by the net unrecognized tax benefits of $1.3 million, $2.3 million, and $4.3 million as of year-end 2016, 2015, and 2014, respectively.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. In 2016, interest and penalties decreased $1.2 million, for prior year tax positions. The Company has accrued interest and penalties as of December 31, 2016, January 2, 2016, and January 3, 2015 of approximately $1.1 million, $2.3 million, and $2.5 million, respectively.

The Company is subject to taxation in the United States and various state and foreign jurisdictions. With few exceptions, as of December 31, 2016, the Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2013 and is no longer subject to foreign or state income tax examinations by tax authorities for years before 2011.

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 $0.9 million.