Income Taxes

The following table sets forth selected data with respect to the Company’s income tax provisions for the years ended December 31, (in millions):



	2014		2013			2012
Income before income taxes:
United States	$	385.6	$	360.8		$	330.2
International	99.9		113.0			111.6
TOTAL INCOME BEFORE INCOME TAXES	$	485.5	$	473.8		$	441.8
Provision for income taxes — current:
Federal	$	90.1	$	94.6		$	66.4
State	15.4		15.1			12.8
International	22.5		21.0			33.0
Total provision-current	128.0		130.7			112.2
Provision for income taxes — deferred:
Federal	24.4		14.4			25.6
State	2.7		0.1			1.8
International	3.2		(1.2		)	0.1
Total provision — deferred	30.3		13.3			27.5
TOTAL PROVISION FOR INCOME TAXES	$	158.3	$	144.0		$	139.7

Deferred tax assets and liabilities result from differences in the basis of assets and liabilities for tax and financial statement purposes. The components of the deferred tax assets/(liabilities) at December 31, were as follows (in millions):



	2014			2013
Deferred tax assets:
Inventory	$	4.6		$	4.7
Income tax credits	30.6			31.3
Accrued liabilities	23.3			19.0
Pension	43.6			23.4
Post retirement and post employment benefits	11.3			11.0
Stock-based compensation	11.4			10.1
Net operating loss carryforwards	46.3			53.1
Miscellaneous other	7.5			3.4
Gross deferred tax assets	178.6			156.0
Valuation allowance	(34.3		)	(28.5		)
Total deferred tax assets, net of valuation allowance	144.3			127.5
Deferred tax liabilities:
Acquisition basis difference	(145.8		)	(123.3		)
Property, plant, and equipment	(41.9		)	(40.4		)
Total deferred tax liabilities	(187.7		)	(163.7		)
TOTAL NET DEFERRED TAX LIABILITY	$	(43.4	)	$	(36.2	)
Deferred taxes are reflected in the Consolidated Balance Sheet as follows:
Current tax assets (included in Deferred taxes and other)	$	31.2		$	31.0
Non-current tax assets (included in Other long-term assets)	1.1			1.0
Current tax liabilities (included in Other accrued liabilities)	(1.2		)	(1.5		)
Non-current tax liabilities (included in Other Non-current liabilities)	(74.5		)	(66.7		)
TOTAL NET DEFERRED TAX LIABILITY	$	(43.4	)	$	(36.2	)

As of December 31, 2014, the Company had a total of $30.6 million of Federal, State (net of Federal benefit) and foreign (fully valued) tax credit carryforwards, available to offset future income taxes. As of December 31, 2014, $9.1 million of the tax credits may be carried forward indefinitely while the remaining $21.5 million will begin to expire at various times in 2015 through 2030. As of December 31, 2014, the Company had recorded tax benefits totaling $45.8 million for Federal, State and foreign net operating loss carryforwards (“NOLs”). As of December 31, 2014, $17.7 million of NOLs may be carried forward indefinitely while the remaining $28.1 million will begin to expire at various times in 2022 through 2031. The tax benefit related to a portion of these NOLs has been adjusted to reflect an “ownership change” pursuant to Internal Revenue Code Section 382, which imposes an annual limitation on the utilization of pre-acquisition operating losses. The Company has recorded a net valuation allowance of $34.3 million for the portion of the foreign tax and state tax credit carryforwards and foreign NOLs that the Company anticipates will expire prior to utilization.

At December 31, 2014, income and withholding taxes have not been provided on approximately $750 million of undistributed international earnings that are permanently reinvested in international operations. If such earnings were not indefinitely reinvested, a tax liability of approximately $150 million would be recognized.

Cash payments of income taxes were $125.4 million, $127.2 million and $113.2 million in 2014, 2013, and 2012, respectively.

The Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. The IRS and other tax authorities routinely audit the Company’s tax returns. These audits can involve complex issues which may require an extended period of time to resolve. During 2014 the IRS completed an exam of the Company’s 2010 - 2012 Federal income tax returns. The Company is currently not under Federal exam for any open tax year. With few exceptions, the Company is no longer subject to state, local, or non-U.S. income tax examinations by tax authorities for years prior to 2007.

The following tax years, by major jurisdiction, are still subject to examination by taxing authorities:



Jurisdiction	Open Years
United States	2013-2014
UK	2013-2014
Puerto Rico	2010-2014
Canada	2010-2014

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



	2014			2013			2012
Unrecognized tax benefits at beginning of year	$	14.8		$	13.5		$	27.6
Additions based on tax positions relating to the current year	2.9			2.2			1.8
Reductions based on expiration of statute of limitations	(1.2		)	(1.5		)	(9.6		)
Additions to tax positions relating to previous years	9.5			2.1			0.8
Settlements	(4.4		)	(1.5		)	(7.1		)
TOTAL UNRECOGNIZED TAX BENEFITS	$	21.6		$	14.8		$	13.5

Included in the balance at December 31, 2014 are $17.8 million of tax positions which, if in the future are determined to be recognizable, would affect the annual effective income tax rate. Additionally, there are $0.5 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty as to the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the applicable taxing authority to an earlier period. The increase in the unrecognized tax positions related to prior years is primarily due to certain acquisitions, which the Company expects to recover any pre acquisition taxes from the sellers, and certain foreign jurisdiction tax issues. It is reasonably possible that in the next twelve months, because of changes in facts and circumstances, the unrecognized tax benefits may increase or decrease. The Company estimates a possible decrease of up to $1.9 million within the next twelve months due to the possible settlements of state exposures. The Company has classified the amount of unrecognized tax positions that are expected to settle within the next twelve months as a current liability.

The Company’s policy is to record interest and penalties associated with the underpayment of income taxes within Provision for income taxes in the Consolidated Statement of Income. The Company recognized expense (benefit), before federal tax impact, related to interest and penalties of approximately $1.7 million in 2014, $(0.2) million in 2013 and $(0.5) million 2012. The Company had $2.9 million and $1.2 million accrued for the payment of interest and penalties as of December 31, 2014 and December 31, 2013, respectively.

The consolidated effective income tax rate varied from the United States federal statutory income tax rate for the years ended December 31, as follows:



	2014		2013		2012
Federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	2.0		2.1		1.8
Foreign income taxes	(2.1	)	(3.6	)	(3.4	)
Other, net	(2.3	)	(3.1	)	(1.8	)
CONSOLIDATED EFFECTIVE INCOME TAX RATE	32.6	%	30.4	%	31.6	%

The foreign income tax benefit shown is primarily due to lower statutory rates in foreign jurisdictions compared to the Federal statutory rate.