INCOME TAXES

Earnings before taxes is summarized as follows:



	2015		2014		2013
	(dollars in thousands)
Domestic	$	266,831	$	240,936	$	195,435
Foreign	14,336		39,854		30,346
Total	$	281,167	$	280,790	$	225,781

The provision for income taxes is summarized as follows:



	2015		2014		2013
	(dollars in thousands)
Federal	$	78,617	$	69,536	$	60,232
State and local	9,515		9,316		3,248
Foreign	1,425		8,626		8,373
Total	$	89,557	$	87,478	$	71,853

Current	$	87,638	$	72,137	$	74,828
Deferred	1,919		15,341		(2,975		)
Total	$	89,557	$	87,478	$	71,853

Reconciliation of the differences between income taxes computed at the federal statutory rate to the effective rate are as follows:



	2015		2014		2013
U.S. federal statutory tax rate	35.0	%	35.0	%	35.0	%

State taxes, net of federal benefit	2.1		2.2		0.9
U.S. domestic manufacturers deduction	(2.6	)	(2.3	)	(2.6	)
Permanent book vs. tax differences	(1.1	)	(2.0	)	(1.2	)
Foreign tax rate differentials	(2.1	)	(1.9	)	(1.0	)
Reserve adjustments and other	0.6		0.2		0.7
Consolidated effective tax	31.9	%	31.2	%	31.8	%

At January 2, 2016 and January 3, 2015, the company had recorded the following deferred tax assets and liabilities:



	2015			2014
	(dollars in thousands)
Deferred tax assets:
Federal net operating loss carryforwards	$	13,416		$	7,020
Compensation related	19,160			17,092
Accrued retirement benefits	43,930			8,211
Inventory reserves	8,183			6,503
Product liability and workers compensation reserves	5,811			7,810
Warranty reserves	9,252			9,191
Receivable related reserves	3,069			3,277
UNICAP	3,520			3,727
State net operating loss carryforwards	1,483			2,731
Foreign net operating loss carryforwards	17,549			—
Interest rate swap	—			157
Other	32,347			18,154
Gross deferred tax assets	157,720			83,873
Valuation allowance	(20,395		)	—
Deferred tax assets	$	137,325		$	83,873

Deferred tax liabilities:
Intangible assets	$	(182,471	)	$	(111,501	)
Foreign tax earnings repatriation	(1,363		)	(3,029		)
LIFO reserves	(93		)	(90		)
Depreciation	(551		)	(1,366		)
Interest rate swap	(6		)	—
Other	(2,690		)	(2,745		)

Deferred tax liabilities	$	(187,174	)	$	(118,731	)

Net deferred tax assets (liabilities)	$	(49,849	)	$	(34,858	)

Current deferred asset	$	51,723		$	51,017
Long-term deferred asset	11,438			2,925
Long-term deferred liability	(113,010		)	(88,800		)
Net deferred tax assets (liabilities)	$	(49,849	)	$	(34,858	)

The company does not provide for deferred taxes and foreign withholding taxes on the remaining undistributed earnings of certain international subsidiaries of approximately $104.5 million and $86.1 million as of January 2, 2016 and January 3, 2015, respectively, as these earnings are considered permanently invested. Upon repatriation of these earnings to the U.S. in the form of dividends or otherwise, the company may be subject to U.S. income taxes and foreign withholding taxes. The actual U.S. tax cost would depend on income tax laws and circumstances at the time of distribution. Determination of the related tax liability is not practicable because of the complexities associated with the hypothetical calculation.

As of January 2, 2016, the company has U.S. federal and foreign income tax net operating loss carryforwards of approximately $38.3 million and $67.1 million, respectively. If not utilized, the federal and state net operating loss carryforwards will expire at various dates beginning 2024 through 2035. The foreign net operating losses have no expiration period. Certain of these carryforwards are subject to limitations on use due to tax rules affecting acquired tax attributes, loss sharing between group members, and business profitability, and therefore the company has established tax-effected valuation allowances against these tax benefits.

The valuation allowances that the company has provided against the deferred tax assets, primarily related to the acquisition of AGA in 2015 in the amount of $20.4 million. The company will continue to maintain a valuation allowance on certain deferred tax assets until such time as in management’s judgment, considering all available positive and negative evidence, the company determines that these deferred tax assets are more likely than not realizable.

As of January 2, 2016, the total amount of liability for unrecognized tax benefits related to federal, state and foreign taxes was approximately $14.4 million (of which $14.1 million would impact the effective tax rate if recognized) plus approximately $1.9 million of accrued interest and $3.8 million of penalties. The company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. Interest recognized in fiscal years 2015, 2014 and 2013 was $0.3 million, $(0.3) million and $0.4 million, respectively. Penalties recognized in fiscal years 2015, 2014 and 2013 was $0.8 million, $1.1 million and $0.2 million, respectively.

Although the company believes its tax returns are correct, the final determination of tax examinations may be different than what was reported on the tax returns. In the opinion of management, adequate tax provisions have been made for the years subject to examination.

The following table summarizes the activity related to the unrecognized tax benefits for the fiscal years ended December 28, 2013, January 3, 2015 and January 2, 2016 (dollars in thousands):



Balance at December 28, 2013	$	12,727

Increases to current year tax positions	3,270
Increase to prior year tax positions	1,105
Decrease to prior year tax positions	(189		)
Settlements	(4,092		)
Lapse of statute of limitations	(347		)

Balance at January 3, 2015	$	12,474

Increases to current year tax positions	3,089
Increase to prior year tax positions	116
Decrease to prior year tax positions	(755		)
Settlements	—
Lapse of statute of limitations	(505		)

Balance at January 2, 2016	$	14,419

The company operates in multiple taxing jurisdictions; both within the United States and outside of the United States, and faces audits from various tax authorities. The company remains subject to examination until the statute of limitations expires for the respective tax jurisdiction. Within specific countries, the company and its operating subsidiaries may be subject to audit by various tax authorities and may be subject to different statute of limitations expiration dates.

It is reasonably possible that the amounts of unrecognized tax benefits associated with state, federal and foreign tax positions may decrease over the next twelve months due to expiration of a statute or completion of an audit. The company believes that it is reasonably possible that $1.6 million of its remaining unrecognized tax benefits may be recognized by the end of 2016 as a result of settlements with taxing authorities or lapses of statutes of limitations.

A summary of the tax years that remain subject to examination in the company’s major tax jurisdictions are:



United States – federal	2012 – 2015
United States – states	2006 – 2015
Australia	2011 – 2015
Brazil	2011 – 2015
Canada	2009 – 2015
China	2006 – 2015
Czech Republic	2013 – 2015
Denmark	2012 – 2015
France	2011 – 2015
Germany	2013 – 2015
India	2013 – 2015
Ireland	2009 – 2015
Italy	2011 – 2015
Luxembourg	2011 – 2015
Mexico	2010 – 2015
Netherlands	2004 – 2015
Philippines	2012 – 2015
Romania	2006 – 2015
South Korea	2010 – 2015
Spain	2011 – 2015
Sweden	2009 – 2015
Switzerland	2008 – 2015
Taiwan	2010 – 2015
United Kingdom	2003 – 2015