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INCOME TAXES

Earnings before taxes is summarized as follows:

	2011		2010		2009
	(dollars in thousands)
Domestic	$	125,730	$	104,421	$	96,788
Foreign		14,719		9,815		2,938
Total	$	140,449	$	114,236	$	99,726

The provision for income taxes is summarized as follows:

	2011		2010		2009
	(dollars in thousands)

Federal	$	33,778	$	31,309	$	31,359
State and local		7,169		7,052		6,100
Foreign		4,028		3,008		1,111
Total	$	44,975	$	41,369	$	38,570

Current	$	39,554	$	39,949	$	27,447
Deferred		5,421		1,420		11,123
Total	$	44,975	$	41,369	$	38,570

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

	2011			2010			2009
U.S. federal statutory tax rate		35.0	%		35.0	%		35.0	%

State taxes, net of federal benefit		3.0			4.1			4.0
Tax reflief for U.S. manufacturers		(2.1	)		(1.9	)		(0.6	)
Permanent book vs. tax differences		(1.1	)		(1.3	)		(1.7	)
U.S. taxes on foreign earnings and foreign tax rate differentials		(1.5	)		(0.3	)		(0.7	)
Reserve adjustments and other		(1.3	)		0.6			2.7
Consolidated effective tax		32.0	%		36.2	%		38.7	%

At December 31, 2011 and January 1, 2011, the company had recorded the following deferred tax assets and liabilities, which were comprised of the following:

	2011			2010
	(dollars in thousands)
Deferred tax assets:
Federal net operating loss carryforwards	$	20,430		$	28,079
Compensation related		18,654			12,474
Accrued retirement benefits		8,780			5,228
Inventory reserves		4,611			4,429
Product liability and workers compensation reserves		5,052			4,295
Warranty reserves		4,490			4,175
Receivable related reserves		2,350			2,509
UNICAP		2,138			1,984
Accrued plant closure		—			868
State net operating loss carryforwards		580			740
Interest rate swap		1,114			676
Other		10,802			8,805
Gross deferred tax assets		79,001			74,262
Valuation allowance		—			—
Deferred tax assets	$	79,001		$	74,262

Deferred tax liabilities:
Intangible assets	$	(69,998	)	$	(55,901	)
Foreign tax earnings repatriation		(1,546	)		(2,266	)
LIFO reserves		(161	)		(583	)
Depreciation		(2,547	)		(497	)
Other		(3,504	)		(1,353	)

Deferred tax liabilities	$	(77,756	)	$	(60,600	)

Net deferred tax assets (liabilities)	$	1,245		$	13,662

Current deferred asset (liability)	$	39,090		$	25,520
Long-term deferred asset (liability)		(37,845	)		(11,858	)
Net deferred tax assets (liabilities)	$	1,245		$	13,662

The company does not provide for deferred taxes and foreign withholding taxes on the remaining undistributed earnings of certain international subsidiaries of approximately $27.2 million and $10.0 million as of December 31, 2011 and January 1, 2011, 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 December 31, 2011, the company has federal and state income tax net operating loss carryforwards of approximately $59.0 million which are subject to annual utilization limitations pursuant to Internal Revenue Code Section 382. If not utilized, the federal and state net operating loss carryforwards will expire at various dates beginning 2019 through 2028.

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 company is currently under examination by the Internal Revenue Service for the fiscal years ended January 3, 2009, January 2, 2010 and January 1, 2011. The completion dates of these examinations have not been determined as of December 31, 2011.

As of December 31, 2011, the total amount of liability for unrecognized tax benefits related to federal, state and foreign taxes was approximately $15.6 million (of which $14.1 million would impact the effective tax rate if recognized) plus approximately $1.9 million of accrued interest and $2.0 million of penalties. The company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. Interest recognized in fiscal years 2011, 2010 and 2009 was $(0.3) million, $0.1 million and $0.7 million, respectively. Penalties recognized in fiscal years 2011, 2010 and 2009 was $(0.5) million, $0.2 million and $0.5 million, respectively.

The following table summarizes the activity related to the unrecognized tax benefits for the fiscal years ended January 2, 2010, January 1, 2011 and December 31, 2011 (dollars in thousands):

Balance at January 3, 2009	$	10,372

Increases to current year tax positions		3,316
Increase to prior year tax positions		7,474
Decrease to prior year tax positions		(911	)

Balance at January 2, 2010	$	20,251

Increases to current year tax positions		3,524
Increase to prior year tax positions		1,700
Decrease to prior year tax positions		(7,689	)

Balance at January 1, 2011	$	17,786

Increases to current year tax positions		2,113
Increase to prior year tax positions		334
Decrease to prior year tax positions		(2,393	)
Settlements		(1,494	)
Lapse of statute of limitations		(755	)

Balance at December 31, 2011	$	15,591

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 approximately $3.7 million of its currently remaining unrecognized tax benefits may be recognized by the end of 2012 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	2008 – 2011
United States – states	2004 – 2011
Austrailia	2011
Brazil	2010 - 2011
Canada	2009 – 2011
China	2003 – 2011
Denmark	2007 – 2011
France	2011
Germany	2011
Italy	2009 – 2011
Mexico	2006 – 2011
Philippines	2007 – 2011
South Korea	2006 – 2011
Spain	2008 – 2011
Taiwan	2008 – 2011
United Kingdom	2008 – 2011