12. Taxes on Income

The components of the provision for income taxes attributable to continuing operations for 2014, 2013 and 2012 are as follows:


(in millions)	2014			2013			2012
Current income tax expense:
U.S. federal	$	87.1		$	63.1		$	52.9
Foreign		86.0			86.2			67.3
State and local		10.7			9.1			7.7

Total		183.8			158.4			127.9

Deferred income tax expense (benefit):
U.S. federal		(47.4	)		7.9			26.8
Foreign		(14.0	)		(15.8	)		(2.6	)
State, local and other, net of federal tax benefit		7.9			(2.8	)		(4.5	)

Total		(53.5	)		(10.7	)		19.7

Total income tax provision	$	130.3		$	147.7		$	147.6

The difference between the federal statutory income tax rate and the Company’s reported income tax rate as a percentage of income from operations for 2014, 2013 and 2012 is reconciled as follows:


	2014			2013			2012
Federal statutory tax rate		35.0	%		35.0	%		35.0	%
Increase (decrease) in rates resulting from:
State and local taxes, net		3.0			1.2			0.7
Foreign rate differences		(5.7	)		(2.8	)		(2.8	)
Non-deductible compensation		0.4			3.4			0.5
Foreign earnings not permanently reinvested		(9.7	)		1.1			2.3
Tax settlements and related adjustments		2.2			0.1			1.5
Valuation allowance		2.6			1.5			0.4
Venezuela devaluation and inflationary adjustments and tax exempt income		9.0			2.2			(1.6	)
Foreign dividends		0.5			1.3			1.2
Non-deductible transaction costs		0.5			0.5			0.2
Other		(2.8	)		(1.4	)		0.3

Reported income tax rate		35.0	%		42.1	%		37.7	%

Foreign pre-tax income was approximately $146, $219, and $213 for 2014, 2013 and 2012, respectively.

Deferred tax assets (liabilities) at December 31, 2014 and 2013 are comprised of the following:


(in millions)	2014			2013
Intangibles	$	(906.4	)	$	(826.9	)
Goodwill		(159.7	)		(135.8	)
Financial reporting amount of a subsidiary in excess of tax basis		(70.4	)		(70.4	)
Foreign earnings not permanently reinvested		(5.6	)		(48.4	)
Property and equipment		(11.5	)		(8.8	)
Convertible debt		(110.4	)		(41.9	)
Other		(9.0	)		(0.4	)

Gross deferred tax liabilities		(1,273.0	)		(1,132.6	)

Net operating loss		50.9			47.8
Accounts receivable allowances		13.8			15.0
Inventory valuation		58.9			58.8
Pension and postretirement		17.0			20.0
Stock-based compensation		12.6			23.6
Other compensation and benefits		21.3			13.0
Operating reserves		55.4			66.3
Other		38.1			55.7

Gross deferred tax assets		268.0			300.2

Valuation allowance		(40.8	)		(34.2	)

Net deferred tax liability	$	(1,045.8	)	$	(866.6	)

Gross deferred tax liabilities as of December 31, 2013 have been revised to correct for an error in the presentation of $41.9 related to the convertible debt which was previously included within other deferred tax assets.

The Company continually reviews the adequacy of the valuation allowance. A valuation allowance is recorded if, based on the weight of available evidence, it is more likely than not that a deferred tax asset will not be realized. This assessment is based on an evaluation of the level of historical taxable income and projections for future taxable income. During 2014, the Company’s valuation allowance increased by $6.6 principally due to a provision made against the net deferred tax assets of the Company’s operations in Venezuela. During 2013, the Company’s valuation allowance increased by $6.1 principally due to the inability to recognize certain foreign losses for which a valuation allowance was previously provided. During 2012, the Company’s valuation allowance increased by $1.2 principally due to the Company’s inability to recognize the benefit of certain current year foreign losses.

The net operating losses (“NOLs”) reflected on the deferred tax asset table consist of state and foreign net operating loss carryforwards. At December 31, 2014, the Company had net U.S. federal NOLs of approximately $580, none of which are reflected in the consolidated financial statements. In 2014, the Company utilized approximately $123 of these previously unrecognized U.S. federal NOLs in its consolidated financial statements. Additionally, approximately $470 of these U.S. federal NOLs are subject to varying limitations on their use under Section 382 of the Internal Revenue Code of 1986, as amended. Included in the total NOLs reported on the financial statement are $145 of foreign NOLs which the Company has accumulated or acquired through acquisitions. Of the total foreign NOLs, approximately $1 will expire in 2015. Approximately $59 of the foreign NOLs will expire in years subsequent to 2015, and approximately $85 have an unlimited life.

Certain vested and exercised employee equity compensation awards have resulted in tax deductions in excess of previously recorded tax benefits based on the value of such equity compensation awards at the time of grant (“windfalls”). The additional tax benefit associated with the windfalls is not recognized for financial statement purposes until the deduction reduces taxes payable as recorded on the Company’s financial statements with an offset to additional paid-in-capital. Windfall tax benefits of $38.0, $11.6 and $41.8 were recognized in 2014, 2013 and 2012, respectively. All previously unrecognized windfall tax benefits were recognized in 2012.

Generally, the Company intends to indefinitely reinvest undistributed earnings of certain of its foreign subsidiaries outside the U.S. in the future growth of its foreign businesses. As a result, the Company has not provided for U.S. income taxes on undistributed foreign earnings of approximately $1.2 billion at December 31, 2014. Determination of the amount of unrecognized deferred U.S. income liability is not practicable, in part, because of the complexities associated with its hypothetical calculation, which include the impact of complex foreign and domestic tax laws with respect to dividend remittances, remittance requirements imposed by certain of the Company’s debt agreements and the impact of foreign laws restricting such remittances. In 2014, 2013 and 2012, the Company recorded a deferred tax (benefit) charge of ($42.8) $1.4 and $2.2, respectively, related to profits that were deemed not to be permanently reinvested outside of the United States. The deferred benefit is principally due to the reduction of undistributed earnings attributable to the Company’s operations in Venezuela.

The following table sets forth the details and the activity related to unrecognized tax benefit as of and for the years ended December 31, 2014 and 2013:


(in millions)	2014			2013
Unrecognized tax benefits, January 1,	$	88.9		$	68.3
Increases (decreases):
Acquisitions		5.2			3.5
Tax positions taken during the current period		48.1			27.6
Tax positions taken during a prior period		3.7			(2.7	)
Settlements with taxing authorities		(0.5	)		(7.7	)
Other		(0.1	)		(0.1	)

Unrecognized tax benefits, December 31,	$	145.3		$	88.9

During 2014 and 2013, the change in the unrecognized tax benefits primarily relates to tax positions taken during the current period and tax settlements made during the year. At December 31, 2014, the amount of gross unrecognized tax benefits that, if recognized, would affect the reported tax rate is $151. The Company has indemnification for $4.7 of the gross unrecognized tax benefits from the sellers of acquired companies.

It is likely that the total amount of unrecognized tax benefits will increase in the next 12 months. Such increase will occur as a result of the Company’s tax return position with respect to the utilization of tax attributes and the conclusion of ongoing tax audits in various jurisdictions around the world. While one or more of these events is reasonably possible to occur within the next 12 months, the Company is not able to accurately estimate the range of the change in the unrecognized tax benefits that will result. The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of complex global tax regulations. Management regularly assesses the Company’s tax positions in light of legislative, bilateral tax treaties, regulatory and judicial developments in the countries in which the Company does business.

The Company conducts business globally and, as a result, the Company or its subsidiaries file income tax returns in the U.S. federal jurisdiction, and in various state, local, and foreign jurisdictions. In the normal course of business, the Company or its subsidiaries are subject to examination by tax authorities throughout the world, including such major jurisdictions as Canada, China, Columbia, France, Germany, Hong Kong, India, Italy, Japan, Malaysia, Mexico, Peru, Spain, Sweden, the U.S. (including, state and local jurisdictions) and Venezuela. As of December 31, 2014, the Company remains subject to examination by federal and state tax authorities for the tax years 2005 to 2013. At December 31, 2014, certain of the Company’s more significant foreign jurisdictions remain subject to examination for various tax years between 2000 and 2013.

The Company classifies all interest expense and penalties on uncertain tax positions as income tax expense. The provision for income taxes for 2014, 2013 and 2012 includes tax-related interest expense of $1.8, $1.7 and $2.7, respectively. As of December 31, 2014 and 2013, the liability for tax-related interest expense was $10.3 and $8.6, respectively.