INCOME TAXES

Significant components of the Company’s deferred tax assets and liabilities at the end of each fiscal year were as follows:



(Millions of Dollars)	2013		2012
Deferred tax liabilities:
Depreciation	$	74.1	$	53.1
Amortization of intangibles	964.4		915.2
Liability on undistributed foreign earnings	418.9		436.9
Discharge of indebtedness	15.5		15.5
Inventories	2.0		22.2
Deferred revenue	19.0		12.4
Other	56.1		67.6
Total deferred tax liabilities	$	1,550.0	$	1,522.9
Deferred tax assets:
Employee benefit plans	$	317.2	$	413.0
Doubtful accounts and other customer allowances	14.7		7.0
Accruals	118.6		109.5
Restructuring charges	62.3		32.9
Debt amortization	1.8		31.3
Operating loss, capital loss and tax credit carry forwards	762.0		627.7
Currency and derivatives	33.0		49.1
Other	113.6		89.7
Total deferred tax assets	$	1,423.2	$	1,360.2
Net Deferred Tax Liabilities before Valuation Allowance	$	126.8	$	162.7
Valuation allowance	$	550.7	$	545.2
Net Deferred Tax Liabilities after Valuation Allowance	$	677.5	$	707.9

Net operating loss carry forwards of $1,150.0 million as of December 28, 2013, are available to reduce future tax obligations of certain U.S. and foreign companies. The net operating loss carry forwards have various expiration dates beginning in 2014 with certain jurisdictions having indefinite carry forward periods. The U.S. federal capital loss carry forward of $757.6 million begins expiring in 2015. The capital loss carry forward is primarily attributable to the sale of shares for the U.S. HHI business during the tax year ended December 29, 2012. The U.S. foreign tax credit carry forwards of $156.7 million and research and development tax credit carry forwards of $14.6 million begin expiring in 2019 and 2030, respectively.

A valuation allowance is recorded on certain deferred tax assets if it has been determined it is more likely than not that all or a portion of these assets will not be realized. The Company recorded a valuation allowance of $550.7 million and $545.2 million for deferred tax assets existing as of December 28, 2013 and December 29, 2012, respectively. The valuation allowance is primarily attributable to foreign and state net operating loss carry forwards and a U.S. federal capital loss carry forward, the majority of which, was realized upon the sale of the HHI business. Capital losses are only allowed to offset capital gains, of which none are expected to be realized as of December 28, 2013.

The classification of deferred taxes as of December 28, 2013 and December 29, 2012 is as follows:



(Millions of Dollars)	2013					2012
	Deferred Tax Asset			Deferred Tax Liability		Deferred Tax Asset			Deferred Tax Liability
Current	$	(80.2	)	$	17.9	$	(142.3	)	$	36.6
Non-current	(174.6		)	914.4		(132.4		)	946.0
Total	$	(254.8	)	$	932.3	$	(274.7	)	$	982.6

Income tax expense (benefit) attributable to continuing operations consisted of the following:



(Millions of Dollars)	2013			2012			2011
Current:
Federal	$	84.0		$	13.0		$	(147.9	)
Foreign	124.0			106.8			199.6
State	(3.0		)	8.8			9.3
Total current	$	205.0		$	128.6		$	61.0
Deferred:
Federal	$	(77.1	)	$	15.7		$	26.8
Foreign	(50.4		)	(59.0		)	(29.2		)
State	(8.2		)	(7.1		)	(6.3		)
Total deferred	(135.7		)	(50.4		)	(8.7		)
Income taxes on continuing operations	$	69.3		$	78.2		$	52.3

Net income taxes paid during 2013, 2012, and 2011 were $150.9 million, $198.2 million and $114.3 million, respectively. The 2013 amount includes refunds of $64.6 million primarily related to the closing of a tax audit and a foreign tax credit carry back claim. The 2012 amount includes refunds of $50.6 million primarily related to U.S. NOL carry back claim. The 2011 amount includes refunds of $74.6 million primarily relating to prior year overpayments and prepaid taxes. There were no tax holidays in effect during the tax year ended December 28, 2013. During tax years 2012 and 2011, the Company had tax holidays in the Czech Republic and China resulting in a reduction of tax expense amounting to $3.1 million and $3.5 million, respectively.

The reconciliation of the U.S. federal statutory income tax to the income taxes on continuing operations is as follows:



(Millions of Dollars)	2013			2012			2011
Tax at statutory rate	$	205.5		$	190.4		$	231.3
State income taxes, net of federal benefits	(6.6		)	1.5			(2.2		)
Difference between foreign and federal income tax	(124.0		)	(115.2		)	(91.8		)
Tax accrual reserve	15.3			48.4			19.4
Audit settlements	0.9			(49.0		)	(73.4		)
NOL & Valuation Allowance related items	6.8			(2.2		)	(2.4		)
Foreign dividends and related items	(9.5		)	18.9			(10.9		)
Merger related costs	3.3			(6.9		)	6.4
Change in deferred tax liabilities on undistributed foreign earnings	(19.5		)	(17.3		)	(26.2		)
Statutory income tax rate change	(1.7		)	(5.2		)	(1.3		)
Other-net	(1.2		)	14.8			3.4
Income taxes on continuing operations	$	69.3		$	78.2		$	52.3

The components of earnings from continuing operations before income taxes consisted of the following:



(Millions of Dollars)	2013		2012		2011
United States	$	292.2	$	282.9	$	175.7
Foreign	294.4		259.3		483.2
Earnings from continuing operations before income taxes	$	586.6	$	542.2	$	658.9

Except for certain legacy Black & Decker foreign earnings, as described below, all remaining undistributed foreign earnings of the Company at December 28, 2013, in the amount of approximately $4,438.5 million, are considered to be invested indefinitely or will be remitted substantially free of additional tax. Accordingly, no provision has been made for tax that might be payable upon remittance of such earnings, nor is it practicable to determine the amount of this liability. As of December 28, 2013, the amount of earnings subject to repatriation is $1,423.9 million for which a deferred tax liability of $418.9 million exists.

The Company’s liabilities for unrecognized tax benefits relate to U.S. and various foreign jurisdictions. The following table summarizes the activity related to the unrecognized tax benefits:



(Millions of Dollars)	2013			2012			2011
Balance at beginning of year	$	207.2		$	214.2		$	273.1
Additions based on tax positions related to current year	37.1			21.5			46.3
Additions based on tax positions related to prior years	46.9			46.5			26.7
Reductions based on tax positions related to prior years	(13.2		)	(69.6		)	(96.6		)
Settlements	7.7			(1.0		)	(22.4		)
Statute of limitations expirations	(16.2		)	(4.4		)	(12.9		)
Balance at end of year	$	269.5		$	207.2		$	214.2

The gross unrecognized tax benefits at December 28, 2013 and December 29, 2012 includes$238.7 million and $179.4 million, respectively, of tax benefits that, if recognized, would impact the effective tax rate. The liability for potential penalties and interest related to unrecognized tax benefits was increased by $4.1 million in 2013, increased by $7.6 million in 2012 and decreased by $14.5 million in 2011. The liability for potential penalties and interest totaled $37.6 million as of December 28, 2013 and $33.5 million as of December 29, 2012. The Company classifies all tax-related interest and penalties as income tax expense. During 2012 and 2011, the Company recognized tax benefits of $49.0 million and $73.4 million attributable to favorable settlements of certain tax contingencies, due to a change in the facts and circumstances that did not exist at the acquisition date related to the resolution of legacy Black & Decker income tax audits.

The Company considers many factors when evaluating and estimating its tax positions and the impact on income tax expense, which may require periodic adjustments and which may not accurately anticipate actual outcomes. It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company's unrecognized tax positions will significantly increase or decrease within the next 12 months. These changes may be the result of settlement of ongoing audits or final decisions in transfer pricing matters. At this time, an estimate of the range of reasonably possible outcomes is $3 million to $8 million.

The Company is subject to the examination of its income tax returns by the Internal Revenue Service and other tax authorities. For The Black & Decker Corporation, tax years 2008, 2009 and March 12, 2010 have been settled with the Internal Revenue Service as of December 29, 2012. For Stanley Black & Decker, Inc. tax years 2008 and 2009 are currently under audit. The Company also files many state and foreign income tax returns in jurisdictions with varying statutes of limitations. Tax years 2009 and forward generally remain subject to examination by most state tax authorities. In significant foreign jurisdictions, tax years 2008 and forward generally remain subject to examination, while in Germany tax years 1999 and forward remain subject to examination.