(8) INCOME TAXES

Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries are as follows:

	2014		2013		2012
United States	$	168,975	$	338,163	$	248,840
Foreign		115,208		111,254		110,450

	$	284,183	$	449,417	$	359,290

Income tax expense (benefit) consists of:

	2014			2013			2012
Current:
Federal	$	52,588		$	110,847		$	81,000
State		5,059			16,398			10,342
Foreign		32,443			39,285			32,294

		90,090			166,530			123,636

Non-current:		(447	)		1,392			(854	)
Deferred:
Federal		447			(8,661	)		(3,824	)
State		1,376			(307	)		(660	)
Foreign		3,428			(1,173	)		8,204

		5,251			(10,141	)		3,720

	$	94,894		$	157,781		$	126,502

The reconciliations of the statutory federal income tax rate and the effective tax rate follows:

	2014			2013			2012
Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal benefit		1.8			2.4			1.7
Carryforwards, credits and changes in valuation allowances		(0.4	)		0.9			1.8
Foreign tax rate differences		(4.4	)		(2.4	)		(2.5	)
Changes in unrecognized tax benefits		(0.2	)		0.3			(0.2	)
Domestic production activities deduction		(1.6	)		(2.1	)		(2.3	)
Other		3.2			1.0			1.7

		33.4	%		35.1	%		35.2	%

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss and tax credit carryforwards. The tax effects of significant items comprising the Company's net deferred income tax liabilities are as follows:

	2014			2013
Deferred income tax assets:
Accrued expenses and allowances	$	17,446		$	17,038
Accrued insurance		882			1,508
Tax credits and loss carryforwards		148,484			146,473
Defined benefit pension liability		30,025			30,879
Inventory allowances		4,804			3,938
Accrued warranty		6,920			6,552
Deferred compensation		40,348			51,413

Gross deferred income tax assets		248,909			257,801
Valuation allowance		(104,487	)		(107,767	)

Net deferred income tax assets		144,422			150,034

Deferred income tax liabilities:
Work in progress		5,352			—
Property, plant and equipment		43,084			36,657
Intangible assets		60,316			57,787
Other liabilities		6,738			7,206

Total deferred income tax liabilities		115,490			101,650

Net deferred income tax asset/(liability)	$	28,932		$	48,384

Deferred income tax assets (liabilities) are presented as follows on the Consolidated Balance Sheets:

Balance Sheet Caption	2014			2013
Refundable and deferred income taxes	$	30,239		$	57,344
Other assets		70,490			69,964
Deferred income taxes		(71,797	)		(78,924	)

Net deferred income tax asset/(liability)	$	28,932		$	48,384

Management of the Company has reviewed recent operating results and projected future operating results. The Company's belief that realization of its net deferred tax assets is more likely than not is based on, among other factors, changes in operations that have occurred in recent years and available tax planning strategies. At December 27, 2014 and December 28, 2013 respectively, there were $148,484 and $146,473 relating to tax credits and loss carryforwards and $30,025 and $30,879 related to the defined benefit pension obligation.

Valuation allowances have been established for certain losses that reduce deferred tax assets to an amount that will, more likely than not, be realized. The deferred tax assets at December 27, 2014 that are associated with tax loss and tax credit carryforwards not reduced by valuation allowances expire in periods starting 2015.

Uncertain tax positions included in other non-current liabilities are evaluated in a two-step process, whereby (1) the Company determine whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (2) for those tax positions that meet the more likely than not recognition threshold, the Company would recognize the largest amount of tax benefit that is greater than fifty percent likely to be realized upon ultimate settlement with the related tax authority.

The following summarizes the activity related to our unrecognized tax benefits in 2014 and 2013, in thousands:

	2014			2013
Gross unrecognized tax benefits—beginning of year	$	4,727		$	3,370
Gross increases—tax positions in prior period		—			1,464
Gross decreases—tax positions in prior period		(456	)		—
Gross increases—current-period tax positions		610			1,336
Lapse of statute of limitations		(613	)		(1,443	)

Gross unrecognized tax benefits—end of year	$	4,268		$	4,727

There are approximately $1,284 of uncertain tax positions for which reversal is reasonably possible during the next 12 months due to the closing of the statute of limitations. The nature of these uncertain tax positions is generally the computation of a tax deduction or tax credit. During 2014, the Company recorded a reduction of its gross unrecognized tax benefit of $613 with $399 recorded as a reduction of income tax expense, due to the expiration of statutes of limitation in the United States. During 2013, the company recorded a reduction of its gross unrecognized tax benefit of $1,443, with $938 recorded as a reduction of its income tax expense, due to the expiration of statutes of limitation in the United States and Australia. In addition to these amounts, there was an aggregate of $298 and $314 of interest and penalties at December 27, 2014 and December 28, 2013, respectively. The Company's policy is to record interest and penalties directly related to income taxes as income tax expense in the Consolidated Statements of Earnings.

The Company files income tax returns in the U.S. and various states as well as foreign jurisdictions. Tax years 2011 and forward remain open under U.S. statutes of limitation. Generally, tax years 2010 and forward remain open under state statutes of limitation. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $4,056 and $4,491 at December 27, 2014 and December 28, 2013, respectively.

On January 2, 2013, the American Taxpayer Relief Act of 2012 was enacted, which retroactively extended the research and experimentation (R&E) tax credit in the U.S. for two years, from January 1, 2012 through December 31, 2013. Because a change in tax law is accounted for in the period of enactment, the retroactive effect of the Act on the Company's U.S. federal taxes for 2012 of a benefit of approximately $750 was recognized in the first quarter of 2013.

On September 13, 2013, the US Treasury and IRS issued final Tangible Property Regulations ("TPR") under IRC Section 162 and IRC Section 263(a). The regulations are effective for tax years beginning on or after January 1, 2014; however, certain portions may require a tax method change on a retroactive basis, thus requiring a IRC Section 481(a) adjustment related to fixed and real asset deferred taxes. The accounting rules under ASC 740 treat the release of the regulations as a change in tax law as of the date of issuance and required the Company to determine whether there was an impact on its financial statements for the period ended December 28, 2013. Any such impact of the final tangible property regulations would affect temporary deferred taxes only and result in a balance sheet reclassification between current and deferred taxes. The Company has analyzed the impact of the TPR on the Company and concluded that the expected impact is minimal. The Company will continue to monitor the impact of any future changes to the TPR on the Company prospectively.

During 2014, the Company recorded an income tax benefit of $3.9 million as a result of restructuring in 2014 and a change in management's assertions regarding foreign investment opportunities. All foreign subsidiaries are considered permanently invested at December 27, 2014. Provision has not been made for United States income taxes on the undistributed earnings of the Company's foreign subsidiaries (approximately $668,400 at December 27, 2014 and $644,290 at December 28, 2013, respectively) because the Company intends to reinvest those earnings. Such earnings would become taxable upon the sale or liquidation of these foreign subsidiaries or upon remittance of dividends. Furthermore, the currency translation adjustments in "Accumulated other comprehensive income (loss)" are not adjusted for income taxes as they relate to indefinite investments in foreign subsidiaries.