INCOME TAXES

Earnings before taxes is summarized as follows:



	2014		2013		2012
	(dollars in thousands)
Domestic	$	240,936	$	195,435	$	157,471
Foreign	39,854		30,346		16,969
Total	$	280,790	$	225,781	$	174,440

The provision for income taxes is summarized as follows:



	2014		2013			2012
	(dollars in thousands)
Federal	$	69,536	$	60,232		$	42,660
State and local	9,316		3,248			7,216
Foreign	8,626		8,373			3,867
Total	$	87,478	$	71,853		$	53,743

Current	$	72,137	$	74,828		$	53,826
Deferred	15,341		(2,975		)	(83		)
Total	$	87,478	$	71,853		$	53,743

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



	2014		2013		2012
U.S. federal statutory tax rate	35.0	%	35.0	%	35.0	%

State taxes, net of federal benefit	2.2		0.9		2.7
Tax relief for U.S. manufacturers	(2.3	)	(2.6	)	(2.4	)
Permanent book vs. tax differences	(2.0	)	(1.2	)	(1.6	)
Foreign tax rate differentials	(1.9	)	(1.0	)	(1.5	)
Reserve adjustments and other	0.2		0.7		(1.4	)
Consolidated effective tax	31.2	%	31.8	%	30.8	%

At January 3, 2015 and December 28, 2013, the company had recorded the following deferred tax assets and liabilities:



	2014			2013
	(dollars in thousands)
Deferred tax assets:
Federal net operating loss carryforwards	$	7,020		$	6,382
Compensation related	17,092			25,321
Accrued retirement benefits	8,211			6,234
Inventory reserves	6,503			5,971
Product liability and workers compensation reserves	7,810			7,902
Warranty reserves	9,191			7,139
Receivable related reserves	3,277			2,222
UNICAP	3,727			5,123
State net operating loss carryforwards	2,731			785
Interest rate swap	157			419
Other	18,154			12,091
Gross deferred tax assets	83,873			79,589
Valuation allowance	—			(466		)
Deferred tax assets	$	83,873		$	79,123

Deferred tax liabilities:
Intangible assets	$	(111,501	)	$	(82,188	)
Foreign tax earnings repatriation	(3,029		)	(2,552		)
LIFO reserves	(90		)	(22		)
Depreciation	(1,366		)	(1,724		)
Other	(2,745		)	(2,092		)

Deferred tax liabilities	$	(118,731	)	$	(88,578	)

Net deferred tax assets (liabilities)	$	(34,858	)	$	(9,455	)

Current deferred asset	$	51,017		$	50,337
Long-term deferred asset	2,925			1,641
Long-term deferred liability	(88,800		)	(61,433		)
Net deferred tax assets (liabilities)	$	(34,858	)	$	(9,455	)

On September 13, 2013, the Internal Revenue Service issued Treasury Decision 9636, which enacted final Tangible Property Regulations (TPR) under Internal Revenue Code (IRC) Section 162 and IRC Section 263(a), which prescribe the capitalization treatment of certain repair costs, asset betterments and other costs which could affect temporary deferred taxes. The company has evaluated the tangible property regulations and has determined the regulations will not have a material impact on the company’s consolidated results of operations, cash flows or financial position.

The company does not provide for deferred taxes and foreign withholding taxes on the remaining undistributed earnings of certain international subsidiaries of approximately $86.1 million and $57.8 million as of January 3, 2015 and December 28, 2013, 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 3, 2015, the company has federal and state income tax net operating loss carryforwards of approximately $22.8 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 2034.

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.

As of January 3, 2015, the total amount of liability for unrecognized tax benefits related to federal, state and foreign taxes was approximately $12.5 million (of which $12.2 million would impact the effective tax rate if recognized) plus approximately $1.7 million of accrued interest and $3.0 million of penalties. The company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. Interest recognized in fiscal years 2014, 2013 and 2012 was $(0.3) million, $0.4 million and $(0.2) million, respectively. Penalties recognized in fiscal years 2014, 2013 and 2012 was $1.1 million, $0.2 million and $(0.4) million, respectively.

The following table summarizes the activity related to the unrecognized tax benefits for the fiscal years ended December 29, 2012, December 28, 2013 and January 3, 2015 (dollars in thousands):



Balance at December 31, 2011	$	15,591

Increases to current year tax positions	1,572
Increase to prior year tax positions	84
Decrease to prior year tax positions	(1,289		)
Settlements	(3,836		)

Balance at December 29, 2012	$	12,122

Increases to current year tax positions	1,718
Increase to prior year tax positions	2
Decrease to prior year tax positions	(532		)
Settlements	—
Lapse of statute of limitations	(583		)

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

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 $0.6 million of its remaining unrecognized tax benefits may be recognized by the end of 2015 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 – 2014
United States – states	2004 – 2014
Australia	2011 – 2014
Brazil	2010 – 2014
Canada	2009 – 2014
China	2005 – 2014
Czech Republic	2013 – 2014
Denmark	2011 – 2014
France	2011 – 2014
Germany	2012 – 2014
India	2013 – 2014
Italy	2010 – 2014
Luxembourg	2011 – 2014
Mexico	2009 – 2014
Philippines	2011 – 2014
South Korea	2009 – 2011
Spain	2009 – 2014
Taiwan	2008 – 2012
United Kingdom	2011 – 2014