INCOME TAXES

Earnings before taxes is summarized as follows:



	2016		2015		2014
	(dollars in thousands)
Domestic	$	336,625	$	266,831	$	240,936
Foreign	84,680		14,336		39,854
Total	$	421,305	$	281,167	$	280,790

The provision for income taxes is summarized as follows:



	2016		2015		2014
	(dollars in thousands)
Federal	$	94,621	$	78,617	$	69,536
State and local	13,107		9,515		9,316
Foreign	29,361		1,425		8,626
Total	$	137,089	$	89,557	$	87,478

Current	$	115,726	$	87,638	$	72,137
Deferred	21,363		1,919		15,341
Total	$	137,089	$	89,557	$	87,478

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



	2016		2015		2014
U.S. federal statutory tax rate	35.0	%	35.0	%	35.0	%

State taxes, net of federal benefit	2.3		2.1		2.2
U.S. domestic manufacturers deduction	(2.4	)	(2.6	)	(2.3	)
Permanent book vs. tax differences	(1.6	)	(1.1	)	(2.0	)
Foreign tax rate differentials	(1.1	)	(2.1	)	(1.9	)
Reserve adjustments and other	0.3		0.6		0.2
Consolidated effective tax	32.5	%	31.9	%	31.2	%

At December 31, 2016 and January 2, 2016, the company had recorded the following deferred tax assets and liabilities:



	2016			2015
	(dollars in thousands)
Deferred tax assets:
Federal net operating loss carryforwards	$	16,951		$	13,416
Compensation related	25,650			19,160
Accrued retirement benefits	60,986			43,930
Inventory reserves	9,275			8,183
Product liability and workers compensation reserves	4,550			5,811
Warranty reserves	10,141			9,252
Receivable related reserves	3,376			3,069
UNICAP	5,104			3,520
State net operating loss carryforwards	1,923			1,483
Foreign net operating loss carryforwards	16,717			17,549
Other	37,822			32,347
Gross deferred tax assets	192,495			157,720
Valuation allowance	(29,893		)	(20,395		)
Deferred tax assets	$	162,602		$	137,325

Deferred tax liabilities:
Intangible assets	$	(173,673	)	$	(182,471	)
Foreign tax earnings repatriation	(1,178		)	(1,363		)
Depreciation	(2,957		)	(551		)
Interest rate swap	(3,655		)	(6		)
Other	(7,200		)	(2,783		)

Deferred tax liabilities	$	(188,663	)	$	(187,174	)

Net deferred tax assets (liabilities)	$	(26,061	)	$	(49,849	)

Current deferred asset	$	—		$	51,723
Long-term deferred asset	51,699			11,438
Long-term deferred liability	(77,760		)	(113,010		)
Net deferred tax assets (liabilities)	$	(26,061	)	$	(49,849	)

The company does not provide for deferred taxes and foreign withholding taxes on the remaining undistributed earnings of certain international subsidiaries of approximately $157.4 million and $104.5 million as of December 31, 2016 and January 2, 2016, 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, 2016, the company has U.S. federal and foreign income tax net operating loss carryforwards of approximately $48.4 million and $63.3 million, respectively. If not utilized, the federal net operating loss carryforwards will expire at various dates beginning 2024 through 2036. The foreign net operating losses have no expiration period. Certain of these carryforwards are subject to limitations on use due to tax rules affecting acquired tax attributes, loss sharing between group members, and business profitability, and therefore the company has established tax-effected valuation allowances against these tax benefits.

The valuation allowances that the company has provided against the deferred tax assets amount to $29.9 million and primarily relate to the acquisition of AGA in 2015. The company will continue to maintain a valuation allowance on certain deferred tax assets until such time as in management’s judgment, considering all available positive and negative evidence, the company determines that these deferred tax assets are more likely than not realizable.

As of December 31, 2016, the total amount of liability for unrecognized tax benefits related to federal, state and foreign taxes was approximately 20.3 million (of which $20.0 million would impact the effective tax rate if recognized) plus approximately $2.7 million of accrued interest and $4.9 million of penalties. The company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. Interest recognized in fiscal years 2016, 2015 and 2014 was $0.3 million, $0.3 million and $(0.3) million, respectively. Penalties recognized in fiscal years 2016, 2015 and 2014 was $1.0 million, $0.8 million and $1.1 million, respectively.

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 following table summarizes the activity related to the unrecognized tax benefits for the fiscal years ended January 3, 2015, January 2, 2016 and December 31, 2016 (dollars in thousands):



Balance at January 3, 2015	$	12,474

Increases to current year tax positions	3,089
Increase to prior year tax positions	116
Decrease to prior year tax positions	(755		)
Settlements	—
Lapse of statute of limitations	(505		)

Balance at January 2, 2016	$	14,419

Increases to current year tax positions	6,367
Increase to prior year tax positions	601
Decrease to prior year tax positions	(233		)
Settlements	—
Lapse of statute of limitations	(865		)

Balance at December 31, 2016	$	20,289

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 $2.0 million of its remaining unrecognized tax benefits may be recognized by the end of 2017 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 – 2016
United States – states	2007 – 2016
Australia	2012 – 2016
Brazil	2012 – 2016
Canada	2007 – 2016
China	2007 – 2016
Czech Republic	2014 – 2016
Denmark	2013 – 2016
France	2014 – 2016
Germany	2014 – 2016
India	2013 – 2016
Ireland	2010 – 2016
Italy	2012 – 2016
Luxembourg	2012 – 2016
Mexico	2011 – 2016
Netherlands	2005 – 2016
Philippines	2013 – 2016
Poland	2011 – 2016
Romania	2007 – 2016
South Korea	2011
Spain	2012 – 2016
Sweden	2010 – 2016
Switzerland	2008 – 2016
Taiwan	2011 – 2012
United Kingdom	2015 – 2016