INCOME TAXES

Earnings before taxes is summarized as follows:



	2013		2012		2011
	(dollars in thousands)
Domestic	$	195,435	$	157,471	$	125,730
Foreign	30,346		16,969		14,719
Total	$	225,781	$	174,440	$	140,449

The provision for income taxes is summarized as follows:



	2013			2012			2011
	(dollars in thousands)
Federal	$	60,232		$	42,660		$	33,778
State and local	3,248			7,216			7,169
Foreign	8,373			3,867			4,028
Total	$	71,853		$	53,743		$	44,975

Current	$	74,828		$	53,826		$	39,554
Deferred	(2,975		)	(83		)	5,421
Total	$	71,853		$	53,743		$	44,975

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



	2013		2012		2011
U.S. federal statutory tax rate	35.0	%	35.0	%	35.0	%

State taxes, net of federal benefit	0.9		2.7		3.0
Tax relief for U.S. manufacturers	(2.6	)	(2.4	)	(2.1	)
Permanent book vs. tax differences	(1.3	)	(1.6	)	(1.1	)
U.S. taxes on foreign earnings and foreign tax rate differentials	(0.9	)	(1.5	)	(1.5	)
Reserve adjustments and other	0.7		(1.4	)	(1.3	)
Consolidated effective tax	31.8	%	30.8	%	32.0	%

At December 28, 2013 and December 29, 2012, the company had recorded the following deferred tax assets and liabilities:



	2013			2012
	(dollars in thousands)
Deferred tax assets:
Federal net operating loss carryforwards	$	6,382		$	13,406
Compensation related	25,321			20,038
Accrued retirement benefits	6,234			7,105
Inventory reserves	5,971			5,241
Product liability and workers compensation reserves	7,902			6,351
Warranty reserves	7,139			5,122
Receivable related reserves	2,222			2,192
UNICAP	5,123			2,425
State net operating loss carryforwards	785			509
Interest rate swap	419			964
Other	12,091			10,501
Gross deferred tax assets	79,589			73,854
Valuation allowance	(466		)	(740		)
Deferred tax assets	$	79,123		$	73,114

Deferred tax liabilities:
Intangible assets	$	(82,188	)	$	(68,568	)
Foreign tax earnings repatriation	(2,552		)	(2,005		)
LIFO reserves	(22		)	(72		)
Depreciation	(1,724		)	(1,794		)
Other	(2,092		)	(2,148		)

Deferred tax liabilities	$	(88,578	)	$	(74,587	)

Net deferred tax assets (liabilities)	$	(9,455	)	$	(1,473	)

Current deferred asset	$	50,337		$	43,365
Long-term deferred asset	1,641			—
Long-term deferred liability	(61,433		)	(44,838		)
Net deferred tax assets (liabilities)	$	(9,455	)	$	(1,473	)

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. Although the regulations are not effective until tax years beginning on or after January 1, 2014, certain portions may require an accounting method change on a retroactive basis, thus requiring an IRC Section 481(a) adjustment related to fixed and real asset deferred taxes, which will impact the fiscal year ending January 3, 2015. 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 $57.8 million and $38.1 million as of December 28, 2013 and December 29, 2012, 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 28, 2013, the company has federal and state income tax net operating loss carryforwards of approximately $19.0 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 2028. In addition, the company has Australian income tax net operating loss carryforwards of approximately $1.4 million which have an indefinite carryforward life.

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 company is currently under examination by the Internal Revenue Service for the fiscal years ended January 3, 2009, January 2, 2010 and January 1, 2011. The completion dates of these examinations have not been determined as of December 28, 2013.

As of December 28, 2013, the total amount of liability for unrecognized tax benefits related to federal, state and foreign taxes was approximately $12.7 million (of which $11.1 million would impact the effective tax rate if recognized) plus approximately $2.0 million of accrued interest and $1.8 million of penalties. The company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. Interest recognized in fiscal years 2013, 2012 and 2011 was $0.4 million, $(0.2) million and $(0.3) million, respectively. Penalties recognized in fiscal years 2013, 2012 and 2011 was $0.2 million, $(0.4) million and $(0.5) million, respectively.

The following table summarizes the activity related to the unrecognized tax benefits for the fiscal years ended December 31, 2011, December 29, 2012 and December 28, 2013 (dollars in thousands):



Balance at January 1, 2011	$	17,786

Increases to current year tax positions	2,113
Increase to prior year tax positions	334
Decrease to prior year tax positions	(2,393		)
Settlements	(1,494		)
Lapse of statute of limitations	(755		)

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

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 $3.4 million of its remaining unrecognized tax benefits may be recognized by the end of 2014 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	2008 – 2013
United States – states	2004 – 2013
Australia	2011 – 2013
Brazil	2010 – 2013
Canada	2009 – 2013
China	2003 – 2013
Czech Republic	2013
Denmark	2009 – 2013
France	2011 – 2013
Germany	2011 – 2013
India	2013
Italy	2009 – 2013
Luxembourg	2011 – 2013
Mexico	2007 – 2013
Philippines	2009 – 2013
South Korea	2007 – 2011
Spain	2008 – 2013
Taiwan	2008 – 2012
United Kingdom	2009 – 2013