INCOME TAXES

The sources of income before taxes, classified between domestic and foreign entities are as follows:



Pre-tax income	2013		2012		2011
Domestic	$	844.2	$	909.0	$	834.0
Foreign	71.4		35.2		32.1
Total pre-tax income	$	915.6	$	944.2	$	866.1

The provisions for income taxes in the accompanying consolidated statements of operations consist of the following:



	Years Ended December 31,
	2013			2012			2011
Current:
Federal	$	231.6		$	254.1		$	269.7
State	29.9			35.1			54.3
Foreign	22.5			16.9			6.8
	$	284.0		$	306.1		$	330.8
Deferred:
Federal	$	55.2		$	58.3		$	5.0
State	6.1			0.4			(4.4		)
Foreign	(5.1		)	(5.4		)	1.6
	56.2			53.3			2.2
	$	340.2		$	359.4		$	333.0

A portion of the tax benefit associated with option exercises from stock plans reducing taxes currently payable are recorded through additional paid-in capital. The benefits recorded through additional paid-in capital are approximately $10.6, $8.4 and $11.0 in 2013, 2012 and 2011, respectively.

The effective tax rates on earnings before income taxes are reconciled to statutory federal income tax rates as follows:



	Years Ended December 31,
	2013		2012		2011
Statutory federal rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal income tax effect	2.6		2.4		3.7
Other	(0.4	)	0.7		(0.3	)
Effective rate	37.2	%	38.1	%	38.4	%

The effective rate for 2013 was favorably impacted by the release of the capital loss valuation allowance and recording two years of the R&D tax credit. The American Taxpayer Relief Act of 2012 was enacted in early 2013 and reinstated the R&D tax credit for 2012 and extended the credit for calendar year 2013.

The effective tax rate for 2012 was favorably impacted by a decrease in the reserve for unrecognized income tax benefits compared to 2011, partially offset by an increase in tax as a result of the Company's increase in ownership percentage of its Ontario subsidiary. The effective tax rate for 2011 was negatively impacted by an increase in the reserve for unrecognized income tax benefits, the divestiture of certain Orchid paternity contracts, and foreign losses not tax effected.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:



	December 31, 2013			December 31, 2012
Deferred tax assets:
Accounts receivable	$	20.2		$	25.0
Employee compensation and benefits	83.4			114.4
Self insurance reserves	17.8			17.0
Postretirement benefit obligation	23.2			23.3
Acquisition and restructuring reserves	20.6			18.5
Tax loss carryforwards	58.0			66.3
Other	3.8			2.1
	227.0			266.6
Less: valuation allowance	(16.5		)	(18.4		)
Net deferred tax assets	$	210.5		$	248.2

Deferred tax liabilities:
Deferred earnings	$	(15.1	)	$	(17.9	)
Intangible assets	(463.4		)	(434.1		)
Property, plant and equipment	(86.4		)	(73.8		)
Zero-coupon subordinated notes	(106.7		)	(110.5		)
Currency translation adjustment	(77.9		)	(101.0		)
Total gross deferred tax liabilities	(749.5		)	(737.3		)
Net deferred tax liabilities	$	(539.0	)	$	(489.1	)

The valuation allowance decreased from $18.4 in 2012 to $16.5 in 2013. The decrease in the valuation allowance is primarily due to a current year capital gain resulting from the disposition of a minority investment. A capital loss carryover with a full valuation allowance was released to offset substantially all of the 2013 capital gain income.

The Company has foreign tax loss carryovers of $11.8 with a full valuation allowance. Most of the foreign losses have an indefinite carryover. The Company has federal tax loss carryovers of approximately $44.2 expiring periodically through 2031. The utilization of the tax loss carryovers is limited due to change of ownership rules. However, at this time the Company expects to fully utilize substantially all federal tax loss carryovers. In addition to the net operating losses, the Company has a foreign capital loss carryover of $1.9. The loss has an indefinite life and has a full valuation allowance.

The gross unrecognized income tax benefits were $25.6 and $36.4 at December 31, 2013 and 2012, respectively. It is anticipated that the amount of the unrecognized income tax benefits will change within the next twelve months; however, these changes are not expected to have a significant impact on the results of operations, cash flows or the financial position of the Company.

The Company recognizes interest and penalties related to unrecognized income tax benefits in income tax expense. Accrued interest and penalties related to uncertain tax positions totaled $9.3 and $9.8 as of December 31, 2013 and 2012, respectively. During the years ended December 31, 2013, 2012 and 2011, the Company recognized $2.4, $3.0 and $3.5, respectively, in interest and penalties expense, which was offset by a benefit of $2.9, $3.9 and $4.9, respectively.

The following table shows a reconciliation of the unrecognized income tax benefits from uncertain tax positions for the years ended December 31, 2013, 2012 and 2011:



	2013			2012			2011
Balance as of January 1	$	36.4		$	52.7		$	53.6
Increase in reserve for tax positions taken in the current year	1.9			0.4			8.6
Increase (decrease) in reserve for tax positions taken in a prior period	—			(8.0		)	—
Decrease in reserve as a result of settlements reached with tax authorities	(4.4		)	(0.1		)	(0.2		)
Decrease in reserve as a result of lapses in the statute of limitations	(8.3		)	(8.6		)	(9.3		)
Balance as of December 31	$	25.6		$	36.4		$	52.7

As of December 31, 2013 and 2012, $25.6 and $37.1, respectively, is the approximate amount of unrecognized income tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods.

The Company has substantially concluded all U.S. federal income tax matters for years through 2011. Substantially all material state and local, and foreign income tax matters have been concluded through 2008 and 2001, respectively.

The Internal Revenue Service concluded the examination of the Company's 2010 and 2011 income tax returns during 2013. The Company has various state income tax examinations ongoing throughout the year. Canada Revenue Agency is conducting an audit of the 2009 and 2010 Canadian income tax return. The Company believes adequate provisions have been recorded related to all open tax years.

Substantially all of the profitable foreign earnings are repatriated on an annual basis and U.S. income taxes have been provided accordingly. The unremitted foreign earnings as of December 31, 2013 are approximately $17.7. If repatriated to the U.S., the incremental U.S. tax, net of any underlying foreign tax credit, would have increased the Company's overall income tax by approximately $0.5.