Income Taxes

The components of earnings before income taxes are as follows:



(In millions)	2013		2012		2011
Domestic	$	89.9	$	107.6	$	93.4
Foreign	7.3		11.9		9.1
Total	$	97.2	$	119.5	$	102.5

The provision (benefit) for income taxes consists of the following:



(In millions)	2013			2012		2011
Current: Domestic - Federal	$	36.4		$	21.8	$	1.4
Domestic - State	5.2			2.0		0.8
Foreign	3.9			6.0		5.7
	45.5			29.8		7.9
Deferred: Domestic - Federal	(14.9		)	11.2		26.4
Domestic - State	(1.4		)	1.4		1.4
Foreign	(0.3		)	1.9		(4.0		)
	(16.6		)	14.5		23.8
Total income tax provision	$	28.9		$	44.3	$	31.7

The following table represents a reconciliation of income taxes at the United States statutory rate with the effective tax rate as follows:



(In millions)	2013			2012			2011
Income taxes computed at the United States Statutory rate of 35%	$	34.0		$	41.8		$	35.8
Increase (decrease) in taxes resulting from:
Change in unrecognized tax benefits	0.1			(0.3		)	(0.3		)
Foreign statutory rate differences	(1.9		)	(1.2		)	(1.6		)
Manufacturing deduction under the American Jobs Creation Act of 2004	(4.0		)	(2.9		)	(2.4		)
State taxes	2.5			3.0			1.8
Repatriated earnings and related foreign tax credits	(0.6		)	(0.2		)	(1.3		)
Other, net	(1.2		)	4.1			(0.3		)
Income tax expense	$	28.9		$	44.3		$	31.7
Effective tax rate	29.8		%	37.1		%	30.9		%

The company was granted a tax holiday from the Ningbo Economic and Technological Development Commission in China. This agreement provided, starting with the first year of cumulative profits, for the company to be taxed at a reduced rate for five years. The company's Ningbo, China operations started the first year of the tax holiday as of January 1, 2008 and it expired on December 31, 2012.

The tax effects and types of temporary differences that give rise to significant components of the deferred tax assets and liabilities at June 1, 2013 and June 2, 2012, are as follows:



(In millions)	2013			2012
Deferred tax assets:
Compensation-related accruals	$	17.7		$	14.6
Accrued pension and post-retirement benefit obligations	19.4			19.1
Reserves for inventory	1.7			2.9
Reserves for uncollectible accounts and notes receivable	1.8			1.5
Other reserves and accruals	3.9			3.0
Warranty	8.2			7.4
State and local tax net operating loss carryforwards	3.0			3.7
Federal net operating loss carryforward	0.2			0.2
State credits	0.6			0.7
Foreign tax net operating loss carryforwards	9.2			7.1
Foreign tax credits	0.1			0.1
Other	6.8			4.5
Subtotal	72.6			64.8
Valuation allowance	(9.9		)	(10.3		)
Total	$	62.7		$	54.5

Deferred tax liabilities:
Book basis in property in excess of tax basis	$	(16.5	)	$	(17.3	)
Intangible assets	(20.5		)	(21.0		)
Other	(2.9		)	(2.1		)
Total	$	(39.9	)	$	(40.4	)

The future tax benefits of net operating loss (NOL) carry-forwards and foreign tax credits are recognized to the extent that realization of these benefits is considered more likely than not. The company bases this determination on the expectation that related operations will be sufficiently profitable or various tax planning strategies will enable the company to utilize the NOL carry-forwards and/or foreign tax credits. To the extent that available evidence about the future raises doubt about the realization of these tax benefits, a valuation allowance is established.

At June 1, 2013, the company had state and local tax NOL carry-forwards of $46.7 million, the tax benefit of which is $3.0 million, which have various expiration periods from one to twenty-one years. The company also had state credits with a tax benefit of $0.6 million which expire in one to three years. For financial statement purposes, the NOL carry-forwards and state tax credits have been recognized as deferred tax assets, subject to a valuation allowance of $2.4 million.

At June 1, 2013, the company had a federal NOL carry-forward of $0.5 million, the tax benefit of which is $0.2 million, which expires in fifteen years. For financial statement purposes, the NOL carry-forward has been recognized as a deferred tax asset.

At June 1, 2013, the company had a federal capital loss carry-forward of $0.1 million, the tax benefit of which is minimal, which expires in two years. The capital loss carry-forward is anticipated to be fully utilized on the June 1, 2013 tax return.

At June 1, 2013, the company had a foreign capital loss carry-forward of $0.3 million, the tax benefit of which is $0.1 million, which has an expiration period of an unlimited term. For financial statement purposes, the capital loss carry-forward has been recognized as a deferred tax asset, subject to a valuation allowance of $0.1 million.

At June 1, 2013, the company had foreign net operating loss carry-forwards of $36.9 million, the tax benefit of which is $9.2 million, which have expiration periods from one year to an unlimited term. The company also had foreign tax credits with a tax benefit of $0.1 million which expire in three to seven years. For financial statement purposes, NOL carry-forwards and foreign tax credits have been recognized as deferred tax assets, subject to a valuation allowance of $5.3 million. During the year, the company released a $1.5 million valuation allowance against an Australian net operating loss that was incurred by a controlled foreign corporation.

At June 1, 2013, the company had a foreign deferred asset related to financing costs of $9.0 million, the tax benefit of which is $2.1 million. For financial statement purposes, the asset has been recognized as a deferred tax asset, subject to a valuation allowance of $2.1 million.

The company has not provided for United States income taxes on undistributed earnings of foreign subsidiaries totaling approximately $61.9 million. Recording deferred income taxes on these undistributed earnings is not required, because these earnings have been deemed to be permanently reinvested. These amounts would be subject to possible U.S. taxation only if remitted as dividends. The determination of the hypothetical amount of unrecognized deferred U.S. taxes on undistributed earnings of foreign entities is not practicable.

The components of the company's unrecognized tax benefits are as follows:



(In millions)
Balance at May 28, 2011	$	1.6
Increases related to current year income tax positions	0.2
Increases related to prior year income tax positions	—
Decreases related to prior year income tax positions	(0.3		)
Decreases related to lapse of applicable statute of limitations	—
Decreases related to settlements	(0.2		)
Balance at June 2, 2012	1.3
Increases related to current year income tax positions	0.4
Increases related to prior year income tax positions	—
Decreases related to prior year income tax positions	(0.1		)
Decreases related to lapse of applicable statute of limitations	(0.2		)
Decreases related to settlements	—
Balance at June 1, 2013	$	1.4

The company's effective tax rate would have been affected by the total amount of unrecognized tax benefits had this amount been recognized as a reduction to income tax expense.

The company recognizes interest and penalties related to unrecognized tax benefits through "Income tax expense" in its Consolidated Statements of Comprehensive Income. Interest and penalties and the related liability were as follows for the periods indicated:



(In millions)	June 1, 2013		June 2, 2012		May 28, 2011
Interest and penalty expense (income)	$	—	$	—	$	(0.2	)

Liability for Interest and penalties	$	0.4	$	0.5

The company is subject to periodic audits by domestic and foreign tax authorities. Currently, the company is undergoing routine periodic audits in both domestic and foreign tax jurisdictions. It is reasonably possible that the amounts of unrecognized tax benefits could change in the next 12 months as a result of new positions that may be taken on income tax returns, settlement of tax positions and the closing of statutes of limitation. It is not expected that any of the changes will be material to the company's Consolidated Statements of Comprehensive Income.

During the year, the company has closed the audit of fiscal year 2012 with the Internal Revenue Service under the Compliance Assurance Process (CAP). For the majority of the remaining tax jurisdictions, the company is no longer subject to state and local, or non-U.S. income tax examinations by tax authorities for fiscal years before 2010.