INCOME TAXES:

Included in the Company's net income for the year ended December 31, 2013 was a $25.9 million benefit associated with the extension of the United States Short Line Tax Credit for fiscal year 2013 and a $41.0 million benefit associated with the retroactive extension of the United States Short Line Tax Credit for fiscal year 2012. Since the extension became law in 2013, the 2012 impact was recorded in the first quarter of 2013. The Company's provision for income taxes was $87.2 million for the year ended December 31, 2013, which represented 27.4% of income before income taxes and income from equity investment excluding the retroactive benefit. Included in the Company's income before income taxes and income from equity investment for the year ended December 31, 2012 was a $50.1 million mark-to-market expense associated with a contingent forward sale contract, which is a non-deductible expense for income tax purposes. See Note 10, Derivative Financial Instruments, for further details on the contingent forward sale contract. As a result, the Company's provision for income taxes was $46.4 million for the year ended December 31, 2012, which represents 34.8% of income before income taxes and income from equity investment other than the mark-to-market expense. The decrease in the effective income tax rate for the year ended December 31, 2013 as compared with the year ended December 31, 2012 was primarily attributable to the renewal of the United States Short Line Tax Credit through December 31, 2013.

The components of income before income taxes and income from equity investment for the years ended December 31, 2013, 2012 and 2011 were as follows (dollars in thousands):



	2013		2012		2011
United States	$	211,889	$	5,598	$	98,041
Foreign	106,498		77,680		59,974
Total	$	318,387	$	83,278	$	158,015

The Company files a consolidated United States federal income tax return that includes all of its United States subsidiaries. Each of the Company’s foreign subsidiaries files appropriate income tax returns in its respective country. No provision is made for the United States income taxes applicable to the undistributed earnings of controlled foreign subsidiaries as it is the intention of management to fully utilize those earnings in the operations of foreign subsidiaries. If the earnings were to be distributed in the future, those distributions may be subject to United States income taxes (appropriately reduced by available foreign tax credits) and withholding taxes payable to various foreign countries, however, the amount of the tax and credits is not practically determinable. The amount of undistributed earnings of the Company’s controlled foreign subsidiaries as of December 31, 2013 was $268.9 million.

The components of the provision for income taxes for the years ended December 31, 2013, 2012 and 2011 were as follows (dollars in thousands):



	2013		2012		2011
United States:
Current
Federal	$	6,571	$	3,582	$	5,652
State	6,031		3,752		3,686
Deferred
Federal	62		17,382		12,578
State	4,890		906		1,535
	17,554		25,622		23,451
Foreign:
Current	22,697		9,907		6,488
Deferred	6,045		10,873		8,592
	28,742		20,780		15,080
Total	$	46,296	$	46,402	$	38,531

The provision for income taxes differs from that which would be computed by applying the statutory United States federal income tax rate to income before taxes. The following is a summary of the effective tax rate reconciliation for the years ended December 31, 2013, 2012 and 2011:



	2013		2012		2011
Tax provision at statutory rate	35.0	%	35.0	%	35.0	%
Effect of acquisitions/divestitures	—	%	24.8	%	(3.1	)%
Effect of foreign operations	(2.1	)%	(7.7	)%	(2.9	)%
State income taxes, net of federal income tax benefit	2.2	%	3.8	%	2.3	%
Benefit of track maintenance credit	(21.0	)%	—	%	(6.5	)%
Other, net	0.4	%	(0.3	)%	(0.4	)%
Effective income tax rate	14.5	%	55.6	%	24.4	%

The United States track maintenance credit is an income tax credit for Class II and Class III railroads to reduce their federal income tax based on qualified railroad track maintenance expenditures (the Short Line Tax Credit). Qualified expenditures include amounts incurred for maintaining track, including roadbed, bridges and related track structures owned or leased by a Class II or Class III railroad. The credit is equal to 50% of the qualified expenditures, subject to an annual limitation of $3,500 multiplied by the number of miles of railroad track owned or leased by the Class II or Class III railroad as of the end of their tax year. The Short Line Tax Credit was in existence from 2005 through 2011 and was extended for years 2012 and 2013 on January 2, 2013.

Deferred income taxes reflect the effect of temporary differences between the book and tax basis of assets and liabilities as well as available income tax credit and capital and net operating loss carryforwards. The components of net deferred income taxes as of December 31, 2013 and 2012 were as follows (dollars in thousands):



	2013			2012
Deferred tax assets:
Accruals and reserves not deducted for tax purposes until paid	$	20,183		$	15,824
Net operating loss carryforwards	14,577			52,863
Nonshareholder contributions	3,185			4,799
Deferred compensation	2,974			2,175
Postretirement benefits	811			2,328
Share-based compensation	6,348			11,328
Foreign tax credit	1,964			1,964
Track maintenance credit	221,278			129,486
Alternative minimum tax credit	1,592			1,356
Other	119			451
	273,031			222,574
Valuation allowance	(12,194		)	(8,613		)
Deferred tax liabilities:
Interest rate swaps	(13,985		)	7
Property basis difference	(1,029,492		)	(1,003,990		)
Other	(1,884		)	(1,843		)
Net deferred tax liabilities	$	(784,524	)	$	(791,865	)

In the accompanying consolidated balance sheets, these deferred benefits and deferred obligations are classified as current or non-current based on the classification of the related asset or liability for financial reporting. A deferred tax obligation or benefit that is not related to an asset or liability for financial reporting, including deferred tax assets related to tax credit and loss carryforwards, are classified according to the expected reversal date of the temporary difference as of the end of the year.

As of December 31, 2013, the Company had United States net operating loss carryforwards in various state jurisdictions that totaled approximately $364.2 million and United States track maintenance credit carryforwards of $221.3 million. Some of the Company's net operating loss and credit carryforwards are subject to Section 382 limitations of the Internal Revenue Code (Section 382). Section 382 imposes limitations on a corporation's ability to utilize its net operating losses and credits if it experiences an “ownership change.” In general terms, an ownership change results from transactions increasing the ownership of certain existing stockholders or new stockholders in the stock of a corporation by more than 50% during a three year testing period. Any unused annual limitation may be carried over to later years, and the amount of the limitation may, under certain circumstances, be increased to reflect both recognized and deemed recognized “built-in gains” that occur during the sixty-month period after the ownership change. The state net operating losses exist in different states and expire between 2014 and 2033. The United States track maintenance credits expire between 2025 and 2033.

As of December 31, 2012, the Company had track maintenance credit carryforwards of $129.5 million. The 2012 tax credit carryforwards will expire between 2025 and 2032.

The Company maintains a valuation allowance on foreign tax credits and state net operating losses for which, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. It is management's belief that it is more likely than not that a portion of the deferred tax assets will not be realized.

A reconciliation of the beginning and ending amount of the Company's valuation allowance is as follows (dollars in thousands):



	2013
Balance at beginning of year	$	8,613
Increase for state net operating losses	1,617
Increase for foreign tax credits	1,964
Balance at end of year	$	12,194

A reconciliation of the beginning and ending amount of the Company’s liability for uncertain tax positions is as follows (dollars in thousands):



	2013		2012			2011
Balance at beginning of year	$	3,155	$	—		$	—
Increase for acquired subsidiary	—		3,370			—
Reductions for tax positions of prior years	—		(215		)	—
Balance at end of year	$	3,155	$	3,155		$	—

At December 31, 2013 and 2012, there was $3.2 million of unrecognized tax benefits that if recognized would affect the annual effective tax rate. The Company recognizes interest and penalties related to uncertain tax positions in its provision for income taxes.

As of December 31, 2013, the following tax years remain open to examination by the major taxing jurisdictions to which the Company is subject:



	Open Tax Years
Jurisdiction	From		To
United States	2001	-	2013
Australia	2009	-	2013
Canada	2009	-	2013
Mexico	2008	-	2013
Netherlands	2012	-	2013
Belgium	2013	-	2013