INCOME TAXES

Income from continuing operations before income taxes consists of the following:



	Year Ended December 31
(in thousands)	2013		2012		2011
U.S.	$	287,221	$	137,743	$	243,913
Non-U.S.	14,005		17,516		11,875
	$	301,226	$	155,259	$	255,788

The provision for income taxes on income from continuing operations consists of the following:



(in thousands)	Current		Deferred			Total
Year Ended December 31, 2013
U.S. Federal	$	78,375	$	22,438		$	100,813
State and Local	10,514		(9,808		)	706
Non-U.S.	10,051		(1,570		)	8,481
	$	98,940	$	11,060		$	110,000
Year Ended December 31, 2012
U.S. Federal	$	111,024	$	(48,685	)	$	62,339
State and Local	14,062		(5,135		)	8,927
Non-U.S.	12,631		(697		)	11,934
	$	137,717	$	(54,517	)	$	83,200
Year Ended December 31, 2011
U.S. Federal	$	42,950	$	26,732		$	69,682
State and Local	15,937		10,475			26,412
Non-U.S.	9,129		(823		)	8,306
	$	68,016	$	36,384		$	104,400

The provision for income taxes on continuing operations exceeds the amount of income tax determined by applying the U.S. Federal statutory rate of 35% to income from continuing operations before taxes as a result of the following:



	Year Ended December 31
(in thousands)	2013			2012			2011
U.S. Federal taxes at statutory rate	$	105,429		$	54,341		$	89,526
State and local taxes, net of U.S. Federal tax	3,097			9,247			4,143
Valuation allowances against state tax benefits, net of U.S. Federal tax	(2,638		)	(3,443		)	9,748
Tax provided on non-U.S. subsidiary earnings and distributions at more (less) than the
expected U.S. Federal statutory tax rate	694			(7,320		)	(6,882		)
Valuation allowances against non-U.S. income tax benefits	7,233			15,966			8,072
Goodwill impairment	—			12,776			—
U.S. Federal Manufacturing Deduction tax (benefit) expense	(5,218		)	(3,323		)	1,365
Other, net	1,403			4,956			(1,572		)
Provision for Income Taxes	$	110,000		$	83,200		$	104,400

During 2013, 2012 and 2011, in addition to the income tax provision for continuing operations presented above, the Company also recorded tax expense or benefits on discontinued operations. Losses from discontinued operations and gains or losses on sales and dispositions of discontinued operations have been reclassified from previously reported income from operations and reported separately as loss from discontinued operations, net of tax. Tax expense of $28.4 million and tax benefits of $78.3 million and $8.3 million with respect to discontinued operations were recorded in 2013, 2012 and 2011, respectively.

Deferred income taxes consist of the following:



	As of December 31
(in thousands)	2013			2012
Accrued postretirement benefits	$	15,408		$	25,287
Other benefit obligations	101,923			123,306
Accounts receivable	24,911			31,073
State income tax loss carryforwards	30,036			34,578
U.S. Federal income tax loss carryforwards	2,613			2,857
U.S. Federal capital loss carryforwards	—			10,837
U.S. Federal foreign income tax credit carryforwards	8,265			6,781
Non-U.S. income tax loss carryforwards	32,600			27,039
Other	61,753			58,133
Deferred Tax Assets	277,509			319,891
Valuation allowances	(72,767		)	(78,109		)
Deferred Tax Assets, Net	$	204,742		$	241,782
Property, plant and equipment	134,627			175,025
Prepaid pension cost	497,727			241,846
Unrealized gain on available-for-sale securities	115,785			73,712
Goodwill and other intangible assets	293,749			276,652
Deferred Tax Liabilities	$	1,041,888		$	767,235
Deferred Income Tax Liabilities, Net	$	837,146		$	525,453

The Company has $597.1 million of state income tax loss carryforwards available to offset future state taxable income. State income tax loss carryforwards, if unutilized, will start to expire approximately as follows:



(in millions)
2014	$	5.3
2015	5.4
2016	5.7
2017	2.5
2018	4.5
2019 and after	573.7
Total	$	597.1

The Company has recorded at December 31, 2013, $30.0 million in deferred state income tax assets, net of U.S. Federal income tax, with respect to these state income tax loss carryforwards. The Company has established a full valuation allowance, reducing the net recorded amount of deferred tax assets with respect to state tax loss carryforwards, since the Company has determined that it is more likely than not that the state tax losses may not be fully utilized in the future to reduce state taxable income.

The Company has $7.4 million of U.S. Federal income tax loss carryforwards obtained as a result of prior stock acquisitions. U.S. Federal income tax loss carryforwards are expected to be fully utilized as follows:



(in millions)
2014	$	0.7
2015	0.7
2016	0.7
2017	0.7
2018	0.7
2019 and after	3.9
Total	$	7.4

The Company has established at December 31, 2013, $2.6 million in U.S. Federal deferred tax assets with respect to these U.S. Federal income tax loss carryforwards.

For U.S. Federal income tax purposes, the Company has $8.3 million of foreign tax credits available to be credited against future U.S. Federal income tax liabilities. These U.S. Federal foreign tax credits are expected to be fully utilized in the future; $6.8 million and $1.5 million will expire at the end of 2022 and 2023, respectively, if not utilized. The Company has established at December 31, 2013, $8.3 million of U.S. Federal deferred tax assets with respect to these U.S. Federal foreign tax credit carryforwards.

The Company has $112.1 million of non-U.S. income tax loss carryforwards, as a result of operating losses and prior stock acquisitions that are available to offset future non-U.S. taxable income and has recorded, with respect to these losses, $32.6 million in non-U.S. deferred income tax assets. The Company has established $31.4 million in valuation allowances against the deferred tax assets recorded for the portion of non-U.S. tax losses that may not be fully utilized to reduce future non-U.S. taxable income. The $112.1 million of non-U.S. income tax loss carryforwards consist of $101.3 million in losses that may be carried forward indefinitely; $3.5 million of losses that, if unutilized, will expire in varying amounts through 2018; and $7.3 million of losses that, if unutilized, will start to expire after 2018.

Deferred tax valuation allowances and changes in deferred tax valuation allowances were as follows:



(in thousands)	Balance at Beginning of Period		Tax Expense and Revaluation			Deductions	Balance at End of Period
Year ended
December 31, 2013	$	78,109	$	(5,342	)	—	$	72,767
December 31, 2012	$	59,179	$	18,930		—	$	78,109
December 31, 2011	$	41,359	$	17,820		—	$	59,179

The Company has established $35.6 million in valuation allowances against deferred state tax assets recognized, net of U.S. Federal tax. As stated above, approximately $30.0 million of the valuation allowances, net of U.S. Federal income tax, relate to state income tax loss carryforwards. The Company has established valuation allowances against state income tax assets recognized, without considering potentially offsetting deferred tax liabilities established with respect to prepaid pension cost and goodwill. Prepaid pension cost and goodwill have not been considered a source of future taxable income for realizing deferred tax assets recognized since these temporary differences are not likely to reverse in the foreseeable future. The valuation allowances established against state income tax assets are recorded at the parent company and the education division and may increase or decrease within the next 12 months, based on operating results or the market value of investment holdings. As a result, the Company is unable to estimate the potential tax impact, given the uncertain operating and market environment. The Company will be monitoring future operating results and projected future operating results on a quarterly basis to determine whether the valuation allowances provided against deferred state tax assets should be increased or decreased, as future circumstances warrant.

The Company has not established valuation allowances against any U.S. Federal deferred tax assets.

The Company has established $37.2 million in valuation allowances against non-U.S. deferred tax assets, and, as stated above, $31.4 million of the non-U.S. valuation allowances relate to non-U.S. income tax loss carryforwards.

Deferred U.S. Federal and state income taxes are recorded with respect to undistributed earnings of investments in non-U.S. subsidiaries to the extent taxable dividend income would be recognized if such earnings were distributed. Deferred income taxes recorded with respect to undistributed earnings of investments in non-U.S. subsidiaries are recorded net of foreign tax credits with respect to such undistributed earnings estimated to be creditable against future U.S. Federal tax liabilities. At December 31, 2013 and 2012, net U.S. Federal and state deferred income tax liabilities of about $7.7 million and $1.7 million, respectively, were recorded with respect to undistributed earnings of investments in non-U.S. subsidiaries based on the year-end position.

Deferred U.S. Federal and state income taxes have not been recorded for the full book value and tax basis differences related to investments in non-U.S. subsidiaries because such investments are expected to be indefinitely held. The book value exceeded the tax basis of investments in non-U.S. subsidiaries by approximately $66.8 million and $64.2 million at December 31, 2013 and 2012, respectively; these differences would result in approximately $5.9 million and $14.7 million of net additional U.S. Federal and state deferred tax liabilities, net of foreign tax credits related to undistributed earnings and estimated to be creditable against future U.S. Federal tax liabilities, at December 31, 2013 and 2012, respectively. If investments in non-U.S. subsidiaries were held for sale instead of expected to be held indefinitely, additional U.S. Federal and state deferred tax liabilities would be required to be recorded, and such deferred tax liabilities, if recorded, may exceed the above estimates.

The Company does not currently anticipate that within the next 12 months there will be any events requiring the establishment of any valuation allowances against U.S. Federal net deferred tax assets. The valuation allowances established against non-U.S. deferred tax assets are recorded at the education division, as this is the only division with significant non-U.S operating activities, and these are largely related to the education division’s operations in Australia. These valuation allowances may increase or decrease within the next 12 months, based on operating results. As a result, the Company is unable to estimate the potential tax impact, given the uncertain operating environment. The Company will be monitoring future education division operating results and projected future operating results on a quarterly basis to determine whether the valuation allowances provided against non-U.S. deferred tax assets should be increased or decreased, as future circumstances warrant.

The Company has recorded a $10.5 million U.S. Federal income tax receivable at December 31, 2013, with respect to capital loss and foreign tax credit carrybacks to the 2010 tax year.

The Company files income tax returns with the U.S. Federal government and in various state, local and non-U.S. governmental jurisdictions, with the consolidated U.S. Federal tax return filing considered the only major tax jurisdiction. The statute of limitations has expired on all consolidated U.S. Federal corporate income tax returns filed through 2009, and the Internal Revenue Service is not currently examining any of the post-2009 returns filed by the Company.

The Company endeavors to comply with tax laws and regulations where it does business, but cannot guarantee that, if challenged, the Company’s interpretation of all relevant tax laws and regulations will prevail and that all tax benefits recorded in the financial statements will ultimately be recognized in full. The Company has taken reasonable efforts to address uncertain tax positions and has determined that there are no material transactions and no material tax positions taken by the Company that would fail to meet the more-likely-than-not threshold for recognizing transactions or tax positions in the financial statements. Accordingly, the Company has not recorded a reserve for uncertain tax positions in the financial statements, and the Company does not expect any significant tax increase or decrease to occur within the next 12 months with respect to any transactions or tax positions taken and reflected in the financial statements. In making these determinations, the Company presumes that taxing authorities pursuing examinations of the Company’s compliance with tax law filing requirements will have full knowledge of all relevant information, and, if necessary, the Company will pursue resolution of disputed tax positions by appeals or litigation.