INCOME TAXES

We determine our deferred tax assets and liabilities based upon the difference between the financial statement and tax bases of our assets and liabilities calculated using enacted applicable tax rates. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we establish a valuation allowance. Changes in the valuation allowance, when recorded, are included in the provision for income taxes in the consolidated financial statements.

Our unrecognized tax benefits of $3,104, $3,419, and $3,530 as of December 31, 2014, 2013, and 2012, respectively, are uncertain tax positions that would impact our effective tax rate if recognized. We are periodically engaged in tax return examinations, reviews of statute of limitations periods, and settlements surrounding income taxes. We do not anticipate a material change in unrecognized tax benefits during the next twelve months.

Our uncertain tax benefits, and changes thereto, during 2014, 2013, and 2012 were as follows:



	2014			2013			2012
Balance at January 1,	$	3,419		$	3,530		$	3,746
Additions based on tax positions related to current year	490			516			600
Additions based on tax positions of prior years	—			—			—
Reductions for tax positions of prior years	(477		)	(567		)	(570		)
Settlements	(328		)	(60		)	(246		)
Balance at December 31,	$	3,104		$	3,419		$	3,530

We classify interest expense and penalties as part of our provision for income taxes based upon applicable federal and state interest/underpayment percentages. We have accrued $1,065 and $1,220 in interest and penalties at December 31, 2014 and 2013, respectively. Interest was computed on the difference between the provision for income taxes recognized in accordance with GAAP and the amount of benefit previously taken or expected to be taken in our federal, state, and local income tax returns.

Our federal income tax returns for the tax years 2011 and forward are available for examination by the United States Internal Revenue Service (“IRS”). The statute of limitation for the 2011 federal return will expire on September 15, 2015, unless extended by consent. Our state income tax returns for 2010 through 2014 remain subject to examination by various state authorities with the latest period closing on December 31, 2019. We have not extended the statutes of limitations in any state jurisdictions with respect to years prior to 2010.

The IRS concluded examinations of the Company's 2008-2011 federal income tax returns. In May 2014, we formalized settlement of the IRS audit for each of these four years. Collectively, including interest, we settled the assessments for $907. This closure has been recorded in our federal income tax expense for 2014.

A reconciliation between the “statutory” federal income tax rate and the effective tax rate in the consolidated statements of income is as follows:



	For the Years Ended December 31,
	2014		2013		2012
“Statutory” federal tax rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal benefit	3.5		3.6		3.9
Other, net	1.8		1.2		1.6
Effective tax rate	40.3	%	39.8	%	40.5	%

The components of income before taxes and the provision for income taxes recorded in the consolidated statements of income are as follows:



	For the Years Ended
Components of Income before Taxes	2014		2013		2012
Domestic	$	136,656	$	127,858	$	133,300
Foreign	10,155		7,093		12,148
Income before taxes	$	146,811	$	134,951	$	145,448



	For the Years Ended
Components of Income Tax Provision	2014			2013			2012
Current expense
U.S. Federal	$	44,713		$	47,790		$	38,642
State	7,266			7,066			6,848
Foreign	3,058			2,217			3,366
Total current expense	$	55,037		$	57,073		$	48,856
Deferred (benefit) expense
U.S. Federal	$	4,049		(2,983		)	9,090
State	47			(458		)	786
Foreign	(8		)	45			118
Total deferred (benefit) expense	$	4,088		$	(3,396	)	$	9,994
Total income tax provision	$	59,125		$	53,677		$	58,850

Deferred income taxes are provided based upon differences between the financial statement and tax bases of assets and liabilities. The following deferred tax assets (liabilities) were recorded at December 31:



Assets (Liabilities)	2014			2013
Postretirement benefits	$	29,736		$	29,260
Payroll accruals	2,912			3,114
Bad debt reserves	2,106			2,094
Other deferred tax assets	8,623			9,820
Pension	42,836			41,682
Inventory	3,351			4,597
Subtotal	89,564			90,567
less: valuation allowances	(393		)	(279		)
Deferred tax assets	89,171			90,288
Fixed assets	(33,857		)	(33,988		)
Computer software	(3,904		)	(3,775		)
Other deferred tax liabilities	(1,974		)	(1,868		)
Deferred tax liabilities	(39,735		)	(39,631		)
Net deferred tax assets	$	49,436		$	50,657

Deferred income taxes included in current and non-current assets (liabilities) at December 31 were:



	2014			2013
Deferred tax assets included in other current assets	$	2,777		$	5,936
Deferred tax assets included in other non-current assets	47,024			45,135
Deferred tax liabilities included in other current liabilities	(365		)	(414		)

Operating loss carryforwards included in net deferred tax assets at December 31 were:



	2014		2013
Foreign net operating losses⁽¹⁾	$	363	$	232
State net operating losses⁽²⁾	759		1,165

⁽¹⁾Expires in 2024

⁽²⁾Expire between 2015 and 2030

Due to uncertainties regarding the utilization of our foreign and state net operating losses, a valuation allowance has been applied against the total deferred tax benefit at December 31, 2014.

We have undistributed earnings of non-U.S. subsidiaries of approximately $66,297 and $59,388 as of December 31, 2014 and 2013, respectively. We have not made a provision for U.S. federal and state income taxes on these accumulated but undistributed earnings, as such earnings are considered to be indefinitely reinvested outside the U.S.