Income Taxes

Provision for Income Taxes

The Company’s income (loss) from continuing operations before taxes is as follows:



(in thousands) For year ended December 31,	2014		2013		2012
U.S. operations	$	141,772	$	177,257	$	175,055
Non-U.S. operations	139,384		148,759		109,550
Total	$	281,156	$	326,016	$	284,605

The Company’s provision (benefit) for income taxes from continuing operations consists of:



(in thousands) For year ended December 31,	2014		2013		2012
Current:
U.S. federal tax	$	14,008	$	11,401	$	5,154
U.S. state and local tax	2,618		3,366		1,948
Non-U.S. tax	33,055		41,334		26,314
Total current	49,681		56,101		33,416
Deferred:
U.S. federal tax	30,093		43,743		52,948
U.S. state and local tax	1,314		628		1,068
Non-U.S. tax	6,499		4,593		984
Total deferred	37,906		48,964		55,000
Total provision (benefit) for income taxes	$	87,587	$	105,065	$	88,416

A reconciliation of the statutory U.S. federal tax rate to the Company’s effective tax rate from continuing operations is as follows:



(in thousands) For year ended December 31,	2014		2013		2012
Statutory U.S. federal tax rate	35.0	%	35.0	%	35.0	%
Increase (reduction) from:
Non-U.S. taxes	(4.0	)%	(2.0	)%	(4.0	)%
Repatriation of non-U.S. earnings, net of credits	0.1	%	0.1	%	0.1	%
State and local taxes, net of federal benefit	1.3	%	1.2	%	1.1	%
U.S. research and development tax credit	(1.0	)%	(1.9	)%	(0.3	)%
U.S. domestic manufacturing deduction	(0.7	)%	(1.0	)%	(0.9	)%
Non-deductible acquisition costs	—	%	2.3	%	0.5	%
Other	0.5	%	(1.5	)%	(0.4	)%
Effective tax rate	31.2	%	32.2	%	31.1	%

As of December 31, 2014, the Company has not provided deferred taxes on approximately $625 million of undistributed earnings of its non-U.S. subsidiaries because the Company intends to permanently reinvest these earnings outside the U.S. Determination of the U.S. income taxes and non-U.S. withholding taxes due upon the repatriation of these earnings is not practicable because the amount of such taxes depends upon circumstances existing when the remittance occurs.

At December 31, 2014 and 2013, $330 million and $257 million, respectively of the Company’s cash was held by non-U.S. subsidiaries, and is generally subject to U.S. income taxation upon repatriation.

During 2014, 2013 and 2012, income tax benefits attributable to equity-based compensation transactions exceeded amounts recorded at grant date fair market value and, accordingly, were credited to capital surplus in the amounts of $7.7 million, $6.4 million and $3.6 million, respectively.

During 2014, 2013 and 2012, tax provision (benefit) of $(61.1) million, $36.2 million, and $(13.4) million, respectively, related to changes in pension and post-retirement plan assets and benefit obligations, were recorded to accumulated other comprehensive income.

Deferred Taxes and Valuation Allowances

The components of deferred tax assets and liabilities included on the Company’s Consolidated Balance Sheets are as follows:



(in thousands) December 31,	2014			2013
Deferred tax assets:
Asbestos-related liabilities	$	182,599		$	206,178
Tax loss and credit carryforwards	113,787			136,224
Pension and post-retirement benefits	78,666			29,098
Inventories	19,304			20,760
Accrued bonus and stock-based compensation	14,908			17,003
Environmental reserves	24,472			9,920
Other	50,471			43,248
Total	484,207			462,431
Less: valuation allowance	141,018			150,591
Total deferred tax assets, net of valuation allowance	343,189			311,840
Deferred tax liabilities:
Basis difference in intangible assets	(134,798		)	(141,762		)
Basis difference in fixed assets	(25,807		)	(28,287		)
Total deferred tax liabilities	(160,605		)	(170,049		)
Net deferred tax asset	$	182,584		$	141,791
Balance sheet classification:
Current deferred tax assets	33,002			$	31,651
Long-term deferred tax assets	196,245			186,734
Accrued liabilities	(362		)	(553		)
Long-term deferred tax liability	(46,301		)	(76,041		)
Net deferred tax asset	$	182,584		$	141,791

As of December 31, 2014, the Company had U.S. federal, U.S. state and non-U.S. tax loss and credit carryforwards that will expire, if unused, as follows:



(in thousands) Year of expiration	U.S. Federal Tax Credits			U.S. Federal Tax Losses			U.S. State Tax Credits			U.S. State Tax Losses			Non- U.S. Tax Losses			Total
2015-2018	$	14,760		$	667		$	2,756		$	27,385		$	11,898
After 2019	6,670			28,746			3,722			773,064			50,752
Indefinite	157			—			18,354			—			44,484
Total tax carryforwards	$	21,587		$	29,413		$	24,832		$	800,449		$	107,134
Deferred tax asset on tax carryforwards	$	21,587		$	10,294		$	16,141		$	37,887		$	27,878		$	113,787
Valuation allowance on tax carryforwards	(21,587		)	(373		)	(15,533		)	(37,887		)	(20,157		)	(95,537		)
Net deferred tax asset on tax carryforwards	$	—		$	9,921		$	608		$	—		$	7,721		$	18,250

At December 31, 2014 and 2013, the Company determined that it was more likely than not that $95.5 million and $108.7 million, respectively, of its deferred tax assets related to tax loss and credit carryforwards will not be realized. As a result, the Company recorded a valuation allowance against these deferred tax assets. The Company also determined that it is more likely than not that a portion of the benefit related to U.S. state and non-U.S. deferred tax assets other than tax loss and credit carryforwards will be not realized. Accordingly, at December 31, 2014 and 2013, a valuation allowance of $45.5 million and $41.9 million, respectively, was established against these U.S. state and non-U.S. deferred tax assets. The Company’s total valuation allowance at December 31, 2014 and 2013 was $141.0 million and $150.6 million, respectively.

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of the Company’s gross unrecognized tax benefits, excluding interest and penalties, is as follows:



(in thousands)	2014			2013			2012
Balance of liability as of January 1	$	31,379		$	19,164		$	9,590
Increase as a result of tax positions taken during a prior year	2,014			6,728			5,941
Decrease as a result of tax positions taken during a prior year	(1,153		)	(243		)	(25		)
Increase as a result of tax positions taken during the current year	11,155			5,897			3,893
Decrease as a result of settlements with taxing authorities	(1,111		)	(28		)	—
Reduction as a result of a lapse of the statute of limitations	(1,583		)	(139		)	(235		)
Balance of liability as of December 31	$	40,701		$	31,379		$	19,164

As of December 31, 2014, 2013 and 2012, the amount of the Company’s unrecognized tax benefits that, if recognized, would affect its effective tax rate was $42.2 million, $27.7 million, and $18.9 million, respectively. The difference between these amounts and those reflected in the table above relates to (1) offsetting tax effects from other tax jurisdictions, and (2) interest expense, net of deferred taxes.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of its income tax expense. During the years ended December 31, 2014, 2013 and 2012, the Company recognized interest and penalty expense of $0.7 million, $0.9 million, and $0.4 million, respectively, in its Consolidated Statements of Operations. At December 31, 2014 and 2013, the Company had accrued $4.7 million and $4.0 million, respectively, of interest and penalties related to unrecognized tax benefits in its Consolidated Balance Sheets.

During the next twelve months, it is reasonably possible that the Company's unrecognized tax benefits could change by $7.1 million due to settlements of income tax examinations, the expiration of statutes of limitations or other resolution of uncertainties. However, if the ultimate resolution of income tax examinations results in amounts that differ from this estimate, the Company will record additional income tax expense or benefit in the period in which such matters are effectively settled.

Income Tax Examinations

The Company's income tax returns are subject to examination by U.S. federal, U.S. state and local, and non-U.S. tax authorities.

The Company’s federal income tax returns for the years 2010 through 2012 are currently under examination by the U.S Internal Revenue Service, and its federal income tax return for 2013 remains subject to examination. In addition, acquired subsidiaries’ federal income tax returns (2011 through 2013) and federal tax carry forwards (2006 through 2013) remain subject to examination.

With few exceptions, the Company is no longer subject to U.S. state and local or non-U.S. income tax examinations for years before 2009. As of December 31, 2014, the Company and its subsidiaries are under examination in various jurisdictions, including Germany (2006 through 2012). During 2014, a California income tax examination of the years 2007 and 2008 was completed, resulting in a minimal assessment for which an accrual was previously established. In addition, the Company’s appeal of certain Canadian tax assessments for the years 2007 through 2009 was resolved in the Company’s favor.