12. INCOME TAXES

Earnings before income taxes for the years ended December 31 consist of:



(In thousands)	2013		2012		2011
Domestic	$	97,653	$	54,941	$	94,805
Foreign	100,300		80,421		72,077
	$	197,953	$	135,362	$	166,882

The provision for income taxes for the years ended December 31 consists of:



(In thousands)	2013			2012			2011
Current:
Federal	$	25,732		$	18,825		$	19,771
State	6,230			5,086			5,519
Foreign	22,082			23,033			19,632
	54,044			46,944			44,922

Deferred:
Federal	7,982			758			6,840
State	644			(1,122		)	(697		)
Foreign	(802		)	(5,172		)	(3,235		)
	7,824			(5,536		)	2,908
Valuation allowance	(1,896		)	1,665			432
Provision for income taxes	$	59,972		$	43,073		$	48,262

The effective tax rate varies from the U.S. federal statutory tax rate for the years ended December 31, principally:



	2013		2012		2011
U.S. federal statutory tax rate	35.0	%	35.0	%	35.0	%
Add (deduct):
State and local taxes, net of federal benefit	1.9		1.6		2.1
Rate changes	(0.2	)	(0.2	)	(0.3	)
R&D tax credits	(1.6	)	(1.0	)	(4.7	)
Foreign earnings ⁽¹⁾	(4.0	)	(4.3	)	(3.2	)
All other, net	(0.8	)	0.7		—
Effective tax rate	30.3	%	31.8	%	28.9	%

(1) - Foreign earnings primarily include the net impact of differences between local statutory rates and the U.S. Federal statutory rate, the cost of repatriating foreign earnings, and the impact of changes to foreign valuation allowances.

The components of the Corporation’s deferred tax assets and liabilities at December 31 are as follows:



(In thousands)	2013			2012
Deferred tax assets:
Environmental reserves	$	9,913		$	10,086
Inventories	20,197			20,051
Postretirement/postemployment benefits	12,641			13,992
Incentive compensation	6,727			10,299
Accrued vacation pay	5,745			5,373
Warranty reserves	5,073			4,776
Share-based payments	7,718			9,442
Pension plans	43,684			92,736
Net operating loss	9,826			10,017
Other	14,793			17,041
Total deferred tax assets	136,317			193,813
Deferred tax liabilities:
Depreciation	52,242			50,469
Goodwill amortization	65,644			53,949
Other intangible amortization	81,634			76,008
Other	8,196			4,596
Total deferred tax liabilities	207,716			185,022
Valuation allowance	6,321			8,531
Net deferred tax assets/(liabilities)	$	(77,720	)	$	260

Deferred tax assets and liabilities are reflected on the Corporation’s consolidated balance sheet at December 31 as follows:



(In thousands)	2013			2012
Net current deferred tax assets	$	47,650		$	50,760
Net current deferred tax liabilities	3,175			1,759
Net noncurrent deferred tax assets	1,449			1,709
Net noncurrent deferred tax liabilities	123,644			50,450
Net deferred tax assets/(liabilities)	$	(77,720	)	$	260

The Corporation has income tax net operating loss carryforwards related to international operations of approximately $24.8 million of which $14.5 million have an indefinite life and $10.3 million expire through 2022. The Corporation has federal and state income tax net operating loss carryforwards of approximately $27.1 million which expire through 2033. The Corporation has recorded a deferred tax asset of $9.8 million reflecting the benefit of the loss carryforwards.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2013 in certain of the Corporation’s foreign locations. Such objective evidence limits the ability to consider other subjective evidence such as projections for future growth. The Corporation decreased its valuation allowance by $1.9 million, to $6.3 million, as of December 31, 2013, in order to measure only the portion of the deferred tax asset that more likely than not will be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as projections for growth.

Income tax payments of $69.4 million were made in 2013, $42.7 million in 2012, and $47.6 million in 2011.

The amount of undistributed foreign subsidiaries earnings considered to be permanently reinvested for which no provision has been made for U.S. federal or foreign taxes at December 31, 2013 was $297.1 million. It is not practicable to estimate the amount of tax that would be payable if these amounts were repatriated to the United States; however, foreign tax credits may partiality offset any tax liability.

The Corporation has recognized a liability in Other liabilities for interest of $1.6 million and penalties of $1.1 million as of December 31, 2013.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



(In thousands)	2013			2012			2011
Balance at January 1,	$	11,301		$	5,769		$	4,490
Additions for tax positions of prior periods	1,511			4,591			915
Additions for tax positions related to the current year	1,768			1,019			533
Settlements	(3,868		)	(53		)	(66		)
Lapses of statute of limitations	(140		)	(28		)	(101		)
Foreign currency translation	51			3			(2		)
Balance at December 31,	$	10,623		$	11,301		$	5,769

In many cases the Corporation’s uncertain tax positions are related to tax years that remain subject to examination by tax authorities.

The following describes the open tax years, by major tax jurisdiction, as of December 31, 2013:



United States (Federal)	2008	-	present
United States (Various states)	1998	-	present
United Kingdom	2006	-	present
Canada	2007	-	present

The Corporation does not expect any significant changes to the estimated amount of liability associated with its uncertain tax positions through the next twelve months. Included in the total unrecognized tax benefits at December 31, 2013, 2012, and 2011 is $7.6 million, $9.0 million, and $4.0 million, respectively, which, if recognized, would favorably affect the effective income tax rate.