Income Taxes

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. As of December 31, 2016, the Company has not provided Federal income taxes on approximately $697,000,000 of undistributed earnings of its foreign subsidiaries. The Company intends to reinvest these earnings to fund expansion in these and other markets outside the U.S. Accordingly, the Company has not provided any provision for income tax expense in excess of foreign jurisdiction income tax requirements relative to such undistributed earnings in the accompanying consolidated financial statements. Due to the complexities associated with the hypothetical calculation to determine residual taxes on the undistributed earnings, including the availability of foreign tax credits, applicability of any additional local withholding tax and other indirect tax consequence that may arise due to the distribution of these earnings, the Company has concluded it is not practicable to determine the unrecognized deferred tax liability related to the undistributed earnings.

Significant components of the Company’s deferred tax assets and liabilities are as follows:



	2016		2015
	(In Thousands)
Deferred tax assets related to:
Expenses not yet deducted for tax purposes	$	345,195	$	318,368
Pension liability not yet deducted for tax purposes	397,391		347,263
	742,586		665,631
Deferred tax liabilities related to:
Employee and retiree benefits	276,256		249,126
Inventory	141,181		147,199
Other intangible assets	120,689		111,305
Property, plant, and equipment	61,666		58,496
Other	58,468		31,664
	658,260		597,790
Net deferred tax assets	$	84,326	$	67,841

The components of income before income taxes are as follows:



	2016		2015		2014
	(In Thousands)
United States	$	934,476	$	1,004,919	$	978,824
Foreign	139,864		118,762		138,915
Income before income taxes	$	1,074,340	$	1,123,681	$	1,117,739

The components of income tax expense are as follows:



	2016		2015		2014
	(In Thousands)
Current:
Federal	$	284,199	$	309,403	$	224,591
State	41,083		45,460		43,513
Foreign	28,593		27,602		84,030
Deferred	33,225		35,544		54,319
	$	387,100	$	418,009	$	406,453

The reasons for the difference between total tax expense and the amount computed by applying the statutory Federal income tax rate to income before income taxes are as follows:



	2016			2015			2014
	(In Thousands)
Statutory rate applied to income	$	376,019		$	393,288		$	391,209
Plus state income taxes, net of Federal tax benefit	29,211			32,295			32,646
Earnings in jurisdictions taxed at rates different from the statutory US tax rate	(18,057		)	(13,684		)	(3,453		)
Foreign tax credit	(482		)	(264		)	(20,170		)
Other	409			6,374			6,221
	$	387,100		$	418,009		$	406,453

The Company, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction, various states, and foreign jurisdictions. With few exceptions, the Company is no longer subject to federal, state and local tax examinations by tax authorities for years before 2012 or subject to non-United States income tax examinations for years ended prior to 2010. The Company is currently under audit in the United States and Canada. Some audits may conclude in the next twelve months and the unrecognized tax benefits recorded in relation to the audits may differ from actual settlement amounts. It is not possible to estimate the effect, if any, of the amount of such change during the next twelve months to previously recorded uncertain tax positions in connection with the audits. However, the Company does not anticipate total unrecognized tax benefits will significantly change during the year due to the settlement of audits and the expiration of statutes of limitations.

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



	2016			2015			2014
	(In Thousands)
Balance at beginning of year	$	15,815		$	17,581		$	47,190
Additions based on tax positions related to the current year	2,184			1,969			3,303
Additions for tax positions of prior years	1,317			61			6,415
Reductions for tax positions for prior years	(1,369		)	(3,152		)	(851		)
Reduction for lapse in statute of limitations	(2,516		)	(425		)	(481		)
Settlements	(241		)	(219		)	(37,995		)
Balance at end of year	$	15,190		$	15,815		$	17,581

The amount of gross tax effected unrecognized tax benefits, including interest and penalties, as of December 31, 2016 and 2015 was approximately $17,176,000 and $17,684,000, respectively, of which approximately $9,615,000 and $9,317,000, respectively, if recognized, would affect the effective tax rate.

During the years ended December 31, 2016, 2015, and 2014, the Company paid interest and penalties of approximately $5,000, $1,051,000, and $14,000,000, respectively. The Company had approximately $1,848,000 and $1,746,000 of accrued interest and penalties at December 31, 2016 and 2015, respectively. The Company recognizes potential interest and penalties related to unrecognized tax benefits as a component of income tax expense.