6.	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. Approximately $382,000,000 of undistributed earnings of the Company’s foreign subsidiaries is considered to be indefinitely reinvested. As such, no U.S. federal and state income taxes have been provided thereon, and it is not practicable to determine the amount of the related unrecognized deferred income tax liability. Significant components of the Company’s deferred tax assets and liabilities are as follows:


	2012			2011
	(In thousands)
Deferred tax assets related to:
Expenses not yet deducted for tax purposes	$	362,265		$	347,605
Pension liability not yet deducted for tax purposes		405,048			377,846
Capital loss		16,803			16,803
Valuation allowance		(16,803	)		(16,803	)

		767,313			725,451

Deferred tax liabilities related to:
Employee and retiree benefits		205,268			188,206
Inventory		191,047			188,063
Property, plant, and equipment		41,130			47,413
Other		51,616			43,225

		489,061			466,907

Net deferred tax asset		278,252			258,544
Current portion of deferred tax liability		1,211			3,064

Noncurrent net deferred tax asset	$	279,463		$	261,608

The current portion of the deferred tax liability is included in income taxes payable in the consolidated balance sheets. The Company has a capital loss carryforward of approximately $42,000,000 that will expire in 2013.

The components of income before income taxes are as follows:


	2012		2011		2010
	(In thousands)
United States	$	903,698	$	784,841	$	693,580
Foreign		115,234		105,965		68,203

Income before income taxes	$	1,018,932	$	890,806	$	761,783

The components of income tax expense are as follows:


	2012		2011			2010
	(In thousands)
Current:
Federal	$	288,135	$	260,222		$	221,770
State		44,653		41,511			36,291
Foreign		23,352		26,294			16,217
Deferred		14,751		(2,337	)		11,994

	$	370,891	$	325,690		$	286,272

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:


	2012			2011			2010
	(In thousands)
Statutory rate applied to income	$	356,626		$	311,782		$	266,624
Plus state income taxes, net of Federal tax benefit		30,227			26,790			24,621
Other		(15,962	)		(12,882	)		(4,973	)

	$	370,891		$	325,690		$	286,272

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 2008 or subject to non-United States income tax examinations for years ended prior to 2002. 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 amount of unrecognized tax benefits is as follows:


	2012			2011			2010
	(In thousands)
Balance at beginning of year	$	46,845		$	39,425		$	33,322
Additions based on tax positions related to the current year		5,702			6,035			4,243
Additions for tax positions of prior years		2,172			7,966			3,493
Reductions for tax positions for prior years		(5,025	)		(481	)		(624	)
Reduction for lapse in statute of limitations		(2,658	)		(4,563	)		(451	)
Settlements		(1,581	)		(1,537	)		(558	)

Balance at end of year	$	45,455		$	46,845		$	39,425

The amount of gross tax effected unrecognized tax benefits, including interest and penalties, as of December 31, 2012 and 2011 was approximately $58,020,000 and $59,532,000, respectively, of which approximately $17,615,000 and $18,966,000, respectively, if recognized, would affect the effective tax rate. During the years ended December 31, 2012, 2011, and 2010, the Company paid interest and penalties of approximately $493,000, $759,000, and $272,000, respectively. The Company had approximately $12,565,000 and $12,687,000 of accrued interest and penalties at December 31, 2012 and 2011, respectively. The Company recognizes potential interest and penalties related to unrecognized tax benefits as a component of income tax expense.