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. As of December 31, 2013, approximately $552,000,000 of cumulative 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:


	2013			2012
	(In Thousands)
Deferred tax assets related to:
Expenses not yet deducted for tax purposes	$	343,156		$	362,265
Pension liability not yet deducted for tax purposes		227,880			405,048
Capital loss		—			16,803
Valuation allowance		—			(16,803	)

		571,036			767,313

Deferred tax liabilities related to:
Employee and retiree benefits		188,235			205,268
Inventory		152,641			191,047
Other intangible assets		110,272			23,295
Property, plant, and equipment		53,751			41,130
Other		29,733			28,321

		534,632			489,061

Net deferred tax assets		36,404			278,252
Current portion of deferred tax (assets) liabilities		(22,165	)		1,211

Noncurrent net deferred tax assets	$	14,239		$	279,463

The current portion of the deferred tax assets and liabilities are included in prepaid expenses and other current assets and income taxes payable, respectively, in the consolidated balance sheets.

The components of income before income taxes are as follows:


	2013		2012		2011
	(In Thousands)
United States	$	850,866	$	903,698	$	784,841
Foreign		193,438		115,234		105,965

Income before income taxes	$	1,044,304	$	1,018,932	$	890,806

The components of income tax expense are as follows:


	2013			2012		2011
	(In Thousands)
Current:
Federal	$	303,016		$	288,135	$	260,222
State		47,010			44,653		41,511
Foreign		30,941			23,352		26,294
Deferred		(21,622	)		14,751		(2,337	)

	$	359,345		$	370,891	$	325,690

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:


	2013			2012			2011
	(In Thousands)
Statutory rate applied to income	$	365,506		$	356,626		$	311,782
Plus state income taxes, net of Federal tax benefit		28,823			30,227			26,790
Earnings in jurisdictions taxed at rates different from the statutory US tax rate		(37,873	)		(17,419	)		(13,443	)
Capital loss expiration		16,803			—			—
Reversal of capital loss valuation allowance		(16,803	)		—			—
Other		2,889			1,457			561

	$	359,345		$	370,891		$	325,690

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 2009 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:


	2013			2012			2011
	(In Thousands)
Balance at beginning of year	$	45,455		$	46,845		$	39,425
Additions based on tax positions related to the current year		3,238			5,702			6,035
Additions for tax positions of prior years		3,759			2,172			7,966
Reductions for tax positions for prior years		(1,472	)		(5,025	)		(481	)
Reduction for lapse in statute of limitations		(1,714	)		(2,658	)		(4,563	)
Settlements		(2,076	)		(1,581	)		(1,537	)

Balance at end of year	$	47,190		$	45,455		$	46,845

The amount of gross tax effected unrecognized tax benefits, including interest and penalties, as of December 31, 2013 and 2012 was approximately $59,530,000 and $58,020,000, respectively, of which approximately $18,287,000 and $17,615,000, respectively, if recognized, would affect the effective tax rate. During the years ended December 31, 2013, 2012, and 2011, the Company paid interest and penalties of approximately $405,000, $493,000, and $759,000, respectively. The Company had approximately $12,340,000 and $12,565,000 of accrued interest and penalties at December 31, 2013 and 2012, respectively. The Company recognizes potential interest and penalties related to unrecognized tax benefits as a component of income tax expense.