INCOME TAXES

The components of income tax expense (benefit) associated with continuing operations are as follows:



	For the year ended December 31,
	2014			2013			2012
In thousands
Current:
Federal	$	26,296		$	21,916		$	25,110
State	(796		)	3,731			1,627
Foreign	905			1,768			1,123
	26,405			27,415			27,860
Deferred:
Federal	5,256			5,688			(455		)
State	(380		)	(270		)	915
Foreign	(559		)	(1,245		)	(1,572		)
	4,317			4,173			(1,112		)
Total	$	30,722		$	31,588		$	26,748

The tax effects of temporary differences that give rise to deferred tax assets and liabilities are presented below:



	At December 31,
	2014			2013
In thousands
Deferred tax assets:
Deferred employee benefits	$	75,026		$	53,108
Inventories	10,332			13,797
Tax loss and credit carryforwards	9,895			7,540
Long-term contracts	3,477			6,345
Accrued liabilities and other items	11,627			11,295
Total deferred tax assets	110,357			92,085
Deferred tax liabilities:
Property, plant and equipment	(15,666		)	(17,741		)
Intangibles	(29,693		)	(28,798		)
Other items	(3,096		)	(4,382		)
Total deferred tax liabilities	(48,455		)	(50,921		)
Net deferred tax assets before valuation allowance	61,902			41,164
Valuation allowance	(4,694		)	(4,657		)
Net deferred tax assets after valuation allowance	$	57,208		$	36,507

There was no material net change in the valuation allowance from December 31, 2013, to December 31, 2014, with the balance being $4.7 million at each date. Valuation allowances reduced the deferred tax asset attributable to state loss and credit carryforwards to an amount that, based upon all available information, is more likely than not to be realized. Reversal of the valuation allowance is contingent upon the recognition of future taxable income in the respective jurisdictions or changes in circumstances which cause the realization of the benefits of the carryforwards to become more likely than not.

A portion of the net deferred tax assets, $2.7 million, is related to a capital loss recorded on the disposition of the Company's Distribution segment’s Mexico operations. The realization of these benefits is dependent in part on future taxable capital gains and tax planning strategies designed to realize the benefit associated with the capital loss. All remaining U.S. foreign tax credit carryforwards have been fully utilized as of December 31, 2014. State carryforwards are in numerous jurisdictions with varying lives.

13. INCOME TAXES (CONTINUED)

No valuation allowance has been recorded against the other deferred tax assets because the Company believes that these deferred tax assets will, more likely than not, be realized. This determination is based largely upon the Company's earnings history and its anticipated future taxable income. In addition, the Company has the ability to offset deferred tax assets against deferred tax liabilities created for such items as depreciation and amortization.

Pre-tax income (loss) from foreign operations amounted to $(2.3) million, $(3.0) million and $1.4 million in 2014, 2013 and 2012, respectively. U.S. income taxes have not been provided on $26.6 million of undistributed earnings of foreign subsidiaries since it is the Company’s intention to permanently reinvest such earnings or to distribute them only when it is tax efficient to do so. It is impracticable to estimate the total tax liability, if any, that would be created by the future distribution of these earnings.

The provision for income taxes associated with continuing operations differs from that computed at the federal statutory corporate tax rate as follows:



	For the year ended December 31,
	2014			2013			2012
In thousands
Federal tax at 35% statutory rate	$	33,776		$	31,729		$	27,893
State income taxes, net of federal benefit	(765		)	2,250			1,652
Tax effect of:
Section 199 Manufacturing deduction	(2,000		)	(2,200		)	(1,400		)
Other, net	(289		)	(191		)	(1,397		)
Income tax expense	$	30,722		$	31,588		$	26,748

The Company records a benefit for uncertain tax positions in the financial statements only when it determines it is more likely than not that such a position will be sustained upon examination by taxing authorities. Unrecognized tax benefits represent the difference between the position taken and the benefit reflected in the financial statements. On December 31, 2014, 2013 and 2012 the total liability for unrecognized tax benefits was $2.4 million, $2.3 million and $3.9 million, respectively (including interest and penalties of $0.3 million in 2014 and $0.6 million in 2013 and 2012). The change in the liability for 2014, 2013 and 2012 is explained as follows:



	2014			2013			2012
In thousands
Balance at January 1	$	2,302		$	3,886		$	4,388
Additions based on current year tax positions	512			364			258
Changes for tax positions of prior years	33			(907		)	113
Settlements	(165		)	(264		)	(82		)
Additions due to acquired business	—			414			—
Reductions due to lapses in statutes of limitation	(241		)	(1,191		)	(791		)
Balance at December 31	$	2,441		$	2,302		$	3,886

Included in unrecognized tax benefits at December 31, 2014, were items approximating $1.7 million that, if recognized, would favorably affect the Company’s effective tax rate in future periods. The Company files tax returns in numerous U.S. and foreign jurisdictions, with returns subject to examination for varying periods, but generally back to and including 2009. During 2014, 2013 and 2012, $0.1 million or less of interest and penalties was recognized each year as a component of income tax expense. It is the Company’s policy to record interest and penalties on unrecognized tax benefits as income taxes.

Cash payments for income taxes, net of refunds, were $22.8 million, $33.1 million, and $26.9 million in 2014, 2013 and 2012, respectively.