INCOME TAXES

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



	For the year ended December 31,
	2016			2015			2014
In thousands
Current:
Federal	$	20,405		$	25,170		$	26,296
State	2,312			349			(796		)
Foreign	738			931			905
	23,455			26,450			26,405
Deferred:
Federal	10,133			5,474			5,256
State	(1,023		)	(2,682		)	(380		)
Foreign	(1,715		)	(1,691		)	(559		)
	7,395			1,101			4,317
Total	$	30,850		$	27,551		$	30,722

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



	At December 31,
	2016			2015
In thousands
Deferred tax assets:
Deferred employee benefits	$	82,836		$	83,390
Inventories	9,694			9,410
Tax loss and credit carryforwards	19,216			19,529
Accrued liabilities and other items	12,433			12,491
Total deferred tax assets	124,179			124,820
Deferred tax liabilities:
Property, plant and equipment	(15,653		)	(17,178		)
Intangibles	(48,785		)	(42,717		)
Other items	(3,100		)	(2,195		)
Total deferred tax liabilities	(67,538		)	(62,090		)
Net deferred tax assets before valuation allowance	56,641			62,730
Valuation allowance	(4,143		)	(11,122		)
Net deferred tax assets after valuation allowance	$	52,498		$	51,608

The $7.0 million change in the valuation allowance from December 31, 2015 to December 31, 2016, primarily relates to tax attributes acquired with GRW which the Company has determined are more likely than not to be realized, partially offset by the establishment of valuation allowances relating to certain state and foreign loss carryforwards. Valuation allowances reduced the deferred tax asset attributable to these state and foreign 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 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.

Pre-tax loss from foreign operations amounted to $5.0 million, $4.3 million and $2.3 million in 2016, 2015 and 2014, respectively. U.S. income taxes have not been provided on $29.9 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.

13. INCOME TAXES (CONTINUED)

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,
	2016			2015			2014
In thousands
Federal tax at 35% statutory rate	$	31,396		$	30,796		$	33,776
State income taxes, net of federal benefit	999			(1,517		)	(765		)
Tax effect of:
Section 199 Manufacturing deduction	(2,153		)	(2,275		)	(2,000		)
Other, net	608			547			(289		)
Income tax expense	$	30,850		$	27,551		$	30,722

During the fourth quarter of 2016, the Company elected to early adopt ASU 2016-09, "Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting". The objective of this standard update is to simplify several aspects of the accounting for share-based payment transactions, including, but not limited to, income tax consequences. The standard update was effective for fiscal years, and interim periods within those years, beginning after December 31, 2016. The Company's early adoption resulted in a tax benefit of $0.5 million for 2016.

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, 2016, 2015 and 2014, the total liability for unrecognized tax benefits was $2.8 million, $3.0 million and $2.4 million, respectively (including interest and penalties of $0.2 million in 2016, $0.5 million in 2015 and $0.3 million in 2014). The change in the liability for 2016, 2015 and 2014 is explained as follows:



	2016			2015			2014
In thousands
Balance at January 1	$	2,996		$	2,441		$	2,302
Additions based on current year tax positions	211			117			512
Changes for tax positions of prior years	(96		)	(160		)	33
Settlements	(155		)	19			(165		)
Additions due to acquired business	—			954			—
Reductions due to lapses in statutes of limitation	(124		)	(375		)	(241		)
Balance at December 31	$	2,832		$	2,996		$	2,441

Included in unrecognized tax benefits at December 31, 2016, were items approximating $2.2 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 2012. During 2016, 2015 and 2014, $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 $24.8 million, $35.7 million and $22.8 million in 2016, 2015 and 2014, respectively.