Note 9 – Income Taxes

The components of income before income taxes were taxed under the following jurisdictions:

(In thousands)	2014		2013		2012

Domestic	$	135,445	$	262,220	$	105,945
Foreign		12,568		9,178		14,409

Income before income taxes	$	148,013	$	271,398	$	120,354

Income tax expense consists of the following:

(In thousands)	2014			2013			2012

Current tax expense:
Federal	$	45,723		$	69,565		$	33,152
Foreign		2,346			2,608			1,764
State and local		3,905			6,723			3,049

Current tax expense		51,974			78,896			37,965

Deferred tax (benefit) expense:
Federal		(2,469	)		17,694			570
Foreign		890			(376	)		(2,015	)
State and local		(4,916	)		1,895			161

Deferred tax (benefit) expense		(6,495	)		19,213			(1,284	)

Income tax expense	$	45,479		$	98,109		$	36,681

No provision is made for U.S. income taxes applicable to undistributed earnings of foreign subsidiaries that are indefinitely reinvested in foreign operations. It is not practicable to compute the potential deferred tax liability associated with these undistributed foreign earnings. The Company has approximately $75.0 million of undistributed foreign earnings for which it has not recorded deferred tax liabilities.

The difference between the reported income tax expense and a tax determined by applying the applicable U.S. federal statutory income tax rate to income before income taxes is reconciled as follows:

(In thousands)	2014			2013			2012

Expected income tax expense	$	51,805		$	94,989		$	42,124
State and local income tax, net of federal benefit		3,355			6,405			3,178
Effect of foreign statutory rate different from U.S. and other foreign adjustments		(1,094	)		(1,026	)		(2,637	)
Valuation allowance changes		(5,732	)		—			(1,224	)
U.S. production activities deduction		(4,025	)		(4,445	)		(2,975	)
Goodwill disposition		—			1,790			—
Tax contingency changes		—			(140	)		(3,224	)
Other, net		1,170			536			1,439

Income tax expense	$	45,479		$	98,109		$	36,681

During 2014, the Company released a valuation allowance of $5.7 million, or ten cents per diluted share, related to certain state income tax credits. As a result of legislative changes enacted in 2014, the Company now expects to be able to use such credits within the foreseeable future. During 2012, the Company released a valuation allowance of $1.2 million, or two cents per diluted share, due to the expectation that certain state tax attributes would be utilized.

The following summarizes the activity related to the Company’s unrecognized tax benefits:

(In thousands)	2014			2013

Beginning balance	$	2,828		$	3,259
Increases related to prior year tax positions		—			—
Increases related to current year tax positions		—			—
Decreases related to prior year tax positions		(2,828	)		—
Decreases related to settlements with taxing authorities		—			(431	)
Decreases due to lapses in the statute of limitations		—			—

Ending balance	$	—		$	2,828

The $2.8 million reduction of unrecognized tax benefits in 2014 had no impact on the effective tax rate. The Company includes interest and penalties related to income tax matters as a component of income tax expense. The net reduction to income tax expense related to penalties and interest was immaterial in 2014, 2013, and 2012.

The Internal Revenue Service completed its audit of the Company’s 2012 tax return during 2014, the result of which was immaterial to the Consolidated Financial Statements. The Company is currently under audit in various other jurisdictions.

The statute of limitations is still open for the Company’s federal tax return and most state income tax returns for 2011 and all subsequent years. The statutes of limitations for certain state and foreign returns are also open for some earlier tax years due to differing statute periods. While the Company believes that it is adequately reserved for possible audit adjustments, the final resolution of these examinations cannot be determined with certainty and could result in final settlements that differ from current estimates.

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

(In thousands)	2014			2013

Deferred tax assets:
Inventories	$	12,815		$	11,136
Other postretirement benefits and accrued items		14,550			13,548
Pension		4,792			—
Other reserves		10,262			12,931
Federal and foreign tax attributes		6,451			5,913
State tax attributes, net of federal benefit		22,928			24,663
Share-based compensation		3,016			2,486

Total deferred tax assets		74,814			70,677
Less valuation allowance		(17,119	)		(22,544	)

Deferred tax assets, net of valuation allowance		57,695			48,133

Deferred tax liabilities:
Property, plant, and equipment		57,089			60,425
Pension		—			4,507
Other		1,721			2,209

Total deferred tax liabilities		58,810			67,141

Net deferred tax liability	$	(1,115	)	$	(19,008	)

As of December 27, 2014, after consideration of the federal impact, the Company had state income tax credit carryforwards of $4.1 million, all of which expire by 2017, and other state income tax credit carryforwards of $11.1 million with unlimited lives. The Company had state net operating loss (NOL) carryforwards with potential tax benefits of $7.8 million expiring between 2017 and 2029. The state tax credit and NOL carryforwards are offset by valuation allowances totaling $11.8 million.

As of December 27, 2014, the Company had federal and foreign tax attributes with potential tax benefits of $6.4 million, of which $4.5 million has an unlimited life and $1.9 million expire from 2015 to 2019. These attributes were offset by valuation allowances of $3.4 million.

The change in the valuation allowance was primarily related to the release of the $5.7 million valuation allowance related to the state income tax credits as a result of 2014 legislative changes. The remainder of the change had no material impact on the effective tax rate.

Income taxes paid were approximately $47.3 million in 2014, $80.1 million in 2013, and $38.4 million in 2012.