Income Taxes

The components of Income from continuing operations before income taxes and Income taxes follow:



	2013			2012			2011
Income from continuing operations before income taxes:
U.S.	$	10,343		$	8,853		$	(630	)
International	97,231			83,409			91,605
Income from continuing operations before income taxes	$	107,574		$	92,262		$	90,975
Income tax provision:
Current:
U.S. – federal	$	8,356		$	579		$	12,223
U.S. – state	539			24			(128		)
International	16,933			13,418			11,695
	25,828			14,021			23,790
Deferred:
U.S. – federal	13,792			4,610			(6,382		)
U.S. – state	(110		)	566			928
International	(4,257		)	(6,765		)	(2,316		)
	9,425			(1,589		)	(7,770		)
Income taxes	$	35,253		$	12,432		$	16,020

Deferred income tax assets and liabilities at December 31 consist of the tax effects of temporary differences related to the following:



	Assets						Liabilities
	2013			2012			2013			2012
Allowance for doubtful accounts	$	520		$	946		$	88		$	78
Depreciation and amortization	1,886			(13,881		)	96,305			35,245
Inventory valuation	17,292			15,486			4,241			1,288
Other postretirement/postemployment costs	3,065			20,841			(14,536		)	(350		)
Tax loss carryforwards	15,363			48,402			(1,445		)	—
Pension	1,631			41,854			(1,049		)	(262		)
Accrued compensation	5,949			12,611			(9,381		)	—
Goodwill	—			(35,236		)	12,805			53
Swedish tax incentive	—			—			4,590			3,898
Contingent convertible debt interest	(12,848		)	(10,846		)	—			—
Unrealized foreign currency gain	—			—			2,948			2,613
Other	6,555			8,626			3,735			7,921
	39,413			88,803			98,301			50,484
Valuation allowance	(18,873		)	(24,936		)	—			—
	$	20,540		$	63,867		$	98,301		$	50,484
Current deferred income taxes	$	18,226		$	33,906		$	3,795		$	1,777
Non-current deferred income taxes	2,314			29,961			94,506			48,707
	$	20,540		$	63,867		$	98,301		$	50,484

The standards related to accounting for income taxes require that deferred tax assets be reduced by a valuation allowance if, based on all available evidence, it is more likely than not that the deferred tax asset will not be realized. Available evidence includes the reversal of existing taxable temporary differences, future taxable income exclusive of temporary differences, taxable income in carryback years and tax planning strategies. The valuation allowance decreased $6,063 in 2013 primarily due to the utilization of previously unbenefited losses as a result of the sale of BDNA.

Management believes that sufficient taxable income should be earned in the future to realize the net deferred tax assets principally in the United States. The realization of these assets is dependent in part on the amount and timing of future taxable income in the jurisdictions where deferred tax assets reside. The Company has tax loss carryforwards of $60,278; $1,436 of which relates to state tax loss carryforwards; $55,405 of which relates to international tax loss carryforwards with carryforward periods ranging from one to 13 years; and $3,437 of which relates to international tax loss carryforwards with unlimited carryforward periods. In addition, the Company has tax credit carryforwards of $1,100 with remaining carryforward periods ranging from one year to 5 years. As the ultimate realization of the remaining net deferred tax assets is dependent upon future taxable income, if such future taxable income is not earned and it becomes necessary to recognize a valuation allowance, it could result in a material increase in the Company’s tax expense which could have a material adverse effect on the Company’s financial condition and results of operations.

The Company has not recognized deferred income taxes on $766,456 of undistributed earnings of its international subsidiaries, since such earnings are considered to be reinvested indefinitely. If the earnings were distributed in the form of dividends, the Company would be subject, in certain cases, to both U.S. income taxes and foreign income and withholding taxes. Determination of the amount of this unrecognized deferred income tax liability is not practicable. During 2013, the Company repatriated a dividend from a portion of current year foreign earnings to the U.S. in the amount of $5,000. As a result of the dividend, tax expense increased by $1,207 and the 2013 annual consolidated effective income tax rate increased by 1.1 percentage points.

A reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate from continuing operations follows:



	2013		2012		2011
U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State taxes (net of federal benefit)	0.3		0.3		0.5
Foreign losses without tax benefit	0.8		0.8		0.3
U.S. Tax Court Decision	15.3		—		—
Foreign operations taxed at lower rates	(20.6	)	(23.7	)	(25.5	)
ESOP dividend	(0.3	)	(0.5	)	(0.4	)
Repatriation from current year foreign earnings	1.1		2.3		7.6
Other	1.2		(0.7	)	0.1
Consolidated effective income tax rate	32.8	%	13.5	%	17.6	%

The Aerospace and Industrial Segments were previously awarded a number of multi-year tax holidays in both Singapore and China. Tax benefits of $6,746 ($0.12 per diluted share), $6,026 ($0.11 per diluted share) and $7,185 ($0.13 per diluted share) were realized in 2013, 2012 and 2011, respectively. These holidays are subject to the Company meeting certain commitments in the respective jurisdictions. The tax holidays are due to expire in 2014 through 2016.

Income taxes paid globally, net of refunds, were $158,092, $15,876 and $11,613 in 2013, 2012 and 2011, respectively.

As of December 31, 2013, 2012 and 2011, the total amount of unrecognized tax benefits recorded in the consolidated balance sheet was $8,027, $9,321 and $6,965, respectively, which, if recognized, would have reduced the effective tax rate in prior years, with the exception of amounts related to acquisitions. A reconciliation of the unrecognized tax benefits for 2013, 2012 and 2011 follows:



	2013			2012			2011
Balance at January 1	$	9,321		$	6,965		$	7,102
Increase (decrease) in unrecognized tax benefits due to:
Tax positions taken during prior periods	9,944			—			—
Tax positions taken during the current period	3,350			—			215
Acquisition	556			2,528			—
Settlements	(15,144		)	(172		)	(175		)
Lapse of the applicable statute of limitations	—			—			(177		)
Balance at December 31	$	8,027		$	9,321		$	6,965

The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The Company recognized interest and penalties as a component of income taxes of $9,614, $0, and $(32) in the years 2013, 2012, and 2011 respectively. The liability for unrecognized tax benefits include gross accrued interest and penalties of $1,031, $0 and $0 at December 31, 2013, 2012 and 2011, respectively.

The Company or its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by various taxing authorities, including the IRS in the U.S. and the taxing authorities in other major jurisdictions such as Brazil, Canada, China, France, Germany, Mexico, Singapore, Sweden, Switzerland and the United Kingdom. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2003. See Note 20 of the Consolidated Financial Statements for a discussion of current IRS matters.