INCOME TAXES

We determine our deferred tax assets and liabilities based upon the difference between the financial statement and tax bases of our assets and liabilities calculated using enacted applicable tax rates. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we establish a valuation allowance. Changes in the valuation allowance, when recorded, are included in the provision for income taxes in the consolidated financial statements.

Our unrecognized tax benefits of $1,755, $2,247, and $3,104 as of December 31, 2016, 2015, and 2014, respectively, are uncertain tax positions that would impact our effective tax rate if recognized. We are periodically engaged in tax return examinations, reviews of statute of limitations periods, and settlements surrounding income taxes. We do not anticipate a material change in unrecognized tax benefits during the next twelve months.

Our uncertain tax benefits, and changes thereto, during 2016, 2015, and 2014 were as follows:



	2016			2015			2014
Balance at January 1,	$	2,247		$	3,104		$	3,419
Additions based on tax positions related to current year	397			464			490
Additions based on tax positions of prior years	—			—			—
Reductions for tax positions of prior years	(889		)	(252		)	(477		)
Settlements	—			(1,069		)	(328		)
Balance at December 31,	$	1,755		$	2,247		$	3,104

We classify interest expense and penalties as part of our provision for income taxes based upon applicable federal and state interest/underpayment percentages. We have accrued $650 and $907 in interest and penalties at December 31, 2016 and 2015, respectively. Interest was computed on the difference between the provision for income taxes recognized in accordance with GAAP and the amount of benefit previously taken or expected to be taken in our federal, state, and local income tax returns.

Our federal income tax returns for the tax years 2013 and forward are available for examination by the United States Internal Revenue Service (“IRS”). The statute of limitation for the 2013 federal return will expire on September 15, 2017, unless extended by consent. Our state income tax returns for 2012 through 2016 remain subject to examination by various state authorities with the latest period closing on December 31, 2021. We have not extended the statutes of limitations in any state jurisdictions with respect to years prior to 2012.

The IRS concluded examinations of the Company's 2008-2011 federal income tax returns. In May 2014, we formalized settlement of the IRS audit for each of these four years. Collectively, including interest, we settled the assessments for $907. This closure has been recorded in our federal income tax expense for 2014.

A reconciliation between the “statutory” federal income tax rate and the effective tax rate in the consolidated statements of income is as follows:



	For the Years Ended December 31,
	2016		2015		2014
“Statutory” federal tax rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal benefit	3.3		3.8		3.5
Other, net	0.9		1.2		1.8
Effective tax rate	39.2	%	40.0	%	40.3	%

The components of income before taxes and the provision for income taxes recorded in the consolidated statements of income are as follows:



	For the Years Ended December 31,
Components of Income before Taxes	2016		2015		2014
Domestic	$	143,567	$	143,144	$	136,656
Foreign	9,932		9,197		10,155
Income before taxes	$	153,499	$	152,341	$	146,811



	For the Years Ended December 31,
Components of Income Tax Provision	2016			2015			2014
Current expense
U.S. Federal	$	33,030		$	46,174		$	44,713
State	4,821			7,996			7,266
Foreign	2,795			2,666			3,058
Total current expense	$	40,646		$	56,836		$	55,037
Deferred expense (benefit)
U.S. Federal	16,676			3,224			4,049
State	3,008			958			47
Foreign	(144		)	(9		)	(8		)
Total deferred expense (benefit)	$	19,540		$	4,173		$	4,088
Total income tax provision	$	60,186		$	61,009		$	59,125

Deferred income taxes are provided based upon differences between the financial statement and tax bases of assets and liabilities. The following deferred tax assets (liabilities) were recorded at December 31:



Assets (Liabilities)	2016			2015
Postretirement benefits	$	29,788		$	29,184
Payroll accruals	2,618			2,995
Bad debt reserves	1,322			1,653
Other deferred tax assets	5,251			5,583
Pension	47,847			64,500
Inventory	11,336			7,173
Subtotal	98,162			111,088
Less: valuation allowances	(136		)	(402		)
Deferred tax assets	98,026			110,686
Fixed assets	(40,887		)	(40,086		)
Computer software	(5,724		)	(6,412		)
Other deferred tax liabilities	(3,043		)	(2,438		)
Deferred tax liabilities	(49,654		)	(48,936		)
Net deferred tax assets	$	48,372		$	61,750

Deferred income taxes included in non-current assets (liabilities) at December 31 were:



	2016			2015
Deferred tax assets included in other non-current assets	$	48,666		$	62,047
Deferred tax liabilities included in other non-current liabilities	(294		)	(297		)

We adopted FASB's ASU 2015-17, "Balance Sheet Classification of Deferred Taxes”, which required entities with a classified balance sheet to present all deferred tax assets and liabilities as non-current, retrospectively beginning January 1, 2015 resulting in a change in presentation of prior periods. Deferred tax assets included in other current assets decreased by $2,777 as of December 31, 2014 with a corresponding increase to deferred tax assets included in other non-current assets. Deferred tax liabilities included in other current liabilities of $365 as of December 31, 2014, were reclassified to other non-current liabilities.

Operating loss carryforwards included in net deferred tax assets at December 31 were:



	2016		2015
Foreign net operating losses⁽¹⁾	$	239	$	349
State net operating losses⁽²⁾	529		563

⁽¹⁾Expires in 2024

⁽²⁾Expire between 2020 and 2030

Due to uncertainties regarding the utilization of our foreign and state net operating losses, a partial valuation allowance has been applied against the deferred tax benefit at December 31, 2016.

We have undistributed earnings of non-U.S. subsidiaries of $78,767 and $72,488 as of December 31, 2016 and 2015, respectively. We have not made a provision for U.S. federal and state income taxes on these accumulated but undistributed earnings, as such earnings are considered to be indefinitely reinvested outside the U.S.