INCOME TAXES

Earnings before income taxes for the years ended December 31 consist of:



(In thousands)	2014		2013		2012
Domestic	$	120,563	$	105,188	$	80,475
Foreign	126,381		95,862		74,746
	$	246,944	$	201,050	$	155,221

The provision for income taxes for the years ended December 31 consists of:



(In thousands)	2014			2013			2012
Current:
Federal	$	70,609		$	29,323		$	27,882
State	9,065			5,629			5,465
Foreign	33,401			20,807			21,369
	113,075			55,759			54,716

Deferred:
Federal	(29,469		)	7,982			758
State	(1,275		)	644			(1,122		)
Foreign	(5,070		)	(802		)	(5,172		)
	(35,814		)	7,824			(5,536		)
Valuation allowance	(266		)	(1,937		)	1,960
Provision for income taxes	$	76,995		$	61,646		$	51,140

The effective tax rate varies from the U.S. federal statutory tax rate for the years ended December 31, principally:



	2014		2013		2012
U.S. federal statutory tax rate	35.0	%	35.0	%	35.0	%
Add (deduct):
State and local taxes, net of federal benefit	2.4		1.6		1.7
R&D tax credits	(1.3	)	(1.5	)	(0.9	)
Foreign earnings ⁽¹⁾	(4.4	)	(3.7	)	(3.0	)
All other, net	(0.5	)	(0.7	)	0.1
Effective tax rate	31.2	%	30.7	%	32.9	%

⁽¹⁾ Foreign earnings primarily include the net impact of differences between local statutory rates and the U.S. Federal statutory rate, the cost of repatriating foreign earnings, and the impact of changes to foreign valuation allowances.

The components of the Corporation’s deferred tax assets and liabilities at December 31 are as follows:



(In thousands)	2014			2013
Deferred tax assets:
Capital loss carryover	$	17,555		$	—
Environmental reserves	10,123			9,913
Inventories	18,496			20,197
Postretirement/postemployment benefits	13,326			12,641
Incentive compensation	16,140			6,727
Accrued vacation pay	4,968			5,745
Warranty reserves	4,330			5,073
Share-based payments	4,422			7,718
Pension plans	84,493			43,684
Net operating loss	8,909			9,826
Other	12,609			14,793
Total deferred tax assets	195,371			136,317
Deferred tax liabilities:
Undistributed earnings	7,840			4,077
Depreciation	33,117			52,242
Goodwill amortization	74,555			65,644
Other intangible amortization	62,777			81,634
Other	1,612			4,119
Total deferred tax liabilities	179,901			207,716
Valuation allowance	23,478			6,321
Net deferred tax assets/(liabilities)	$	(8,008	)	$	(77,720	)

Deferred tax assets and liabilities are reflected on the Corporation’s consolidated balance sheet at December 31 as follows:



(In thousands)	2014			2013
Net current deferred tax assets	$	44,311		$	47,650
Net current deferred tax liabilities	2,448			3,175
Net noncurrent deferred tax assets	1,683			1,449
Net noncurrent deferred tax liabilities	51,554			123,644
Net deferred tax assets/(liabilities)	$	(8,008	)	$	(77,720	)

The Corporation has income tax net operating loss carryforwards related to international operations of approximately $26.4 million of which $16.4 million have an indefinite life and $10.0 million expire through 2023. The Corporation has federal and state income tax net loss carryforwards of approximately $68.7 million, of which $21.0 million are net operating losses which expire through 2034 and $47.7 million are capital loss carryforwards which expire in 2019. The Corporation has recorded a deferred tax asset of $26.5 million reflecting the benefit of the loss carryforwards.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2014 in certain of the Corporation’s foreign locations. Such objective evidence limits the ability to consider other subjective evidence such as projections for future growth. The Corporation increased its valuation allowance by $17.2 million, to $23.5 million, as of December 31, 2014, in order to measure only the portion of the deferred tax asset that more likely than not will be realized. The valuation allowance increased $17.6 million principally as a result of the tax benefit associated with the capital loss carryforward incurred from the sale of its discontinued operations offset by various minor activities. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as projections for growth.

Income tax payments of $35.0 million were made in 2014, $69.4 million in 2013, and $42.7 million in 2012.

The amount of undistributed foreign subsidiaries earnings considered to be permanently reinvested for which no provision has been made for U.S. federal or foreign taxes at December 31, 2014 was $295.2 million. It is not practicable to estimate the amount of tax that would be payable if these amounts were repatriated to the United States; however, foreign tax credits may partiality offset any tax liability.

The Corporation has recognized a liability in Other liabilities for interest of $1.7 million and penalties of $1.1 million as of December 31, 2014.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



(In thousands)	2014			2013			2012
Balance at January 1,	$	10,623		$	11,301		$	5,769
Additions for tax positions of prior periods	1,421			1,511			4,591
Additions for tax positions related to the current year	1,738			1,768			1,019
Settlements	(2,039		)	(3,868		)	(53		)
Lapses of statute of limitations	(41		)	(140		)	(28		)
Foreign currency translation	(142		)	51			3
Balance at December 31,	$	11,560		$	10,623		$	11,301

In many cases the Corporation’s uncertain tax positions are related to tax years that remain subject to examination by tax authorities.

The following describes the open tax years, by major tax jurisdiction, as of December 31, 2014:



United States (Federal)	2011	-	present
United States (Various states)	1998	-	present
United Kingdom	2007	-	present
Canada	2008	-	present

The Corporation does not expect any significant changes to the estimated amount of liability associated with its uncertain tax positions through the next twelve months. Included in the total unrecognized tax benefits at December 31, 2014, 2013, and 2012 is $8.0 million, $7.6 million, and $9.0 million, respectively, which, if recognized, would favorably affect the effective income tax rate.