INCOME TAXES

The provision for income taxes consists of the following:



	Year Ended December 31,
	2015			2014		2013
	(Amounts in thousands)
Current:
U.S. federal	$	62,032		$	62,301	$	61,670
Non-U.S.	78,489			123,052		112,471
State and local	4,947			7,422		7,537
Total current	145,468			192,775		181,678
Deferred:
U.S. federal	(3,509		)	1,270		8,771
Non-U.S.	5,543			13,016		13,120
State and local	1,420			1,244		1,132
Total deferred	3,454			15,530		23,023
Total provision	$	148,922		$	208,305	$	204,701

The expected cash payments for the current income tax expense for 2015, 2014 and 2013 were reduced by $6.4 million, $8.6 million and $10.1 million, respectively, as a result of tax deductions related to the vesting of restricted stock and the exercise of non-qualified employee stock options. The income tax benefit resulting from these stock-based compensation plans has increased capital in excess of par value.

The provision for income taxes differs from the statutory corporate rate due to the following:



	Year Ended December 31,
	2015			2014			2013
	(Amounts in millions)
Statutory federal income tax at 35%	$	147.8		$	256.6		$	242.6
Foreign impact, net	(25.1		)	(57.1		)	(42.5		)
Change in valuation allowance	11.6			(1.6		)	1.8
State and local income taxes, net	6.4			8.7			8.7
Other	8.2			1.7			(5.9		)
Total	$	148.9		$	208.3		$	204.7
Effective tax rate	35.3		%	28.4		%	29.5		%

The 2015 tax rate differed from the federal statutory rate of 35% primarily due to tax impacts of the realignment programs, the non-deductible Venezuelan exchange rate remeasurement loss and the establishment of a valuation allowance against our deferred tax assets in Brazil in the amount of $12.6 million (due to deteriorating economic conditions in Brazil), substantially offset by the net impact of foreign operations, which included the impacts of lower foreign tax rates and changes in our reserves established for uncertain tax positions. The 2014 and 2013 effective tax rates differed from the federal statutory rate of 35% primarily due to the net impact of foreign operations, which included the impacts of lower foreign tax rates and changes in our reserves established for uncertain tax positions.

We assert permanent reinvestment on the majority of invested capital and unremitted foreign earnings in our foreign subsidiaries. However, we do not assert permanent reinvestment on a limited number of foreign subsidiaries where future distributions may occur. The cumulative amount of undistributed earnings considered permanently reinvested is $1.5 billion. Should these permanently reinvested earnings be repatriated in a future period in the form of dividends or otherwise, our provision for income taxes may increase materially in that period. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested differences is not practicable due to the complexities with its hypothetical calculation. During each of the three years reported in the period ended December 31, 2015, we have not recognized any net deferred tax assets attributable to excess foreign tax credits on unremitted earnings or foreign currency translation adjustments in our foreign subsidiaries with excess financial reporting basis.

For those subsidiaries where permanent reinvestment was not asserted, we had cash and deemed dividend distributions that resulted in the recognition of $2.4 million of income tax benefit during 2015 and $6.9 million and $5.0 million of income tax expense in 2014 and 2013, respectively. As we have not recorded a benefit for the excess foreign tax credits associated with deemed repatriation of unremitted earnings, these credits are not available to offset the liability associated with these dividends.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the consolidated deferred tax assets and liabilities were:



	December 31,
	2015			2014
	(Amounts in thousands)
Deferred tax assets related to:
Retirement benefits	$	36,845		$	35,501
Net operating loss carryforwards	29,473			23,483
Compensation accruals	36,695			56,903
Inventories	49,660			51,528
Credit carryforwards	50,380			32,039
Warranty and accrued liabilities	30,897			13,913
Other	41,089			43,603
Total deferred tax assets	275,039			256,970
Valuation allowances	(24,725		)	(15,378		)
Net deferred tax assets	250,314			241,592
Deferred tax liabilities related to:
Property, plant and equipment	(43,348		)	(30,077		)
Goodwill and intangibles	(175,748		)	(150,741		)
Other	(972		)	(2,182		)
Total deferred tax liabilities	(220,068		)	(183,000		)
Deferred tax assets, net	$	30,246		$	58,592

We have $155.3 million of U.S. and foreign net operating loss carryforwards at December 31, 2015. Of this total, $34.4 million are state net operating losses. Net operating losses generated in the U.S., if unused, will expire in 2016 through 2027. The majority of our non-U.S. net operating losses carry forward without expiration. Additionally, we have $46.5 million of foreign tax credit carryforwards at December 31, 2015, expiring in 2020 through 2023 for which a valuation allowance of $0.6 million has been recorded.

Earnings before income taxes comprised:



	Year Ended December 31,
	2015		2014		2013
	(Amounts in thousands)
U.S.	$	217,398	$	230,896	$	231,179
Non-U.S.	204,798		502,294		461,842
Total	$	422,196	$	733,190	$	693,021

A tabular reconciliation of the total gross amount of unrecognized tax benefits, excluding interest and penalties, is as follows (in millions):



	2015			2014			2013
Balance — January 1	$	51.5		$	59.3		$	59.1
Gross amount of increases in unrecognized tax benefits resulting from tax positions taken:
During a prior year	9.8			2.7			3.9
During the current period	8.6			7.2			8.9
Decreases in unrecognized tax benefits relating to:
Settlements with taxing authorities	(1.1		)	(3.9		)	(0.1		)
Lapse of the applicable statute of limitations	(7.4		)	(10.0		)	(11.5		)
Decreases in unrecognized tax benefits relating to foreign currency translation adjustments	(5.3		)	(3.8		)	(1.0		)
Balance — December 31	$	56.1		$	51.5		$	59.3

The amount of gross unrecognized tax benefits at December 31, 2015 was $70.4 million, which includes $14.4 million of accrued interest and penalties. Of this amount $60.8 million, if recognized, would favorably impact our effective tax rate. We recognized no net interest and penalty income for the year ended December 31, 2015, and recognized $1.5 million and $2.4 million, respectively, during the years ended December 31, 2014 and 2013 in our consolidated statements of income.

With limited exception, we are no longer subject to U.S. federal income tax audits for years through 2013, state and local income tax audits for years through 2009 or non-U.S. income tax audits for years through 2008. We are currently under examination for various years in Austria, Germany, India, Italy, Singapore, Spain, the U.S. and Venezuela.

It is reasonably possible that within the next 12 months the effective tax rate will be impacted by the resolution of some or all of the matters audited by various taxing authorities. It is also reasonably possible that we will have the statute of limitations close in various taxing jurisdictions within the next 12 months. As such, we estimate we could record a reduction in our tax expense up to approximately $12 million within the next 12 months.