7. Income Taxes

The Company's pre-tax income (loss) from continuing operations for domestic and foreign sources is as follows:

	Year Ended December 31,

	2013			2012			2011
	(in thousands)
Domestic	$	(950	)	$	(4,142	)	$	(3,483	)
Foreign		6,882			23,483			19,842


Total	$	5,932		$	19,341		$	16,359

Significant components of income tax expense (benefit) attributable to continuing operations are as follows:

	Year Ended December 31,

	2013			2012			2011
	(in thousands)
Current:
Federal and state	$	(2	)	$	—		$	—
Foreign		1,929			4,736			5,086


Total current		1,927			4,736			5,086


Deferred:
Federal and state		(410	)		(2,720	)		—
Foreign		20			(530	)		(713	)


Total deferred		(390	)		(3,250	)		(713	)


Total income tax expense	$	1,537		$	1,486		$	4,373

The following is a reconciliation of income tax expense computed at the United States statutory rate to amounts shown in the Consolidated Statements of Operations:



Federal income taxes at statutory rate	35.0	%	35.0	%	35.0	%
Taxes on foreign income which differ from the U.S. statutory rate	(2.1	)	(18.1	)	(19.8	)
Effect of change in the enacted rate	3.1		(1.3	)	(0.5	)
Change in valuation allowance	(63.4	)	(46.0	)	10.6
U.S. taxation of international operations	12.0		37.3		—
Change in estimated liabilities	0.1		0.4		1.3
Non-Deductible Items	41.3		—		—
Other	(0.1	)	0.4		0.1


	25.9	%	7.7	%	26.7	%

Significant components of the Company's deferred tax assets and liabilities are as follows:

	December 31,

	2013			2012
	(in thousands)
Deferred tax assets:
Federal, state, and foreign net operating losses	$	26,622		$	31,568
State tax credit carryforwards		6,933			6,915
Postretirement benefits		649			862
Deferred employee benefits		1,937			2,214
Accrued pension		7,411			15,097
Inventory valuation		3,037			2,281
Foreign tax credit carryforwards		4,502			2,677
Other		3,262			3,608


		54,353			65,222
Less valuation allowance		(49,297	)		(57,698	)


Total deferred tax assets		5,056			7,524


Deferred tax liabilities:
Tax over book depreciation		(4,499	)		(4,428	)
Inventory valuation		(2,291	)		(2,323	)
Intangible assets		(1,831	)		(3,069	)
Other		(1,059	)		(1,367	)


Total deferred tax liabilities		(9,680	)		(11,187	)


Net deferred tax liabilities	$	(4,624	)	$	(3,663	)

Current deferred tax assets of $2.1 million and $2.2 million for 2013 and 2012, respectively, are reported in other current assets on the Consolidated Balance Sheets. Non-current deferred tax assets of $0.8 million and $0.6 million for 2013 and 2012, respectively, are reported in other non-current assets on the Consolidated Balance Sheets.

In 2013, the valuation allowance decreased by $8.4 million. The valuation allowance decreased by $9.5 million due to operational results and a decrease in minimum pension liabilities in the U.S. and other items recorded in other comprehensive income (loss), and this decrease was offset by $1.1 million of valuation allowance established on deferred tax assets arising from the acquisition of Forkardt.

In 2012, the valuation allowance decreased by $5.0 million. $2.7 million of the decrease is due to changes in the Company's existing U.S. valuation allowance as a result of its acquisition of Usach. which resulted in an income tax benefit. The remaining decrease of $2.3 million was due to operational results in the U.S., U.K., Germany, Switzerland, Canada, France, and the Netherlands, offset by an increase in minimum pension liabilities in the U.S. and other items recorded in other comprehensive income (loss).

At December 31, 2013, we have U.S. federal and state net operating loss carryforwards of $44.1 million and $36.3 million, respectively, which expire from 2023 through 2031. If certain substantial changes in the Company's ownership occur, there would be an annual limitation on the amount of the carryforwards that can be utilized. The U.S. net operating loss includes approximately $2.2 million of the net operating loss carryforwards for which a benefit will be recorded in additional paid in capital on the Consolidated Balance Sheets when realized. We have Foreign Tax Credit Carryforwards of $4.5 million which expire between 2020 and 2023. In addition, we have state investment tax credits of $6.9 million which have no expiration date. We also have foreign net operating loss carryforwards of $40.3 million, of which $6.4 million will expire between 2018 through 2033, and of which $ 33.8 million have no expiration date.

At the end of 2013, the undistributed earnings of our foreign subsidiaries, which amounted to approximately $121.3 million, are considered to be indefinitely reinvested and, accordingly, no provision for taxes has been provided thereon. Given the complexities of the foreign tax credit calculations, it is not practicable to compute the tax liability that would be due upon distribution of those earnings in the form of dividends or liquidation or sale of our foreign subsidiaries.

We had been granted a tax holiday in China which expired in 2011. For 2011, our tax rate for our Chinese subsidiary was 24% and our tax rate in China was 25% in 2012 and 2013.

A reconciliation of the beginning and ending amount of uncertain tax positions is as follows:

	December 31,

	2013			2012			2011
	(in thousands)
Balance at beginning of period	$	2,514		$	2,333		$	2,127
Additions for acquired subsidiaries		267			—			—
Additions for tax positions related to the current year		—			—			592
Additions for tax positions of prior years		150			235			170
Reductions for tax positions of prior years		—			—			(83	)
Reductions for tax positions related to the current year		(57	)		—			—
Reductions due to lapse of applicable statute of limitations		(131	)		(54	)		(23	)
Settlements		—			—			(450	)


Balance at end of period	$	2,743		$	2,514		$	2,333

If recognized, essentially all of the uncertain tax positions and related interest at December 31, 2013 would be recorded as a benefit to income tax expense on the Consolidated Statements of Operations. It is reasonably possible that certain of our uncertain tax positions pertaining to our foreign operations may change within the next 12 months due to audit settlements and statute of limitations expirations. We estimate the change in uncertain tax positions for these items to be a benefit to income tax expense between $0.4 million and $1.1 million.

We record interest and penalties related to uncertain tax positions as income tax expense in the Consolidated Statements of Operations. The net increase in interest and net reduction in penalties were not significant for 2013 and 2012. Accrued interest related to the uncertain tax positions was $0.8 million and $0.7 million at December 31, 2013 and 2012, respectively. Accrued penalties related to uncertain tax positions were $0.2 million and $0.2 million at December 31, 2013 and 2012, respectively. The accrued interest and penalties are reported in other liabilities on the Consolidated Balance Sheets.

The tax years 2011, 2012, and 2013 remain open to examination by the U.S. federal taxing authorities. The tax years 2009 through 2013 remain open to examination by the U.S. state taxing authorities. For our other major jurisdictions (Switzerland, U.K., Taiwan, Germany, Netherlands and China); the tax years between 2007 and 2013 generally remain open to routine examination by foreign taxing authorities, depending on the jurisdiction.

Taxes paid in 2013, 2012 and 2011 totaled $5.2 million, $4.1 million and $4.9 million, respectively.