INCOME TAXES

The components of income before income taxes for the three years ended December 31, 2013 were as follows:



	Year Ended December 31,
	2013		2012		2011
U.S.	$	281,724	$	243,382	$	204,667
Non-U.S.	134,717		126,188		96,664
Total	$	416,441	$	369,570	$	301,331

The components of income tax expense (benefit) for the three years ended December 31, 2013 were as follows:



	Year Ended December 31,
	2013			2012			2011
Current:
Federal	$	58,099		$	72,809		$	42,510
Non-U.S.	40,348			33,510			19,970
State and local	8,490			8,172			6,699
	106,937			114,491			69,179
Deferred:
Federal	21,946			(1,673		)	12,140
Non-U.S.	(5,734		)	(750		)	2,768
State and local	1,605			286			231
	17,817			(2,137		)	15,139
Total	$	124,754		$	112,354		$	84,318

The differences between total income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes for the three years ended December 31, 2013 were as follows:



	Year Ended December 31,
	2013			2012			2011
Statutory rate of 35% applied to pre-tax income	$	145,754		$	129,350		$	105,466
Effect of state and local income taxes, net of federal tax benefit	7,124			5,598			4,585
Taxes (less) more than the U.S. tax rate on non-U.S. earnings, including utilization of tax loss carry-forwards, losses with no benefit and changes in non-U.S. valuation allowance	(17,352		)	(11,263		)	(13,637		)
Manufacturing deduction	(6,386		)	(6,287		)	(5,330		)
U.S. tax cost (benefit) of foreign source income	995			(4,766		)	145
Resolution and adjustments to uncertain tax positions	(313		)	(1,493		)	(5,103		)
Other	(5,068		)	1,215			(1,808		)
Total	$	124,754		$	112,354		$	84,318
Effective tax rate	29.96		%	30.40		%	27.98		%

The 2013 effective tax rate is impacted by the geographic mix of earnings and taxes at lower rates in foreign jurisdictions, including Canada, Mexico, Poland and the U.K., as well as loss utilization in other foreign jurisdictions. Total income tax payments, net of refunds, were $84,567 in 2013, $78,506 in 2012 and $62,600 in 2011.

Deferred Taxes

Significant components of deferred tax assets and liabilities at December 31, 2013 and 2012, were as follows:



	December 31,
	2013			2012
Deferred tax assets:
Tax loss and credit carry-forwards	$	51,762		$	40,373
Inventory	1,277			1,328
Other accruals	15,709			14,981
Employee benefits	18,909			17,904
Pension obligations	4,643			82,903
Other	9,828			12,686
Deferred tax assets, gross	102,128			170,175
Valuation allowance	(49,684		)	(38,799		)
Deferred tax assets, net	52,444			131,376
Deferred tax liabilities:
Property, plant and equipment	38,653			41,380
Intangible assets	24,014			19,545
Inventory	7,311			5,783
Pension obligations	7,315			2,940
Other	8,777			8,769
Deferred tax liabilities	86,070			78,417
Total Deferred taxes	$	(33,626	)	$	52,959

At December 31, 2013, certain subsidiaries had tax loss carry-forwards of approximately $121,044 that will expire in various years from 2014 through 2030, except for $77,380 for which there is no expiration date.

In assessing the realizability of deferred tax assets, the Company assesses whether it is more likely than not that a portion or all of the deferred tax assets will not be realized. The Company considers the scheduled reversal of deferred tax liabilities, tax planning strategies, and projected future taxable income in making this assessment. At December 31, 2013, a valuation allowance of $49,684 was recorded against certain deferred tax assets based on this assessment. The Company believes it is more likely than not that the tax benefit of the remaining net deferred tax assets will be realized. The amount of net deferred tax assets considered realizable could be increased or decreased in the future if the Company's assessment of future taxable income or tax planning strategies changes.

The Company does not provide deferred income taxes on unremitted earnings of certain non-U.S. subsidiaries which are deemed permanently reinvested. It is not practicable to calculate the deferred taxes associated with the remittance of these earnings. Deferred income taxes associated with earnings of $8,354 that are not expected to be permanently reinvested were not significant.

Unrecognized Tax Benefits

Liabilities for unrecognized tax benefits are classified as "Accrued taxes" non-current unless expected to be paid in one year. The Company recognizes interest and penalties related to unrecognized tax benefits in "Income taxes." Current income tax expense included an expense of $492 for the year ended December 31, 2013 and an expense of $893 for the year ended December 31, 2012 for interest and penalties. For those same years, the Company's accrual for interest and penalties related to unrecognized tax benefits totaled $10,257 and $10,295, respectively.

The following table summarizes the activity related to unrecognized tax benefits:



	2013			2012
Balance at January 1	$	25,255		$	26,656
Increase related to current year tax provisions	1,990			3,838
Increase related to prior years' tax positions	208			212
Increase related to acquisitions	3,528			1,274
Decrease related to settlements with taxing authorities	(95		)	(940		)
Resolution of and other decreases in prior years' tax liabilities	(3,491		)	(5,964		)
Other	(1,488		)	179
Balance at December 31	$	25,907		$	25,255

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $13,739 at December 31, 2013 and $14,839 at December 31, 2012.

The Company files income tax returns in the U.S. and various state, local and foreign jurisdictions. 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. The Company is currently subject to various U.S. state audits, an Indian tax audit for 2012 - 2013 and an Indonesian tax audit for 2003 and 2005 - 2007.

The Company is generally not able to precisely estimate the ultimate settlement amounts or timing until after the close of an audit. The Company evaluates its tax positions and establishes liabilities for uncertain tax positions that may be challenged by local authorities and may not be fully sustained.

Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including progress of tax audits and closing of statutes of limitations. Based on information currently available, management believes that additional audit activity could be completed and/or statutes of limitations may close relating to existing unrecognized tax benefits. It is reasonably possible there could be a further reduction of $4,284 in prior years' unrecognized tax benefits in 2014.

In July 2012, the Company received a Notice of Reassessment from the Canada Revenue Agency (the “CRA”) for 2004 to 2011, which would disallow the deductibility of inter-company dividends. These adjustments would increase Canadian federal and provincial tax due by $58,824 plus approximately $16,022 of interest, net of tax. The Company disagrees with the position taken by the CRA and believes it is without merit. The Company will vigorously contest the assessment through the Tax Court of Canada. A trial date has not yet been scheduled.

In connection with the litigation process, the Company is required to deposit no less than one-half of the tax and interest assessed by the CRA. The Company has elected to deposit the entire amount of the dispute in order to suspend the continuing accrual of a 5% interest charge. Additionally, deposited amounts will earn interest of approximately 1% due upon a favorable outcome. A deposit was made and is recorded as a non-current asset valued at $84,128 as of December 31, 2013. Any Canadian tax ultimately due will be creditable in the parent company's U.S. federal tax return. The Company expects to be able to utilize the full amount of foreign tax credits generated in the statutorily allowed carry-back and carry-forward periods. Accordingly, should the Company not prevail in this dispute, the income statement charge will approximate the deficiency interest, net of tax.

The Company believes it will prevail on the merits of the tax position. In accordance with prescribed recognition and measurement thresholds, no income tax accrual has been made for any uncertain tax positions related to the CRA reassessment. An unfavorable resolution of this matter could have a material effect on the Company's financial statements in the quarter in which a judgment is reached.