Income Taxes

The effective tax rate was 34.0% in 2013, 36.7% in 2012 and 27.3% in 2011. A reconciliation of the Federal statutory income tax rate to the Company’s effective tax rate is as follows:



	Percent of Income before Income Taxes
	2013		2012		2011
Statutory Federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes — net of Federal tax benefit	2.8		4.2		0.7
Foreign tax rate differential	0.2		0.5		0.4
Domestic production deduction	(3.2	)	(2.9	)	(3.5	)
Non-deductible expenses	1.5		1.5		2.0
Changes in unrecognized tax benefits	0.4		(1.6	)	(14.4	)
Non-deductible goodwill	—		—		3.1
Foreign tax incentives	(2.2	)	(1.2	)	—
Valuation allowances	(0.1	)	1.2		3.0
Other	(0.4	)	—		1.0
Effective tax rate for the year	34.0	%	36.7	%	27.3	%

Income before income taxes was attributable to the following sources:



	2013		2012			2011
United States	$	39,096	$	50,143		$	39,740
Foreign	295		(2,802		)	(6,053		)
Totals	$	39,391	$	47,341		$	33,687

Income tax expense (benefit) consisted of the following:



	2013					2012					2011
	Current		Deferred			Current		Deferred			Current		Deferred
Federal	$	13,853	$	(1,479	)	$	13,093	$	2,124		$	6,509	$	2,057
Foreign	1,573		(2,278		)	297		(1,168		)	612		(371		)
State and local	2,116		(396		)	2,937		96			1,906		(1,531		)
	$	17,542	$	(4,153	)	$	16,327	$	1,052		$	9,027	$	155

Significant components of the Company’s deferred taxes as of December 31, 2013 and 2012 are as follows:



	2013			2012
Deferred income tax liabilities
Property, plant and equipment	$	18,297		$	24,748
Tax-deductible goodwill	7,437			5,206
Non-deductible intangibles	4,135			5,069
State deferred taxes	1,148			1,487
Other	484			392
	31,501			36,902
Deferred income tax assets
Compensation	6,104			6,243
Inventory valuation	765			806
Allowance for uncollectible accounts	1,007			967
Non-deductible accruals	2,116			3,820
Other	—			78
Net operating loss carryforwards	4,612			4,975
	14,604			16,889
Valuation Allowance	(5,221		)	(6,060		)
	9,383			10,829
Net deferred income tax liability	$	22,118		$	26,073

ASC 740 Income Taxes requires that deferred tax assets be reduced by a valuation allowance, if based on all available evidence, it is more likely than not that the deferred tax asset will not be realized. Available evidence includes the reversal of existing taxable temporary differences, future taxable income exclusive of temporary differences, taxable income in carryback years and tax planning strategies. During 2013, the valuation allowance decreased $0.8 million due to changes in foreign currency of $0.8 million and a decrease in the federal valuation for non-deductible expenses of $0.2 million offset by the increase in the valuation allowance for current year losses of $0.2 million. During 2012, the valuation allowance decreased $22.1 million due to the expiration of $26.1 million of valuation allowance associated with 2007 capital loss carryforwards offset by an increase of $4.0 million from additional federal non-deductible expenses as well as foreign and state net operating losses from jurisdictions with uncertainty of future profitability. At December 31, 2013, the Company has deferred tax assets of $4.6 million resulting from state and foreign net operating tax loss carryforwards of approximately $24.4 million, with carryforward periods that expire starting in 2019.

No provision has been recorded for unremitted earnings of foreign subsidiaries as it is the Company’s intention to indefinitely reinvest these earnings of these subsidiaries. Accordingly, at December 31, 2013, the Company had not recorded a deferred tax liability related to investments in its foreign subsidiaries that are essentially permanent in duration. The amount of such temporary differences was estimated to be approximately $4.7 million and may become taxable in the U.S. upon a repatriation of assets or a sale or liquidation of the subsidiaries. It is not practical to estimate the related amount of unrecognized tax liability.

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



	2013			2012			2011
Balance at January 1	$	1,078		$	1,217		5,767
Increases related to current year tax positions	496			—			—
Increases related to acquired businesses	—			236			—
Increases related to previous year tax positions	—			580			395
Reductions due to lapse of applicable statute of limitations	(48		)	(256		)	(4,945		)
Reduction due to settlements	(22		)	(699		)	—
Balance at December 31	$	1,504		$	1,078		$	1,217

The total amount of gross unrecognized tax benefits that would reduce the Company’s effective tax rate was $1.5 million, $1.1 million and $1.1 million at December 31, 2013, 2012 and 2011, respectively. The amount of accrued interest expense included as a liability within the Company’s Consolidated Statements of Financial Position was $0.1 million as of December 31, 2013, 2012 and 2011, respectively The December 31, 2013 balance of unrecognized tax benefits includes approximately $0.4 million of unrecognized tax benefits for which it is reasonably possible that they will be recognized within the next twelve months. This amount represents a decrease in unrecognized benefits related to state income tax audits, and expiring statues in U.S. Federal, state, and Non-U.S. jurisdictions.

The Company and its subsidiaries file U.S. Federal, state and local, and non-U.S. income tax returns. As of December 31, 2013 the Company is no longer subject to U.S. Federal, state and local examinations by tax authorities for tax years before 2011 and 2009, respectively. In addition, the Company is subject to non-U.S. income tax examinations for tax years of 2008 through 2013.