13. Provision for Income Taxes

The components of the provision for income taxes were as follows:

	Year Ended December 31
(Dollars in thousands)	2013			2012			2011
Current
Federal	$	6,180		$	9,039		$	3,338
State and local	1,739			526			462
Foreign	8,632			4,056			12
	16,551			13,621			3,812
Deferred
Federal	5,950			(47		)	13,018		(1)
State and local	(248		)	178			597
Foreign	(767		)	312			(261		)
	4,935			443			13,354
Provision for income taxes	$	21,486		$	14,064		$	17,166

(1)$5.5 million relates to the reversal of indirect benefits on uncertain tax benefits which lapsed due to the statute of limitations.

Income before income tax provision includes income generated by operations outside the United States of $29.3 million, $10.4 million, and $11.8 million for 2013, 2012, and 2011, respectively. No provision has been made for U.S. Federal, state, or additional foreign taxes related to approximately $77.4 million of undistributed earnings of foreign subsidiaries which have been indefinitely reinvested. It is not practical to determine the deferred tax liability on these earnings.

The differences between the U.S. federal statutory tax rate and the Company’s effective income tax rate are as follows:

	Year Ended December 31
	2013		2012		2011
U.S. federal statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal income tax benefit	0.8		2.0		2.1
Tax rate differential on foreign income	(1.5	)	(2.0	)	(1.0	)
Nonrecurring adjustments related to sale of foreign subsidiary	(2.2	)	2.8		—
Permanent tax differences	(1.4	)	(1.9	)	(1.0	)
Valuation allowance	1.5		1.5		—
Tax statute expiration	(0.6	)	(0.8	)	(5.8	)
Change in uncertain tax positions	0.3		0.6		0.6
Other — net	0.1		0.5		0.5
Effective income tax rate	32.0	%	37.7	%	30.4	%

The Company has the following gross operating loss carryforwards and tax credit carryforwards as of December 31, 2013:

	Amount
Type	(Thousands)		Expiration Date
Foreign tax credits	$	1,063	2017
Capital loss carryforwards	770		2018
State tax credits(2)	2,476		2018-2027
Operating loss carryforwards — federal	746		2029
Operating loss carryforwards — state(1)	20,023		2014 – 2033
Operating loss carryforwards — foreign	3,465		2017, 2018 – None(3)

(1)Of the total state operating loss-carryforwards, approximately 88% expire in 2020 or later.

(2)Of the total state tax credit carryforwards, approximately 99% expire in 2023 or later.

(3) Of the total foreign tax credit carryforwards, approximately 6% have no expiration.

The components of deferred taxes consist of the following:

	December 31
(Dollars in thousands)	2013			2012
Deferred tax assets(1)
Net operating loss and credit carryforwards(2)	$	5,548		$	5,263
Accruals	11,198			10,957
Inventories	12,271			8,636
Pensions	4,725			15,892
Valuation allowance	(988		)	(1,146		)
Total deferred tax assets	32,754			39,602
Deferred tax liabilities
Property, plant and equipment	$	31,951		$	24,129
Goodwill and other intangible assets	5,879			6,308
U.S. liability on Belgian and German net deferred tax assets	1,248			669
Total deferred tax liabilities	39,078			31,106
Net deferred tax asset (liability)	$	(6,324	)	$	8,496

(1)Uncertain tax liabilities of approximately $0.3 million and $0.2 million partially offset the net operating losses and credit carryforwards in 2013 and 2012, respectively.

(2)Net indirect benefits on uncertain tax liabilities of approximately $1.0 million are included in the U.S. net operating loss and credit carryforwards in each 2013and 2012.

A valuation allowance is established when it is more likely than not that a portion of the deferred tax assets will not be realized. The valuation allowance is adjusted based on the changing facts and circumstances, such as the expected expiration of an operating loss carryforward. The Company’s valuation allowance as of December 31, 2013 is $1.0 million and is as a result of domestic capital loss carryforwards and state tax credits. The Company’s valuation allowance as of December 31, 2012 of $1.1 million pertained to an uncertainty related to the realization of foreign net operating loss carryforwards.

The Company has classified uncertain tax positions as non-current income tax liabilities unless the amount is expected to be paid within one year. The following is a reconciliation of the unrecognized income tax benefits:

(Dollars in thousands)	2013			2012			2011
Balance at January 1	$	4,141		$	4,078		$	11,215
Gross increases for tax positions of prior years	—			53			252
Gross decreases for tax positions of prior years	(438		)	—			(84		)
Gross increases for tax positions of current year	122			647			562
Lapse of statute of limitations	(390		)	(637		)	(7,867		)
Balance at December 31	$	3,435		$	4,141		$	4,078

As of December 31, 2013, approximately $2.4 million of the $3.4 million, and as of December 31, 2012, approximately $3.0 million of the $4.1 million, of unrecognized tax benefits would reduce the Company’s effective tax rate if recognized.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. In 2013, the Company reversed an immaterial amount due to the expiration of the statute of limitations. In 2012, the Company reversed approximately $0.1 million of interest and penalties due to the expiration of the statute of limitations. As of December 31, 2013 and 2012, the amount accrued for the payment of interest and penalties is approximately $0.9 million and $0.9 million, respectively.

Total uncertain tax positions recorded in accrued pension and other liabilities were approximately $4.1 million and $4.8 million for the year ended December 31, 2013 and 2012, respectively.

At this time, the Company believes that it is reasonably possible that approximately $0.4 million of the estimated unrecognized tax benefits as of December 31, 2013 will be recognized within the next twelve months based on the expiration of statutory review periods all of which will impact the effective tax rate.

On September 13, 2013, Treasury and the Internal Revenue Service issued final regulations regarding the deduction and capitalization of expenditures related to tangible property. The final regulations under Internal Revenue Code Sections 162, 167 and 263(a) apply to amounts paid to acquire, produce, or improve tangible property as well as dispositions of such property and are generally effective for tax years beginning on or after January 1, 2014. The Company has evaluated these regulations and determined they will not have a material impact on its consolidated results of operations, cash flows or financial position.

As of December 31, 2013, the following tax years remain subject to examination for the major jurisdictions where the Company conducts business:

Jurisdiction		Years
United States		2003, 2005, 2008, 2010 – 2013
Kentucky		2009 – 2013
Pennsylvania		2010 – 2013
Belgium		2011 – 2013
Canada		2009 – 2013
Germany		2010 – 2013
United Kingdom		2010 – 2013
Japan		2008 – 2013