Income Taxes

Following is a summary of earnings from continuing operations before income taxes for United States and foreign operations:



	2013		2012	2011
United States	$	288,627	164,122	78,224
Foreign	156,944		140,370	121,650
Earnings before income taxes	$	445,571	304,492	199,874

Income tax expense (benefit) from continuing operations for the years ended December 31, 2013, 2012 and 2011 consists of the following:



	2013			2012		2011
Current income taxes:
U.S. federal	$	84,686		26,204		13,957
State and local	9,774			4,583		5,118
Foreign	46,450			13,775		7,190
Total current	140,910			44,562		26,265
Deferred income taxes:
U.S. federal	5,280			31,106		8,994
State and local	(5,720		)	4,704		(3,488	)
Foreign	(62,085		)	(26,773	)	(10,122	)
Total deferred	(62,525		)	9,037		(4,616	)
Total	$	78,385		53,599		21,649

Income tax expense (benefit) attributable to earnings from continuing operations before income taxes differs from the amounts computed by applying the U.S. statutory federal income tax rate to earnings from continuing operations before income taxes as follows:



	2013			2012		2011
Income taxes at statutory rate	$	155,950		106,572		69,956
State and local income taxes, net of federal income tax benefit	9,317			6,004		2,821
Foreign income taxes	(80,937		)	(66,538	)	(45,112	)
Change in valuation allowance	(1,846		)	5,703		(2,052	)
Tax contingencies and audit settlements	(4,076		)	(3,598	)	(5,911	)
Other, net	(23		)	5,456		1,947
	$	78,385		53,599		21,649

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2013 and 2012 are presented below:



	2013			2012
Deferred tax assets:
Accounts receivable	$	17,346		12,289
Inventories	50,423			38,801
Employee benefits	55,479			53,519
Accrued expenses and other	72,582			44,289
Deductible state tax and interest benefit	7,927			13,119
Intangibles	92,164			113,282
Federal, foreign and state net operating losses and credits	438,272			247,786
Gross deferred tax assets	734,193			523,085
Valuation allowance	(375,859		)	(321,585	)
Net deferred tax assets	358,334			201,500
Deferred tax liabilities:
Inventories	(11,140		)	(8,106	)
Plant and equipment	(413,989		)	(277,324	)
Intangibles	(208,159		)	(128,433	)
Other liabilities	(25,387		)	(7,854	)
Gross deferred tax liabilities	(658,675		)	(421,717	)
Net deferred tax liability (1)	$	(300,341	)	(220,217	)


(1)	This amount includes $9,183 and $4,317 of non-current deferred tax assets which are in deferred income taxes and other non-current assets and $11,235 and $6,309 current deferred tax liabilities which are included in accounts payable and accrued expenses in the consolidated balance sheets as of December 31, 2013 and 2012, respectively.

The Company evaluates its ability to realize the tax benefits associated with deferred tax assets by analyzing its forecasted taxable income using both historic and projected future operating results, the reversal of existing temporary differences, taxable income in prior carry-back years (if permitted) and the availability of tax planning strategies. The valuation allowance as of December 31, 2013, 2012 and 2011 is $375,859, $321,585 and $334,215, respectively. The valuation allowance as of December 31, 2013 relates to the net deferred tax assets of certain of the Company’s foreign subsidiaries as well as certain state net operating losses and tax credits. The total change in the 2013 valuation allowance was an increase of $54,274 which includes $12,471 related to foreign currency translation. The total change in the 2012 valuation allowance was a decrease of $12,630, which includes $5,863 related to foreign currency translation. The total change in the 2011 valuation allowance was an increase of $9,088, which includes $7,040 related to foreign currency translation.

Management believes it is more likely than not that the Company will realize the benefits of its deferred tax assets, net of valuation allowances, based upon the expected reversal of deferred tax liabilities and the level of historic and forecasted taxable income over periods in which the deferred tax assets are deductible.

As of December 31, 2013, the Company has state net operating loss carry forwards and state tax credits with potential tax benefits of $51,928, net of federal income tax benefit; these carry forwards expire over various periods based on taxing jurisdiction. A valuation allowance totaling $37,115 has been recorded against these state deferred tax assets as of December 31, 2013. In addition, as of December 31, 2013, the Company has net operating loss carry forwards in various foreign jurisdictions with potential tax benefits of $386,344. A valuation allowance totaling $248,055 has been recorded against these deferred tax assets as of December 31, 2013.

The Company does not provide for U.S. federal and state income taxes on the cumulative undistributed earnings of its foreign subsidiaries because such earnings are deemed to be permanently reinvested. As of December 31, 2013, the Company had not provided federal income taxes on earnings of approximately $1,200,000 from its foreign subsidiaries. Should these earnings be distributed in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes and withholding taxes in various foreign jurisdictions. These taxes may be partially offset by U.S. foreign tax credits. Determination of the amount of the unrecognized deferred U.S. tax liability is not practical because of the complexities associated with this hypothetical calculation.

Tax Uncertainties

In the normal course of business, the Company’s tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing jurisdictions. Accordingly, the Company accrues liabilities when it believes that it is not more likely than not that it will realize the benefits of tax positions that it has taken in its tax returns or for the amount of any tax benefit that exceeds the cumulative probability threshold in accordance with ASC 740-10. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest and penalties in income tax expense (benefit). Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on the Company’s consolidated financial position but could possibly be material to the Company’s consolidated results of operations or cash flow in any given quarter or annual period.

In January 2012, the Company received a €23,789 assessment from the Belgian tax authority related to its year ended December 31, 2008, asserting that the Company had understated its Belgian taxable income for that year. The Company filed a formal protest in the first quarter of 2012 refuting the Belgian tax authority's position. The Belgian tax authority set aside the assessment in the third quarter of 2012 and refunded all related deposits, including interest income of €1,583 earned on such deposits. However, on October 23, 2012, the Belgian tax authority notified the Company of its intent to increase the Company's taxable income for the year ended December 31, 2008 under a revised theory. The Company has not been re-assessed by the Belgian tax authority for the 2008 tax year.

However, on December 28, 2012, the Belgian tax authority issued assessments for the years ended December 31, 2005 and December 31, 2009, in the amounts of €46,135 and €35,567, respectively, including penalties, but excluding interest. The Company filed a formal protest during the first quarter of 2013 relating to the new assessments. In September 2013, the Belgian tax authority denied the Company's protests, and the Company has petitioned the applicable Belgian court to hear the case.

In December 2013, the Belgian tax authority, issued additional assessments related to the years ended December 31, 2006, 2007, and 2010, in the amounts of €38,817, €39,635, and €43,117, respectively, including penalties, but excluding interest. The Company intends to file formal protests during the first quarter of 2014, refuting the Belgian tax authority's position for each of the years assessed.

The Company continues to disagree with the views of the Belgian tax authority on this matter and will persist in its vigorous defense. Although there can be no assurances, the Company believes the ultimate outcome of these actions will not have a material adverse effect on its financial condition but could have a material adverse effect on its results of operations, liquidity or cash flows in a given quarter or year.

As of December 31, 2013, the Company’s gross amount of unrecognized tax benefits is $56,545, excluding interest and penalties. If the Company were to prevail on all uncertain tax positions, $37,732 of the unrecognized tax benefits would affect the Company’s effective tax rate, exclusive of any benefits related to interest and penalties.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	2013			2012
Balance as of January 1	$	53,835		46,087
Additions based on tax positions related to the current year	3,840			3,142
Additions for tax positions of prior years	15,275			17,006
Reductions for tax positions of prior years	(5,736		)	(3,571	)
Reductions resulting from the lapse of the statute of limitations	(6,075		)	(1,764	)
Settlements with taxing authorities	(4,594		)	(7,065	)
Balance as of December 31	$	56,545		53,835

The Company will continue to recognize interest and penalties related to unrecognized tax benefits as a component of its income tax provision. As of December 31, 2013 and 2012, the Company has $13,890 and $5,874, respectively, accrued for the payment of interest and penalties, excluding the federal tax benefit of interest deductions where applicable. During the years ending December 31, 2013 , 2012 and 2011, the Company accrued interest and penalties through the consolidated statements of operations of $74, $(1,585) and $(3,755), respectively.

The Company believes that its unrecognized tax benefits could decrease by $4,315 within the next twelve months. The Company has effectively settled all Federal income tax matters related to years prior to 2009. Various other state and foreign income tax returns are open to examination for various years.