INCOME TAXES

The Company is responsible for filing consolidated U.S., foreign and combined, unitary or separate state income tax returns. The Company is responsible for paying the taxes relating to such returns, including any subsequent adjustments resulting from the redetermination of such tax liabilities by the applicable taxing authorities.

The components of the income from operations before provision for income taxes for the Company’s domestic and foreign operations for the years ended December 31 are provided below:



	For the year ended December 31,
In thousands	2016		2015		2014
Domestic	$	276,218	$	461,394	$	343,180
Foreign	136,619		123,974		164,675
Income from operations before income taxes	$	412,837	$	585,368	$	507,855

Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $1,256.2 million at December 31, 2016. Those earnings are considered to be indefinitely reinvested; accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable due to the complexities associated with its hypothetical calculation.

The consolidated provision for income taxes included in the Statement of Income consisted of the following:



	For the year ended December 31,
In thousands	2016			2015			2014
Current taxes
Federal	$	72,317		$	141,245		$	108,782
State	9,953			16,072			17,091
Foreign	27,391			24,442			37,356
	109,661			181,759			163,229
Deferred taxes
Federal	11,013			9,606			2,287
State	1,953			770			1,404
Foreign	(23,194		)	(5,395		)	(10,745		)
	(10,228		)	4,981			(7,054		)
Total provision	$	99,433		$	186,740		$	156,175

A reconciliation of the United States federal statutory income tax rate to the effective income tax rate on operations for the years ended December 31 is provided below:



	For the year ended December 31,
In thousands	2016		2015		2014
U.S. federal statutory rate	35.0	%	35.0	%	35.0	%
State taxes	2.1	%	2.0	%	2.2	%
Tax reserves	(0.2	)%	(0.4	)%	0.3	%
Foreign	(4.3	)%	(2.1	)%	(4.2	)%
Research and development credit	(1.0	)%	(0.4	)%	(0.5	)%
Manufacturing deduction	(1.8	)%	(2.3	)%	(1.8	)%
France tax rate change	(6.5	)%	—	%	—	%
Transaction costs related to acquisitions	1.5	%	—	%	—	%
Other, net	(0.7	)%	0.1	%	(0.2	)%
Effective rate	24.1	%	31.9	%	30.8	%

The 6.5% decrease in the effective tax rate due to the France tax rate change was the result of adopted tax legislation that reduces the corporate income tax rate in France from 33.3% to 28.0% over the period 2017 to 2020. The 1.5% increase in the effective tax rate due to Transaction costs related to acquisitions was primarily related to nondeductible costs associated with the acquisition of Faiveley Transport. Deferred income taxes result from temporary differences in the recognition of income and expense for financial and income tax reporting purposes. These deferred income taxes will be recognized as future tax benefits or costs when the temporary differences reverse.

Components of deferred tax assets and liabilities were as follows:



	December 31,
In thousands	2016			2015
Deferred income tax assets:
Accrued expenses and reserves	$	26,117		$	39,426
Warranty reserve	24,131			24,544
Deferred compensation/employee benefits	25,755			24,950
Pension and postretirement obligations	25,595			15,507
Inventory	22,579			18,664
Net operating loss carry forwards	59,416			25,636
Tax credit carry forwards	621			959
Other	2,317			—
Gross deferred income tax assets	186,531			149,686
Valuation allowance	21,418			12,623
Total deferred income tax assets	165,113			137,063
Deferred income tax liabilities:
Property, plant & equipment	47,321			34,518
Intangibles	359,312			167,108
Other	—			2,243
Total deferred income tax liabilities	406,633			203,869
Net deferred income tax liability	$	(241,520	)	$	(66,806	)

A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2016, the valuation allowance for certain foreign carryforwards was $21.4 million primarily in Brazil, China and South Africa.

Net operating loss carry-forwards in the amount of $59.4 million expire in various periods from December 31, 2017 to December 31, 2036.

As of December 31, 2016, the liability for income taxes associated with unrecognized tax benefits was $8.4 million, of which $4.2 million, if recognized, would favorably affect the Company’s effective income tax rate. As of December 31, 2015, the liability for income taxes associated with unrecognized tax benefits was $10.6 million, of which $4.3 million, if recognized, would favorably affect the Company’s effective tax rate. A reconciliation of the beginning and ending amount of the liability for income taxes associated with unrecognized tax benefits follows:



In thousands	2016			2015			2014
Gross liability for unrecognized tax benefits at beginning of year	$	10,557		$	12,596		$	10,531
Gross increases - unrecognized tax benefits in prior periods	6			—			30
Gross increases - current period unrecognized tax benefits	—			1,682			2,756
Gross decreases - unrecognized tax benefits in prior periods	—			—			(463		)
Gross decreases - audit settlement during year	—			(3,027		)	(77		)
Gross decreases - expiration of audit statute of limitations	(2,140		)	(694		)	(181		)
Gross liability for unrecognized tax benefits at end of year	$	8,423		$	10,557		$	12,596

The Company includes interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2016, the total interest and penalties accrued was approximately $0.8 million and $0.3 million, respectively. As of December 31, 2015, the total interest and penalties accrued was approximately $2.0 million and $0.2 million, respectively.

With limited exception, the Company is no longer subject to examination by various U.S. and foreign taxing authorities for years before 2012. At this time, the Company believes that it is reasonably possible that unrecognized tax benefits of approximately $3.3 million may change within the next 12 months due to the expiration of statutory review periods and current examinations.