TAXES

The sources of the Company’s earnings before taxes were as follows for the years ending December 31:



	2013		2012		2011
United States	$	18,119	$	32,296	$	(6,758	)
Non-United States	384,590		350,305		355,935
Earnings before taxes	$	402,709	$	382,601	$	349,177

The provisions for taxes consist of:



	Current		Deferred			Total
Year ended December 31, 2013:
United States federal	$	—	$	8,249		$	8,249
State and local	1,459		965			2,424
Non-United States	86,340		(398		)	85,942
Total	$	87,799	$	8,816		$	96,615
Year ended December 31, 2012:
United States federal	$	—	$	12,341		$	12,341
State and local	1,372		87			1,459
Non-United States	84,962		(7,008		)	77,954
Total	$	86,334	$	5,420		$	91,754
Year ended December 31, 2011:
United States federal	$	—	$	(9,111	)	$	(9,111	)
State and local	1,512		(482		)	1,030
Non-United States	75,580		12,185			87,765
Total	$	77,092	$	2,592		$	79,684

The provisions for tax expense for the years ending December 31, 2013, 2012 and 2011 differed from the amounts computed by applying the United States federal income tax rate of 35% to the earnings before taxes as a result of the following:



	2013			2012			2011
Expected tax	$	140,948		$	133,910		$	122,212
United States state and local income taxes, net of federal income tax benefit	1,167			1,459			1,030
Change in valuation allowance	1,178			—			—
Other non-United States income taxes at other than a 35% rate	(50,041		)	(44,288		)	(36,814		)
Other, net	3,363			673			(6,744		)
Total provision for taxes	$	96,615		$	91,754		$	79,684

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



	2013			2012
Deferred tax assets:
Inventory	$	23,957		$	20,615
Accrued and other liabilities	74,755			67,426
Accrued post-retirement benefit and pension costs	48,296			62,980
Net operating loss and tax credit carryforwards	43,939			39,018
Other	12,832			17,938
Total deferred tax assets	203,779			207,977
Less valuation allowance	(31,697		)	(23,177		)
Total deferred tax assets less valuation allowance	172,082			184,800
Deferred tax liabilities:
Inventory	4,155			3,788
Property, plant and equipment	51,763			47,172
Rainin intangibles amortization	59,889			54,507
Prepaid post-retirement benefit and pension costs	44,049			39,593
International earnings	10,838			10,458
Total deferred tax liabilities	170,694			155,518
Net deferred tax (liability) asset	$	1,388		$	29,282

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



	2013			2012
Unrecognized tax benefits at beginning of year	$	17,780		$	20,150
Increases related to current tax positions	2,024			2,470
Increases related to prior year tax positions	1,137			—
Decreases related to prior year tax positions	(362		)	(378		)
Foreign currency translation (decreases) increases to prior year tax positions	101			58
Decreases relating to taxing authority settlements	(393		)	(128		)
Decreases resulting from a lapse of the applicable statute of limitations	(1,439		)	(4,392		)
Unrecognized tax benefits at end of year	$	18,848		$	17,780

Included in the balance of unrecognized tax benefits at December 31, 2013 and 2012 were $15.5 million and $14.0 million, respectively of tax benefits that if recognized, would reduce the Company’s effective tax rate. The Company recognizes accrued amounts of interest and penalties related to its uncertain tax positions as part of its income tax expense within its consolidated statement of operations. The amount of accrued interest and penalties included within other non-current liabilities within the Company’s consolidated balance sheet as of December 31, 2013 and 2012 was $1.6 million and $1.3 million, respectively.

The Company believes that it is reasonably possible that the unrecognized tax benefit balance could change over the next twelve months, primarily related to potential disputes raised by the taxing authorities over income and expense recognition. An estimate of the range of these increases cannot currently be made. However, the Company does not expect a change would have a material impact on its financial position, results of operations or cash flows.

The Company has recorded valuation allowances related to certain of its deferred income tax assets due to the uncertainty of the ultimate realization of future benefits from such assets. The potential decrease or increase of the valuation allowance in the near term is dependent on the future ability of the Company to realize the deferred tax assets that are affected by the future profitability of operations in various worldwide jurisdictions. The $8.5 million increase and $11.6 million decrease in the total valuation allowance during 2013 and 2012, respectively, are primarily attributable to changes in the foreign tax credit carryforward and foreign currency fluctuation differences.

The deferred tax assets and valuation allowance as of December 31, 2013 do not include certain deferred tax assets that arose directly from (or the use of which was postponed by) tax deductions related to equity compensation in excess of compensation expense recorded. Shareholders' equity will be increased by $32.5 million if and when such deferred tax assets are ultimately realized.

Certain adjustments have been made to prior year amounts to correct the presentation of deferred taxes in the consolidated balance sheet. In the fourth quarter of 2013, we reduced December 31, 2012 non-current deferred tax assets and non-current deferred tax liabilities by $94 million in order to offset deferred tax balances within the same jurisdiction in accordance with ASC 740 (Income Taxes). This revision did not affect the Company’s Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income, Consolidated Statements of Shareholders’ Equity or Consolidated Statements of Cash Flows for any period.

At December 31, 2013, the Company has various U.S. state net operating losses and various foreign net operating losses that have various expiration periods.

The Company plans to repatriate earnings from China, Switzerland, Germany, the United Kingdom and certain other countries in future years and believes that there will be no additional cost associated with the repatriation of such foreign earnings other than withholding taxes. All other undistributed earnings are considered to be permanently reinvested.

During the third quarter of 2011, the Company recorded discrete tax items resulting in a net tax benefit $3.8 million, primarily related to the favorable resolution of certain prior year tax matters.

As of December 31, 2013, the major jurisdictions for which the Company is subject to examinations are Germany for years after 2008, the United States after 2009, France after 2010, Switzerland after 2009, the United Kingdom after 2010 and China after 2011. Additionally, the Company is currently under examination in various taxing jurisdictions in which it conducts business operations. While the Company has not yet received any material assessments from these taxing authorities, the Company believes that adequate amounts of taxes and related interest and penalties have been provided for any adverse adjustments as a result of these examinations and that the ultimate outcome of these examinations will not result in a material impact on the Company’s consolidated results of operations or financial position.