Income Taxes

Income Before Income Taxes

Income before income taxes consists of the following:



	For the Year Ended December 31,
	2014		2013		2012
United States	$	87,505	$	67,355	$	79,812
Foreign	31,659		51,303		23,294
Income before income taxes	$	119,164	$	118,658	$	103,106

Provision

Significant components of the provision for income taxes are as follows:



	Year Ended December 31,
	2014			2013			2012
Current:
Federal	$	22,608		$	19,421		$	28,076
State and local	1,406			1,618			1,768
Foreign	12,326			11,864			5,456
Total current	36,340			32,903			35,300
Deferred:
Federal	3,135			21			(3,477		)
State and local	180			(364		)	(684		)
Foreign	(3,563		)	(1,264		)	(357		)
Total deferred	(248		)	(1,607		)	(4,518		)
Total provision	$	36,092		$	31,296		$	30,782

Effective Tax Rate Reconciliation

The reconciliation of income taxes computed at the U.S. federal statutory tax rate to income tax expense is as follows:



	Year Ended December 31,
	2014			2013			2012
Income tax expense at U.S. federal statutory rate	$	41,708		$	41,530		$	36,087
State income taxes, net of federal tax benefit	841			757			711
Foreign income, net of credit on foreign taxes	(245		)	501			48
Effective tax rate differential of earnings outside of U.S.	(5,411		)	(8,257		)	(4,983		)
Foreign investment tax credit	—			—			(406		)
Research & experimentation credits	(1,150		)	(2,105		)	—
Non-deductible items	1,947			865			2,885
Change in uncertain tax positions	(52		)	(347		)	(394		)
Domestic production activities deduction	(2,093		)	(2,237		)	(2,490		)
Other items	547			589			(676		)
Income tax expense	$	36,092		$	31,296		$	30,782

Deferred Taxes

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:



	December 31,
	2014			2013
Deferred tax assets:
Accruals and reserves	$	23,197		$	25,478
Pensions	6,161			2,536
Inventory	5,176			4,350
Share-based compensation	7,235			6,107
Tax credit carryforwards	553			—
Foreign net operating loss carryforwards	1,154			594
State net operating loss carryforward	1,331			1,610
Other – net	3,230			844
Total deferred tax assets before valuation allowance	48,037			41,519
Valuation allowance	(1,982		)	(1,250		)
Total deferred tax assets, net of valuation allowance	$	46,055		$	40,269
Deferred tax liabilities:
Property, plant and equipment	$	24,063		$	17,248
Intangibles	47,771			53,314
Convertible notes	2,118			2,623
Total deferred tax liabilities	$	73,952		$	73,185
Net deferred tax liabilities	$	27,897		$	32,916
The net deferred tax liability is classified as follows:
Deferred income taxes	$	(17,248	)	$	(14,675	)
Other assets	(1,743		)	(125		)
Long-term deferred tax liabilities	46,888			47,716
Net deferred tax liabilities	$	27,897		$	32,916

Federal, State and Local Net Operating Loss Carryforwards: As a result of the Company’s acquisition of SeQual in 2010, the Company has $15,955 of state net operating losses. California tax law will limit the use of these state net operating losses. The remaining state net operating losses expire between 2015 and 2031. In addition, the Company has state net operating losses in various other states which begin to expire in 2017. The gross deferred tax asset for the state net operating losses of $1,331 is partially offset by a valuation allowance of $1,068.

Foreign Net Operating Loss Carryforwards: As of December 31, 2014, cumulative foreign operating losses of $4,237 generated by the Company were available to reduce future taxable income. Approximately $2,948 of these operating losses expire between 2019 and 2023. The remaining $1,289 can be carried forward indefinitely. The deferred tax asset for the foreign operating losses of $1,154 is partially offset by a valuation allowance of $459.

Other Tax Information

The Company has not provided for income taxes on approximately $203,420 of foreign subsidiaries’ undistributed earnings as of December 31, 2014, since the earnings retained have been reinvested indefinitely by the subsidiaries. It is not practicable to estimate the additional income taxes and applicable foreign withholding taxes that would be payable on the remittance of such undistributed earnings.

Cash paid for income taxes during the years ended December 31, 2014, 2013 and 2012 was $31,208, $24,977 and $19,193, respectively.

Unrecognized Income Tax Benefits

The reconciliation of beginning to ending unrecognized tax benefits is as follows:



	Year Ended December 31,
	2014			2013			2012
Unrecognized tax benefits at beginning of the year	$	941		$	3,339		$	2,440
Additions for tax positions of prior years	358			299			1,921
Reductions for tax positions of prior years	(329		)	(1,921		)	—
Reductions for settlements	—			—			(905		)
Lapse of statutes of limitation	(22		)	(776		)	(117		)
Unrecognized tax benefits at end of the year	$	948		$	941		$	3,339

Included in the balance of unrecognized tax benefits at December 31, 2014 and 2013 were $462 and $410, respectively, of income tax benefits which, if ultimately recognized, would impact the Company’s annual effective tax rate.

The Company had accrued approximately $94 and $93 for the payment of interest and penalties at December 31, 2014 and 2013, respectively. The Company accrued approximately $1 and $42 during the years ended December 31, 2014 and 2012, respectively in additional interest associated with uncertain tax positions. The Company recorded a net benefit of $8 for interest expense during the year ended December 31, 2013 due to the filing of an amended tax return which offset the accrual of interest expense related to existing uncertain tax positions.

The Company is subject to income taxes in the U.S. federal jurisdiction, and various state and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years prior to 2010.

Due to the potential resolution of the federal examination and the expiration of various statutes of limitation, it is reasonably possible the Company’s unrecognized tax benefits at December 31, 2014 may decrease within the next twelve months by approximately $22.