Note G - Income Taxes

Income before income taxes was derived from the following sources:


	2014		2013		2012
United States	$	11,810	$	16,388	$	21,754
Foreign		9,600		15,406		23,073

	$	21,410	$	31,794	$	44,827

The components of income taxes for the year ended December 31 are as follows:


	2014			2013			2012
Current
Federal	$	4,718		$	6,308		$	9,663
Foreign		5,081			5,018			7,885
State and local		447			986			920

		10,246			12,312			18,468

Deferred
Federal		(425	)		(1,081	)		(1,443	)
Foreign		(1,110	)		157			(1,310	)
State and local		(162	)		(181	)		(174	)

		(1,697	)		(1,105	)		(2,927	)

Income taxes	$	8,549		$	11,207		$	15,541

The differences between the provision for income taxes at the U.S. federal statutory rate and the tax shown in the Statements of Consolidated Income for the year ended December 31 are summarized as follows:


	2014			2013			2012
U. S. federal statutory tax rate		35	%		35	%		35	%

Federal tax at statutory rate	$	7,494		$	11,128		$	15,689
State and local taxes, net of federal benefit		290			583			485
U.S. federal permanent items		208			124			332
Domestic production activities deduction		(536	)		(372	)		(669	)
Foreign earnings and related tax credits		700			701			1,377
Non-U.S. tax rate variances		(1,313	)		(1,467	)		(1,175	)
Unrecognized tax benefits		186			(770	)		310
Valuation allowance		1,925			1,091			(337	)
Tax credits		(184	)		(453	)		(85	)
Other, net		(221	)		642			(386	)

	$	8,549		$	11,207		$	15,541

Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax basis of assets and liabilities and their carrying value for financial statement purposes. The tax effects of temporary differences that give rise to the Company’s deferred tax assets and liabilities at December 31 are as follows:


	2014			2013
Deferred tax assets:
Accrued compensation and benefits	$	1,358		$	1,463
Inventory valuation reserves		2,849			2,581
Benefit plan reserves		11,331			7,773
Net operating loss carryforwards		2,751			1,244
Tax credit carryforwards		745			0
Other accrued expenses		2,542			2,926
Unrealized foreign exchange		1,805			743

Gross deferred tax assets		23,381			16,730
Valuation allowance		(3,614	)		(1,420	)

Net deferred tax assets		19,767			15,310

Deferred tax liabilities:
Depreciation and other basis differences		(5,814	)		(5,533	)
Intangibles		(3,706	)		(2,828	)
Undistributed foreign earnings		(444	)		(61	)
Other		(65	)		(71	)

Deferred tax liabilities		(10,029	)		(8,493	)

Net deferred tax assets	$	9,738		$	6,817

	2014			2013
Change in net deferred tax assets:
Deferred income tax benefit	$	1,697		$	1,105
Items of other comprehensive income (loss)		3,108			(2,692	)
Currency translation		141			263
Deferred tax balances from business acquisition		(2,025	)		0

Total change in net deferred tax assets	$	2,921		$	(1,324	)

Deferred taxes are recorded at a rate at which such items are expected to reverse, based on currently enacted tax rates for temporary differences between the financial reporting and income tax bases of assets and liabilities and operating loss and tax credit carryforwards.

At December 31, 2014, the Company has $2.6 million of foreign net operating loss carryfowards of which $1 million will expire between the years 2017 and 2024.

The Company assesses the available positive and negative evidence to determine if it is more likely than not sufficient future taxable income will be generated to utilize the existing deferred tax assets by jurisdiction. Based on this evaluation, the Company has established a valuation allowance of $3.6 million at December 31, 2014 in order to measure only the portion of the deferred tax asset that is more likely than not to be realized. The total increase in valuation allowance during the year was $2.2 million, of which $1.9 million impacts the income tax provision.

The Company has not established a deferred tax liability associated with approximately $131 million of its undistributed foreign earnings at December 31, 2014 as these earnings are considered to be permanently reinvested outside the U.S. These earnings would be taxable upon the sale or liquidation of these foreign subsidiaries, or upon the remittance of such earnings. While the measurement of the unrecognized U.S. income taxes with respect to these earnings is not practicable, foreign tax credits would be available to offset some or all of such earnings that would be remitted as dividends.

Income taxes paid net of refunds were approximately $7.7 million in 2014, $19.9 million in 2013 and $16 million in 2012.

The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. As of December 31, 2014, with few exceptions, the Company is no longer subject to U.S. federal, state, local or foreign examinations by tax authorities for years before 2008.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the year ended December 31:


	2014		2013			2012
Balance at January 1	$	608	$	1,361		$	1,015
Additions for tax positions of prior years		186		0			511
Reductions for tax positions of prior years		0		(588	)		0
Expiration of statutes of limitations		0		(165	)		(165	)

Balance at December 31	$	794	$	608		$	1,361

Accrued interest and penalties are not included in the above unrecognized tax balances. The Company records accrued interest as well as penalties related to unrecognized tax benefits as part of the provision for income taxes. The Company recognized less than $.1 million, net of the amount lapsed through expiring statutes, during each of the years ended December 31, 2014, 2013 and 2012. The Company had approximately $.6 million accrued for the payment of interest at December 31, 2014, 2013 and 2012. The Company had approximately $.3 million accrued for the payment of penalties at December 31, 2014, 2013 and 2012. If recognized, approximately $.2 million, $0, and $.7 million of unrecognized tax benefits would affect the tax rate for the year ended December 31, 2014, 2013 and 2012 respectively. The Company may decrease its unrecognized tax benefits by approximately $.6 million within the next twelve months due to effective settlement.