For the Years Ended December 31, 2013, 2012 and 2011
The components of income tax expense (benefit) associated with continuing operations are as follows:
|For the year ended December 31,|
|Federal||$ 21,916||$ 25,110||$ 16,723|
|Total||$ 30,797||$ 26,900||$ 26,346|
The tax effects of temporary differences that give rise to deferred tax assets and liabilities are presented below:
|At December 31,|
|Deferred tax assets:|
|Deferred employee benefits||$ 53,108||$ 76,730|
|Tax loss and credit carryforwards||7,540||10,932|
|Tax deductible bond hedge||2,982||3,687|
|Accrued liabilities and other items||4,675||5,321|
|Total deferred tax assets||92,085||115,875|
|Deferred tax liabilities:|
|Property, plant and equipment||(17,741)||(14,237)|
|Unamortized discount on convertible notes||(2,982)||(3,702)|
|Total deferred tax liabilities||(50,921)||(46,997)|
|Net deferred tax assets before valuation allowance||41,164||68,878|
|Net deferred tax assets after valuation allowance||$ 36,507||$ 63,590|
Valuation allowances of $4.7 million and $5.3 million at December 31, 2013 and 2012, respectively, reduced the deferred tax asset attributable to state loss and credit carryforwards to an amount that, based upon all available information, is more likely than not to be realized. Reversal of the valuation allowance is contingent upon the recognition of future taxable income in the respective jurisdictions or changes in circumstances which cause the realization of the benefits of the carryforwards to become more likely than not. The net decrease in the valuation allowance of $0.6 million is due to the net utilization of state loss carryforwards.
U.S. foreign tax credit carryforwards of $4.6 million were fully utilized in 2013. State carryforwards are in numerous jurisdictions with varying lives.
No valuation allowance has been recorded against the other deferred tax assets because the Company believes that these deferred tax assets will, more likely than not, be realized. This determination is based largely upon the Company's earnings history and its anticipated future taxable income. In addition, the Company has the ability to offset deferred tax assets against deferred tax liabilities created for such items as depreciation and amortization.
Pre-tax income (loss) from foreign operations amounted to $(0.2) million, $2.5 million and $4.2 million in 2013, 2012 and 2011, respectively. Income taxes have not been provided on $26.6 million of undistributed earnings of foreign subsidiaries since it is the Company's intention to permanently reinvest such earnings or to distribute them only when it is tax efficient to do so. It is impracticable to estimate the total tax liability, if any, that would be created by the future distribution of these earnings.
The provision for income taxes associated with continuing operations differs from that computed at the federal statutory corporate tax rate as follows:
|For the year ended December 31,|
|Federal tax at 35% statutory rate||$ 30,624||$ 28,290||$ 26,696|
|State income taxes, net of federal benefit||2,250||1,652||2,057|
|Tax effect of:|
|§199 Manufacturing deduction||(2,200)||(1,400)||(1,000)|
|Income taxes||$ 26,900||$ 26,346|
The Company records a benefit for uncertain tax positions in the financial statements only when it determines it is more likely than not that such a position will be sustained upon examination by taxing authorities. Unrecognized tax benefits represent the difference between the position taken and the benefit reflected in the financial statements. On December 31, 2013, 2012 and 2011 the total liability for unrecognized tax benefits was $2.3 million, $3.9 million and $4.4 million, respectively (including interest and penalties of $0.6 million, $0.6 million and $0.7 million, respectively). The change in the liability for 2013, 2012 and 2011 is explained as follows:
|Balance at January 1||$ 3,886||$ 4,388||$ 3,907|
|Additions based on current year tax positions||364||258||131|
|Changes for tax positions of prior years||(907)||113||452|
|Additions due to acquired business||414||—||245|
|Reductions due to lapses in statutes of limitation||(1,191)||(791)||(347)|
|Balance at December 31||$ 2,302||$ 3,886||$ 4,388|
Included in unrecognized tax benefits at December 31, 2013, were items approximating $1.7 million that, if recognized, would favorably affect the Company's effective tax rate in future periods. The decrease in 2013 for changes in tax positions of prior years was primarily due to reclassification of liabilities for taxes not based on income. The Company files tax returns in numerous U.S. and foreign jurisdictions, with returns subject to examination for varying periods, but generally back to and including 2008. During 2013, 2012 and 2011, $0.1 million or less of interest and penalties was recognized each year as a component of income tax expense. It is the Company's policy to record interest and penalties on unrecognized tax benefits as income taxes.
Cash payments for income taxes, net of refunds, were $33.1 million, $26.9 million, and $18.2 million in 2013, 2012 and 2011, respectively.