TAXES

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



	2011			2010		2009
United States	$	(6,758	)	$	41,470	$	33,263
Non-United States	355,935			266,043		191,499
Earnings before taxes	$	349,177		$	307,513	$	224,762

The provisions for taxes consist of:



	Current			Deferred			Total
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
Year ended December 31, 2010:
United States federal	$	—		$	15,760		$	15,760
State and local	1,402			713			2,115
Non-United States	69,905			(12,415		)	57,490
Total	$	71,307		$	4,058		$	75,365
Year ended December 31, 2009:
United States federal	$	(468	)	$	2,344		$	1,876
State and local	1,331			1,437			2,768
Non-United States	47,540			(15		)	47,525
Total	$	48,403		$	3,766		$	52,169

The provisions for tax expense for the years ending December 31, 2011, 2010 and 2009 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:



	2011			2010			2009
Expected tax	$	122,212		$	107,630		$	78,667
United States state and local income taxes, net of federal income tax benefit	1,030			2,115			2,768
Change in valuation allowance	—			(3,229		)	(598		)
Other non-United States income taxes at other than a 35% rate	(36,814		)	(26,639		)	(19,499		)
Resolution of prior year tax matters	(3,478		)	(5,757		)	(9,681		)
Other, net	(3,266		)	1,245			512
Total provision for taxes	$	79,684		$	75,365		$	52,169

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, 2011:



	2011			2010
Deferred tax assets:
Inventory	$	22,530		$	19,460
Accrued and other liabilities	64,003			54,245
Accrued post-retirement benefit and pension costs	57,320			45,998
Net operating loss and tax credit carryforwards	47,148			55,956
Other	13,761			9,554
Total deferred tax assets	204,762			185,213
Less valuation allowance	(34,738		)	(44,669		)
Total deferred tax assets less valuation allowance	170,024			140,544
Deferred tax liabilities:
Inventory	4,087			4,346
Property, plant and equipment	45,549			37,669
Rainin intangibles amortization	47,804			42,640
Prepaid post-retirement benefit and pension costs	38,778			36,343
Other	—			13,290
International earnings	8,067			7,940
Total deferred tax liabilities	144,285			142,228
Net deferred tax (liability) asset	$	25,739		$	(1,684	)

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



	2011			2010
Unrecognized tax benefits at beginning of year	$	19,407		$	23,110
Increases related to current tax positions	3,852			3,241
Decreases related to prior year tax positions	(35		)	(1,271		)
Foreign currency translation (decreases) increases to prior year tax positions	(34		)	(103		)
Decreases relating to taxing authority settlements	(83		)	(5,558		)
Decreases resulting from a lapse of the applicable statute of limitations	(2,957		)	(12		)
Unrecognized tax benefits at end of year	$	20,150		$	19,407

Included in the balance of unrecognized tax benefits at December 31, 2011 and 2010 were $14.0 million and $13.7 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, 2011 and 2010 was $1.8 million and $1.9 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 $9.9 million and $14.9 million decrease in the total valuation allowance during 2011 and 2010, respectively, are primarily attributable to changes in the foreign tax credit carryforward and foreign currency differences recorded through other comprehensive income.

The deferred tax assets and valuation allowance as of December 31, 2011 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 $10.5 million if and when such deferred tax assets are ultimately realized and the related valuation allowance is reduced.

At December 31, 2011, 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, 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 and 2010 and the first quarter of 2009, the Company recorded discrete tax items resulting in a net tax benefit of $3.8 million, $5.2 million and $8.3 million respectively, primarily related to the favorable resolution of certain prior year tax matters.

As of December 31, 2011, the major jurisdictions for which the Company is subject to examinations are Germany for years after 2007, the United States after 2007, France after 2009, Switzerland after 2009, the United Kingdom after 2009 and China after 2010. 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.