TAXES

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



	2012		2011			2010
United States	$	32,296	$	(6,758	)	$	41,470
Non-United States	350,305		355,935			266,043
Earnings before taxes	$	382,601	$	349,177		$	307,513

The provisions for taxes consist of:



	Current		Deferred			Total
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
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

The provisions for tax expense for the years ending December 31, 2012, 2011 and 2010 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:



	2012			2011			2010
Expected tax	$	133,910		$	122,212		$	107,630
United States state and local income taxes, net of federal income tax benefit	1,459			1,030			2,115
Change in valuation allowance	—			—			(3,229		)
Other non-United States income taxes at other than a 35% rate	(44,288		)	(36,814		)	(26,639		)
Resolution of prior year tax matters	(365		)	(3,478		)	(5,757		)
Other, net	1,038			(3,266		)	1,245
Total provision for taxes	$	91,754		$	79,684		$	75,365

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, 2012:



	2012			2011
Deferred tax assets:
Inventory	$	20,615		$	22,530
Accrued and other liabilities	67,426			64,003
Accrued post-retirement benefit and pension costs	62,980			57,320
Net operating loss and tax credit carryforwards	39,018			47,148
Other	17,938			13,761
Total deferred tax assets	207,977			204,762
Less valuation allowance	(23,177		)	(34,738		)
Total deferred tax assets less valuation allowance	184,800			170,024
Deferred tax liabilities:
Inventory	3,788			4,087
Property, plant and equipment	47,172			45,549
Rainin intangibles amortization	54,507			47,804
Prepaid post-retirement benefit and pension costs	39,593			38,778
International earnings	10,458			8,067
Total deferred tax liabilities	155,518			144,285
Net deferred tax (liability) asset	$	29,282		$	25,739

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



	2012			2011
Unrecognized tax benefits at beginning of year	$	20,150		$	19,407
Increases related to current tax positions	2,470			3,852
Decreases related to prior year tax positions	(378		)	(35		)
Foreign currency translation (decreases) increases to prior year tax positions	58			(34		)
Decreases relating to taxing authority settlements	(128		)	(83		)
Decreases resulting from a lapse of the applicable statute of limitations	(4,392		)	(2,957		)
Unrecognized tax benefits at end of year	$	17,780		$	20,150

Included in the balance of unrecognized tax benefits at December 31, 2012 and 2011 were $14 million in both periods 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, 2012 and 2011 was $1.3 million and $1.8 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 $11.6 million and $9.9 million decrease in the total valuation allowance during 2012 and 2011, 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, 2012 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 $15.8 million if and when such deferred tax assets are ultimately realized and the related valuation allowance is reduced.

At December 31, 2012, 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 and 2010, the Company recorded discrete tax items resulting in a net tax benefit of $3.8 million and $5.2 million respectively, primarily related to the favorable resolution of certain prior year tax matters.

As of December 31, 2012, the major jurisdictions for which the Company is subject to examinations are Germany for years after 2007, the United States after 2008, France after 2009, Switzerland after 2008, the United Kingdom after 2009 and China after 2009. 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.