INCOME TAXES

The following table presents components of income (loss) from continuing operations before income taxes for the years ended December 31:



	2011		2010			2009
Domestic	$	16,173	$	(28,344	)	$	(16,108	)
Foreign	148,219		25,947			139,915
Total	$	164,392	$	(2,397	)	$	123,807

The following table presents the components of income tax expense (benefit) from continuing operations for the years ended December 31:



	2011			2010			2009
Current:
U.S. Federal	$	(921	)	$	649		$	(24,688	)
Foreign	41,244			52,783			47,044
State and local	932			1,812			3,849
Total current	41,255			55,244			26,205
Deferred:
U.S. Federal	9,727			(9,431		)	26,972
Foreign	(35,318		)	(30,368		)	(6,267		)
State and local	(2,849		)	(884		)	(2,433		)
Total deferred	(28,440		)	(40,683		)	18,272
Taxes on income	$	12,815		$	14,561		$	44,477

In addition to the income tax expense listed above for the years ended December 31, 2011, 2010, and 2009, income tax (benefit) expense allocated directly to shareholders equity for the same periods was $(23,695), $(5,512) and $8,066, respectively.

Income tax benefit recognized as an adjustment to goodwill for the year ended December 31, 2010 was $3,922.

Income tax benefit allocated to discontinued operations for the years ended December 31, 2011, 2010 and 2009 was $116, $2,836, and $7,374, respectively. Income tax benefit allocated to the loss on sale of discontinued operations for the year ended December 31, 2009 was $13,558.

Income tax expense (benefit) attributable to income from continuing operations differed from the amounts computed by applying the U.S. federal income tax rate of 35 percent to pretax income from continuing operations. The following table presents these differences for the years ended December 31:



	2011			2010			2009
Statutory tax expense (benefit)	$	57,537		$	(839	)	$	43,332
Brazil nontaxable incentive	(10,652		)	(14,600		)	(14,420		)
Change in valuation allowance	(32,315		)	(6,631		)	11,173
Brazil tax goodwill amortization	(5,231		)	(4,938		)	(4,656		)
Foreign tax rate differential	(11,001		)	4,043			(8,473		)
U.S. taxed foreign income	8,542			3,265			1,015
Subsidiary losses	—			189			(3,553		)
Life insurance	(2,784		)	(1,072		)	(2,659		)
Goodwill impairment	—			27,647			—
SEC charge	—			—			8,750
Out-of-period adjustments	—			—			8,765
Other (1)	8,719			7,497			5,203
Taxes on income	$	12,815		$	14,561		$	44,477

(1) Other consists of state and local income taxes, net of federal benefit, nondeductible expenses, changes to uncertain tax position liabilities and other items, none of which are individually significant.

In the fourth quarter 2009, the Company recorded adjustments to increase income tax expense on continuing operations by $8,765 relating to immaterial errors originating in prior years.

The Company recognizes the benefit of tax positions taken or expected to be taken in its tax returns in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position will be sustained upon examination by authorities. Recognized tax positions are measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon settlement.

Details of the unrecognized tax benefits are as follows:



	2011			2010
Balance at January 1	$	9,842		$	10,116
Increases related to prior year tax positions	4,431			3,180
Decreases related to prior year tax positions	(162		)	(3,022		)
Increases related to current year tax positions	3,297			171
Settlements	(4,442		)	(167		)
Reduction due to lapse of applicable statute of limitations	(330		)	(436		)
Balance at December 31	$	12,636		$	9,842

The entire amount of unrecognized tax benefits, if recognized, would affect the Company’s effective tax rate.

The Company classifies interest expense and penalties related to the underpayment of income taxes in the consolidated financial statements as income tax expense. Consistent with the treatment of interest expense, the Company accrues interest income on overpayments of income taxes where applicable and classifies interest income as a reduction of income tax expense in the consolidated financial statements. As of December 31, 2011 and 2010, accrued interest and penalties related to unrecognized tax benefits totaled approximately $2,387 and $2,516, respectively.

It is reasonably possible that the total amount of unrecognized tax benefits will change during the next 12 months. The Company does not expect those changes to have a significant impact on its consolidated financial statements. The expected timing of payments cannot be determined with any degree of certainty.

During the year ended December 31, 2011, the Company settled the IRS exam for tax years ended December 31, 2007, 2006, and 2005. All federal tax years prior to 2003 are closed by statute. The Company is subject to tax examination in various U.S. state jurisdictions for tax years 2003 to the present, as well as various foreign jurisdictions for tax years 1997 to the present.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount 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 at December 31 are as follows:



	2011			2010
Deferred tax assets:
Accrued expenses	$	39,881		$	44,254
Warranty accrual	18,386			24,305
Deferred compensation	18,659			17,365
Allowance for doubtful accounts	7,189			7,740
Inventory	11,610			13,534
Deferred revenue	14,669			15,422
Pension and postretirement benefits	54,990			35,285
Research and development credit	7,467			7,548
Foreign tax credit	38,863			42,416
Net operating loss carryforwards	86,918			98,798
Capital loss carryforwards	3,604			2,973
State deferred taxes	13,061			6,646
Other	5,779			7,515
	321,076			323,801
Valuation allowance	(66,988		)	(105,175		)
Net deferred tax assets	$	254,088		$	218,626

Deferred tax liabilities:
Property, plant and equipment	$	20,116		$	24,201
Goodwill	36,712			38,182
Finance lease receivables	3,655			8,395
Investment in partnership	18,372			18,377
Other	6,435			7,300
Net deferred tax liabilities	85,290			96,455
Net deferred tax asset	$	168,798		$	122,171

Deferred income taxes reported in the consolidated balance sheets as of December 31 are as follows:



	2011			2010
Deferred income taxes - current assets	$	114,250		$	106,160
Deferred income taxes - long-term assets	91,090			49,961
Other current liabilities	(4,513		)	(2,824		)
Deferred income taxes - long-term liabilities	(32,029		)	(31,126		)
Net deferred tax asset	$	168,798		$	122,171

At December 31, 2011, the Company had domestic and international net operating loss (NOL) carryforwards of $568,229, resulting in an NOL deferred tax asset of $86,918. Of these NOL carryforwards, $411,220 expires at various times between 2012 and 2031 and $157,009 does not expire.

The Company has a valuation allowance to reflect the estimated amount of certain foreign and state deferred tax assets that, more likely than not, will not be realized. The net change in total valuation allowance for the years ended December 31, 2011 and 2010 was a decrease of $38,187 and $7,664, respectively. The 2011 and 2010 reduction in valuation allowance is primarily related to a change in circumstances, including sustained profitability in core operations and a favorable outlook that caused a change in judgment about the realization of the deferred tax assets in Brazil.

For the years ended December 31, 2011 and 2010, provisions were made for estimated U.S. income taxes, less available tax credits, which may be incurred upon the remittance of certain undistributed earnings in foreign subsidiaries and foreign unconsolidated affiliates. Provisions have not been made for income taxes on approximately $850,000 of undistributed earnings at December 31, 2011 in foreign subsidiaries and corporate joint ventures that are deemed permanently reinvested. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability, if any, depends on certain circumstances existing if and when remittance occurs. A deferred tax liability will be recognized if and when the Company no longer plans to permanently reinvest these undistributed earnings.