INCOME TAXES

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



	2012			2011		2010
Domestic	$	(37,910	)	$	16,173	$	(28,344	)
Foreign	155,336			148,219		25,947
Total	$	117,426		$	164,392	$	(2,397	)

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



	2012			2011			2010
Current:
U.S. Federal	$	3,859		$	(921	)	$	649
Foreign	38,707			41,244			52,783
State and local	2,006			932			1,812
Total current	44,572			41,255			55,244
Deferred:
U.S. Federal	(2,344		)	9,727			(9,431		)
Foreign	(11,479		)	(35,318		)	(30,368		)
State and local	(844		)	(2,849		)	(884		)
Total deferred	(14,667		)	(28,440		)	(40,683		)
Taxes on income	$	29,905		$	12,815		$	14,561

In addition to the income tax expense listed above for the years ended December 31, 2012, 2011 and 2010, income tax benefit allocated directly to shareholders equity for the same periods was $8,909, $23,695 and $5,512, respectively.

Income tax benefit recognized as an adjustment to goodwill was $3,922 for the year ended December 31, 2010 and was not material for the years ended December 31, 2012 and 2011.

Income tax benefit allocated to discontinued operations for the years ended December 31, 2012, 2011 and 2010 was $0, $116, and $2,836, respectively.

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:



	2012			2011			2010
Statutory tax expense (benefit)	$	41,099		$	57,537		$	(839	)
Brazil nontaxable incentive	(10,622		)	(10,652		)	(14,600		)
Change in valuation allowance	1,609			(32,315		)	(6,631		)
Brazil tax goodwill amortization	(4,802		)	(5,231		)	(4,938		)
Foreign tax rate differential	(14,397		)	(11,001		)	4,043
U.S. taxed foreign income	8,320			8,542			3,265
Foreign taxes on undistributed earnings	2,328			2,182			—
Goodwill impairment	—			—			27,647
FCPA provision, nondeductible portion	2,399			1,160			—
Other (1)	3,971			2,593			6,614
Taxes on income	$	29,905		$	12,815		$	14,561


(1)	Other consists of life insurance, 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.

The American Taxpayer Relief Act of 2012 was enacted on January 2, 2013. Under the Act, the Federal Research and Development Tax Credit and the IRC Section 954(c )6, Look-Thru Rule for Related Controlled Foreign Corporations were retroactively reinstated for 2012. The 2012 benefit of $1,515 for the Research and Development Credit and $1,708 for the reversal of the additional taxes provided related to the expiration of the Controlled Foreign Corporation Look-Thru rule will be recognized as a reduction of income tax expense in the quarter ended March 31, 2013, which is the quarter that the law was enacted.

The Company recognizes the benefit of tax positions taken or expected to be taken in its tax returns in the consolidated 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:



	2012			2011
Balance at January 1	$	12,636		$	9,842
Increases related to prior year tax positions	712			4,431
Decreases related to prior year tax positions	(181		)	(162		)
Increases related to current year tax positions	180			3,297
Settlements	—			(4,442		)
Reduction due to lapse of applicable statute of limitations	(169		)	(330		)
Balance at December 31	$	13,178		$	12,636

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, 2012 and 2011, accrued interest and penalties related to unrecognized tax benefits totaled approximately $4,043 and $2,387, 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.

As of December 31, 2012, the Company is under audit by the IRS for tax years ended December 31, 2010, 2009 and 2008. 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 2004 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 2005 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:



	2012			2011
Deferred tax assets:
Accrued expenses	$	43,622		$	39,881
Warranty accrual	26,296			18,386
Deferred compensation	18,587			18,659
Allowance for doubtful accounts	9,239			7,189
Inventory	11,490			11,610
Deferred revenue	15,361			14,669
Pension and postretirement benefits	66,222			54,990
Finance lease receivables	6,210			—
Tax credits	23,738			46,330
Net operating loss carryforwards	74,528			86,918
Capital loss carryforwards	3,534			3,604
State deferred taxes	17,341			13,061
Other	7,083			7,961
	323,251			323,258
Valuation allowance	(57,303		)	(66,988		)
Net deferred tax assets	$	265,948		$	256,270

Deferred tax liabilities:
Property, plant and equipment	$	14,369		$	20,116
Goodwill	41,175			36,712
Finance lease receivables	—			3,655
Investment in partnership	17,056			18,372
Undistributed earnings	5,016			4,750
Other	3,511			3,867
Net deferred tax liabilities	81,127			87,472
Net deferred tax asset	$	184,821		$	168,798

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



	2012			2011
Deferred income taxes - current assets	$	143,248		$	114,250
Deferred income taxes - long-term assets	76,375			91,090
Other current liabilities	(552		)	(4,513		)
Deferred income taxes - long-term liabilities	(34,250		)	(32,029		)
Net deferred tax asset	$	184,821		$	168,798

At December 31, 2012, the Company had domestic and international net operating loss (NOL) carryforwards of $520,803, resulting in an NOL deferred tax asset of $74,528. Of these NOL carryforwards, $407,827 expires at various times between 2013 and 2033 and $112,976 does not expire. At December 31, 2012, the Company had a domestic foreign tax credit carryforward resulting in a deferred tax asset of $24,263 that will expire between years 2017 and 2020.

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, 2012 and 2011 was a decrease of $9,685 and $38,187, respectively. The 2012 reduction in valuation allowance is primarily attributable to the write off of deferred tax assets and corresponding valuation allowance for dissolved legal entities. The 2011 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 a deferred tax asset in Brazil.

For the years ended December 31, 2012 and 2011, provisions were made for foreign withholding taxes and 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 $900,000 of undistributed earnings at December 31, 2012 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.